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Real Estate Tax Loophole at Risk of Closing – Capital Gains Tax Law Changes

What is the American Families Plan act?

President Biden recently announced a nearly $1.5 trillion package called the “American Families Plan” that would help fund expansion of social services such as free preschool, extend the child tax credit, and create a national paid leave program.

How will it be funded?

Funding for this package would come from closing the capital gains tax loophole that many investors take advantage of. The funding strategy involves narrowing the gap between what super wealthy Americans income tax rates and capital gains tax rates.

Who is impacted?

Wealthy investors earning over $1 million where gains over $500,000 could not defer their capital gains tax liability.

Who is not impacted?

If you receive proceeds less than $500,000 on any given real estate transaction then you would not be paying any capital gains taxes. If you’re like most average homeowners who sells their home then you’ll likely will not be impacted.

What is a 1031 exchange?

The 1031 exchange allows you to delay paying taxes on net proceeds provided it is rolled into a like-kind investment property within six-months of closing, this tax strategy can continue indefinitely or until the investors death. Currently capital gains are passed onto your heirs tax free. However, it should be noted that even the tax free inheritance is under scrutiny and could be eliminated.

How would investors limit their tax liability with this change?

You can effectively decide when to pay capital gains taxes based on when you decide to sell your investments. With this tax change you could strategically hold-off on selling your investments or slowly sell-off to pay the least amount in taxes. Any gains you realize could also be applied to past losses to further avoid paying taxes.

What should you do?

If you’re anticipating taking capital gains from the sale of an investment in the near future then be sure that you consult with a tax-advisor and if applicable an attorney.

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5 Reasons Now Is the Best Time To Sell Your Colorado Springs Home

Real estate often goes in cycles. Sometimes it’s a fantastic opportunity to sell. Other times, it’s a tremendous opportunity to buy. Rarely is it an ideal time to do both, but that’s what the current Colorado Springs market is. A combination of market factors has made it the perfect time to sell your Colorado Springs home and upgrade to a bigger home or even move elsewhere altogether.

Here are the top five reasons why this market is so unique for Colorado Springs homeowners!

Sell Your Colorado Springs Home: Above-Average Sales Prices

The Colorado Springs market is hot right now. Real hot. Experts ranked the Colorado Springs market sixth in the nation for growth in 2020. Those predictions mostly came true. The median sales price was $380,000 at the end of 2020, representing a 15.2% increase on the year.

Here’s why that matters. If you bought a home in 2015, the average price was $245,900. Therefore, in a mere five years, the average Colorado Springs homebuyer would have gained $130,000 in equity on their home. Couple that with the fact that you’ve been paying down the balance for a few years and the down payment you previously had, and some buyers might have $150k-$200k easily in their homes.

That’s enough for a 20% down on a $750,000 or $1 million home.

Of course, if you bought earlier than 2015, you could have even more equity!

By taking advantage of higher-than-normal selling prices, you can upgrade to a new home in Colorado or even move somewhere out of state. The choice is yours!

Below-Average Interest Rates

The high home prices are a great reason to sell on their own. But, ultimately, you still need a place to live. So when you sell, you might make more on your home, but the house you’re going to buy has also gone up quite a bit.

With record low interest rates, there’s a possibility that you could trade up your home and still wind up paying roughly the same amount of money, depending on when you bought your home in the past.

Consider this example. Let’s suppose you bought an average Colorado Springs home in 2015. You put 20% down, so you got a $200,000 mortgage at probably about 4.125% interest, for a monthly payment of $969.30. Six years later, you’d owe about $175,000 on the mortgage, and your home would be worth $380,000.

Let’s say you want to trade up to a $450k home – maybe for a better school, have an extra bedroom, or be closer to things you enjoy. When you sold your home, you’d net about $200,000 ($380k – $175k). Note that there would be some commissions, but this example is intentionally simplified. You’d take that $200,000 and put it towards your $450k home. You’d have a mortgage balance of $250,000.

Interest rates now are around 2.7%. Your mortgage payment would be $1,013.99 per month.

In other words, for an extra $44.69 per month, you can get a home that is $70,000 more than what you have right now. That could easily be enough to get one or two more bedrooms or get a house closer to an area you want to live! Or, if you’re living in a condo, you might be able to trade up to a home for a minimal amount more per month.

Time on the Market Is Minimal

If you’re looking to sell your Colorado Springs home, now is the perfect time for another reason: the time your home will sit on the market is minimal! The average time on the market is just 17 days.

Yes, you read that correctly. Once your home gets on the market, you can expect, on average, to have an offer in 2-3 weeks. Of course, the length of time your specific house is on the market depends on various factors, but there’s no denying that the Colorado Springs market makes it very easy to sell a home.

Indeed, the most recent average days on the market metric is lower than any reading in the past 18 months. The high is 33, and the low is 17.

It’s just another sign that the current real estate market is the perfect time to sell!

Another Reason To Sell Your Colorado Springs Home: Lots of Buyers!

Many people are looking to move to Colorado Springs now for two primary reasons.

First, the economic outlook of the city remains positive. Reports have consistently suggested that Colorado Springs has a healthy, robust job market. That will attract buyers to the area – and, more precisely, to your home!

Second, the COVID-19 pandemic has shifted priorities for many people. Individuals and families living in higher cost-of-living places, like San Francisco, are now exploring places like Colorado Springs as a place to work remotely and get more bang for their buck.

These two factors add up to plenty of buyers, leading to higher sales prices and lower times on the market than the historical average.

The Pandemic Is Subsiding

Last but not least, the reason why you should sell your Colorado Springs home now is that the pandemic is subsiding. With vaccination rates continuing along at a brisk pace, more and more people feel optimistic about a future without COVID-19.

The result for the housing market is twofold. As a seller, this manifests itself in more buyers, so you’re more likely to sell quicker and for more money. As a buyer, you’ll find that more sellers are starting to put their homes up on the market again. During the peak of COVID-19, there wasn’t much selection.

While nobody can predict the future, it’s not hard to imagine a scenario where there is a flurry of sellers who put their homes up after delaying a year or more due to COVID. When that happens, the market could become saturated, and prices could take a hit.

Therefore, if you want to sell, now’s the time to do it! The pandemic is just starting to subside, and it creates ideal conditions for both buyers and sellers.

Sell Your Colorado Springs Home and Get in to Your Dream Home Now

There are plenty of reasons why now is an ideal time to sell your Colorado Springs home. The combination of low interest rates, high sales prices, and bright prospects for the city make this the perfect time to put your home on the market!

Creating a strategy is critical for finding the home of your dreams in a sellers market, especially if you want to stay in the area. That’s where our team will craft a plan specific to your needs and ensure a seamless and transparent process from selling to buying.

If you’re interested in selling your home for top dollar and getting into the home of your dreams, please contact me!

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Credit Scores and Mortgage Scores – What’s the Difference?

The credit score you see and the score a mortgage lender sees won’t be the same. They may be quite different. If your mortgage score is much lower than you thought, it could mean higher rates and closing costs. Why such a difference and what can you do?

What are Free Credit Scores?

Your bank and credit card companies may offer you free credit score access. Each month you can log in and see your updated score. This score is a ‘generic’ score. It’s for educational purposes and not meant to determine your ability to secure a loan.

The free credit scores are to help consumers know where they stand. You can use it as a guide to fix your credit before you apply for a mortgage, but mortgage lenders look at your FICO score. This is NOT the credit score your banks or credit card companies offered.

Mortgage lenders have a more specific credit scoring model because of the size of the loans they offer. For example, there’s a big difference between a $10,000 personal loan and a $500,000 mortgage.

Most free credit scores don’t offer the same information. It’s a good baseline to let you know if you’re in the ballpark for mortgage approval or low rates, but you want to know your FICO score if you’re in the market for a mortgage.

If you want access to scores closest to what mortgage lenders see, check out MyFico.com or Experian.com. They won’t be an exact match, but they are closer than the free scores.

What are Mortgage Credit Scores?

Mortgage credit scores go through your credit with a fine-toothed comb. Lenders need to know that you’re a good risk and that you won’t default on your mortgage.

Mortgage credit scores consider:

  • Payment history – This has the largest impact on your credit score. Even one 30-day late payment can bring your mortgage score down a lot.
  • Percentage of used credit – This also has a large impact on your mortgage score. The higher your credit card balance, the higher your percentage of credit used which lowers your credit score.
  • Age of credit – How long you’ve had credit also affects your credit score. The older your accounts are, the more information lenders have to see your payment patterns. Younger accounts may count against you.
  • Total debt balance – The more total debt you have, the more it hurts your mortgage score. Lenders want borrowers with minimal debts to decrease the default risk.
  • Recent credit patterns – If you recently opened new accounts, it could count against you. Lenders want borrowers who are financially secure and don’t need outstanding loans to get by.

Why Credit Scores Matter

Your credit score and credit report is a summary of your borrowing history. It tells lenders the type of borrower you are – whether you pay your bills on time or you default. Lenders can also tell if you borrow excessive amounts or even if you miss on repayment.

The credit score gives lenders a snapshot of your credit history right now. A high credit score means you have a good credit history and a low one means you’ve had trouble.

It won’t be the only factor lenders use, but it’s one of the major factors. If you don’t start with a good credit score, the loan only gets harder and more expensive to get.

How Credit Scores Affect your Mortgage

When you apply for a mortgage, lenders look at your credit score first. They use it to determine which loan program you’d qualify for, such as FHA, conventional, or USDA.

Once they determine which loan program you fall into, your credit score determines the loan term, loan amount, and interest rate.

Lenders use your credit history to determine your risk too. If you have a history of late payments or defaulting on debt, they may decline your application or charge higher rates/fees. If you have a solid credit history, you may get the best terms and lowest rates.

Lenders use your credit score throughout the process, and in the end, it determines the total cost of your loan. The higher your credit score is, the less you’ll pay over the loan’s lifetime. A low score means a more expensive mortgage.

Preparing your Credit for a Mortgage

When you decide you’re ready to buy a home, look at your credit first. Pull your free credit reports and go through them. Everyone gets free access once a year, but until April 2021, everyone gets free weekly access.

Look for:

  • Late payments – Bring them current
  • Debts exceeding 30 percent of your credit line – Pay your balance down as quickly as possible
  • Public records or collections – Satisfy the debts as soon as you can
  • Excessive inquiries – Don’t apply for new credit in the months leading up to the mortgage

What’s the Right Credit Score?

Every lender and loan program has different credit score guidelines. Perfect credit isn’t necessary, but rock bottom credit isn’t good either.

Falling somewhere between the two is ideal. Showing lenders you pay your bills on time and use your credit responsibly helps you get the loan you need. Even if you had blemishes in the past, they don’t hurt your credit score forever.

The key is to show lenders you can handle your debts now and that you’ve turned over a new leaf if you had some credit trouble.

Ideally, lenders want credit scores near the 700 range, but loan programs, like the FHA loan, allow scores as low as 580.

Bottom Line

Get your credit score as high as you can long before you apply for a mortgage. Keep an eye on your credit history, dispute any errors, and fix any mistakes you make quickly. Your efforts will pay off with low interest rates and the best mortgage terms.

The real estate market in both Colorado Springs and Pueblo is very competitive and having your credit in line will ensure you maintain a competitive edge.

Connect with me today so we can position you to get into the home of your dreams!

Additional reading: http://thekevinbaird.com/buyer-and-seller-closing-costs

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Buyer and Seller Closing Costs – What Should you Expect?

Anytime you go to the closing table, there are closing costs. Buyers and sellers pay fees to close the loan and complete the real estate transaction.

It can seem overwhelming, but we break down the costs for each side below. Understanding the fees helps you be as prepared as possible for your real estate transactions.

What are Closing Costs?

Buyers and sellers need professional services to buy or sell a home. The closing costs reflect the fees charged by each professional, whether it’s the mortgage lender, the county, attorneys, or title companies.

Buyer Closing Costs

Buyers typically pay 2 – 5% of their loan amount in closing costs. A large part of the costs are the lender fees to complete the mortgage.

Here are the typical buyer fees:

  • Appraisal fee – This covers the cost of the appraiser evaluating the house and writing an appraisal report. Lenders require an appraisal to determine the home’s value and if the loan amount you requested is within reason.
  • Home inspection – Lenders don’t require a home inspection, but most highly recommend it. An inspector looks at the house in further detail to determine its condition and report anything he/she finds wrong with the property.
  • Application or processing fee – Lenders charge a fee to run your application, pull your credit, and process your loan.
  • Underwriting fee – Lenders usually charge a fee to underwrite your loan or evaluate it to determine if you qualify for the specified loan program and what conditions you must satisfy.
  • Origination fee – Some lenders lump all fees into an origination charge. It’s a percentage of your loan amount, usually between 1 – 2%.
  • Discount points – You may choose to buy the interest rate down, paying money upfront in exchange for a lower fee.
  • Title fees – All lenders require title work, including a title search and lender’s title insurance to ensure the home is free and clear of any liens.

Seller Closing Costs

Sellers pay as much as 8 – 10 percent of the sales price, but the money comes right off the home’s sales price, so the seller usually doesn’t need funds at the closing.

Sellers usually pay:

  • Real estate commission – Sellers pay both sides of the real estate agent commissions (buyer’s and seller’s agent). Average commissions are around 6 percent.
  • Title insurance – If the buyer opts for owner’s title insurance, the seller usually pays it.
  • Property taxes and HOA fees – Sellers pay a prorated portion of the property taxes and HOA fees for the time they lived in the home.
  • Escrow fees – Sellers pay a fee for the escrow officer to conduct the closing. It’s usually around 1 percent of the sales price.
  • Transfer tax – Sellers also pay a tax to the county to transfer the property to the buyer.

Closing Costs are a Part of Every Real Estate Transaction

Every real estate transaction incurs closing costs on both the buyer and seller’s side. You can shop around for services and negotiate the fees, but in the end, buyers pay around 2 – 5% of the loan amount in closing costs and sellers pay 8 – 10% of the sales price to complete the transaction.

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How To Hire the Best Colorado Springs Real Estate Agent

If you’re serious about selling or buying a home, the most critical decision you will make is selecting a top Colorado Springs real estate agent. Top agents make the difference between a pleasant experience and a negative one. There are significant, tangible financial implications as well. For buyers, having a top real estate agent means that they will listen, communicate, and work diligently to find you the home of your dreams – all within a price you can afford. For sellers, top agents will help ensure your home gets top dollar, giving you the financial means to pursue your next adventure.

Whether you’re looking at buying in this area or you want to sell, here’s everything you need to know to hire the best real estate agent for your particular situation.

Search for Qualified Agents

Like most things in life these days, a search for real estate agents typically starts online. You may have seen some signs in your local neighborhood for homes that are selling, or perhaps you arrived at the site after Googling “Colorado Springs real estate agent.”

Either way, when you’re looking to hire a real estate agent, the first place is to search for agents that you think might be good candidates. If the agent has an about page, read that. Please take a look at a few of their listings. If you’re a seller, think about whether they look like something you would want for your home. If you’re a buyer, consider whether the agent has listings and familiarity with the houses in areas where you want to live.

Your instinct can often tell you a lot. If you like what the agent is offering online, it’s probably a good idea to contact them!

The Best Colorado Springs Real Estate Agents Communicate Well

Once you contact a real estate agent, the next step in the hiring process is to communicate your needs. Whether you’re selling or buying, the best agents know how to listen and learn what you want. If you’ve selected a skilled agent, they will act as a guide throughout the process, so you’ll need someone with whom you feel comfortable communicating.

Remember, you’re the one that ultimately has to be happy with your purchase or sale, so if your agent isn’t listening to your needs and desires, that might be a sign that you should go with someone else!

Ask Relevant Questions About Their Background

Once you’ve established that you and your prospective real estate agent can “get on the same page,” you’ll want to ask some questions to make sure that the person knows how to help you achieve your goals.

For a buyer’s agent, many people have questions that they suggest asking. For example, some places suggest asking things like “how long have you been an agent,” “do you have references,” or “have you helped buyers at my price range?” Similarly, for a seller’s agent, some people suggest asking about how they arrive at a list price or if they will also represent the buyer.

These are excellent questions, but really, having a checklist of questions isn’t what you necessarily need. Instead, what you want to do is determine whether your agent has the background necessary for what you want. For example, let’s say you want to buy a home in Briargate. A good question might be, “what should I know about the Briargate area,” or “have you ever helped someone buy a home in Briargate?”

(By the way, if you’re new to Colorado Springs, Briargate is an excellent neighborhood!)

These questions help you understand the experience that the agent has and how that experience will help your particular situation.

Start the Process

For buyers, once you’ve communicated your wants, a Colorado Springs real estate agent will typically come up with some suggested properties that you can look at (or, if you have some you’re interested in, you can always share them with the agent). At that point, you’ll have “hired” the agent.

For sellers, agents will have you sign a contract. This contract will set various terms and conditions, typically giving the agent the exclusive right to sell your property for some time. Once you sign that document, you’ll have hired your agent!

Finding a Top Colorado Springs Real Estate Agent Isn’t Challenging

There are plenty of qualified real estate agents, but finding the best one is a matter of finding the right person for your particular circumstances. An agent used to selling $5 million mansions will not give you the advice you need to sell a $200,000 condo, for example. Similarly, if you want to buy a $1 million home, finding an agent used to selling $500,000 condos downtown isn’t the best option.

Therefore, hiring the best Colorado Springs real estate agent is a matter of searching and communicating. Talk with individual agents. Ask questions. And, once you find an agent that listens and understands your aspirations, you can start the process of buying your dream home! Naturally, if you’re interested in living in Colorado Springs or you’re looking to sell your home, please contact me! I’d love to listen to learn more about your situation and see how I can help!