I had the pleasure of selling a townhouse I helped my clients purchase three years ago. When I submitted their offer in 2016, this is how I described my clients to the listing agent: “Phil and Ashli are all-American, hard working young couple. Phil is a veteran and Ashli is a teacher. They are very excited to find an affordable unit that is move-in ready in a peaceful neighborhood. This is the home where they plan to start a family. They hope this is a solid investment that will payoff for them in the long run and create financial security.”
Fast forward three years, Phil and Ashli have a baby girl named Kensington who just started to walk. The townhouse was indeed a solid investment for them! In three years, they were able to make a $60,000 profit from the sale after all fees without any major investment into the property. Not to mention, they had a great place to live the last three years.
I’m overjoyed to help them through this process but sad to see them go. They are building a house from scratch that will be ready in October! It’s a 2 story, 5 bed, 3 bath house with an open floor plan. Sits on a huge pond with a fountain in the center and is across the street from the neighborhood pool in Myrtle Beach, North Carolina. This is a huge upgrade for them and now they are closer to family. Congrats Phil and Ashli and wishing you all the best on this next chapter of your life!
Disclaimer: We are not lenders, we are not financial advisors, we are not accountants, we are not attorneys.
Do you have home equity? Wondering how you can use it to your advantage?
So you bought a home a few years ago and have EQUITY! The value has gone up, but how can you use the gain in value to your advantage? Home value is not a liquid asset, but with a tool called a Home Equity Line of Credit (HELOC) you can utilize your equity on your primary residence without selling your home. There are several institutions that offer this type of credit and we’ve done some shopping around for you to help you pick the best program.
We called the top five banks that were recommended for their HELOC programs. We gave all of them the same scenario. The given scenario was: The homeowner’s agent said their house is worth $500K. The owner purchased the home for $400K two years ago and currently has a loan on the property for $380K. Their credit score is 750, income is $60K, debt = $2000/m for mortgage, $250/m car payment, $3000 in credit card debt.
Disclaimer: Rate fluctuate everyday and are based on your personal scenario, the rates below are just estimate for demonstration. Rates were as of July 2019.
The amount of money you can borrow for a HELOC will be calculated by multiplying the current home value by the percentage (typically 80-90%) and subtracting the current loan on the property. EX: $500K (current home value) x .89 (loan to value) = $445K – $380K (loan on home) = $65,000
Here is how we would rank the HELOC programs that we researched.
1. Bellco – 80% at a fixed 3.99%, 80-90% at a fixed 4.49%
2. Red Rocks – 89% at a 5.5% adjustable rate
3. Vectra – 85% at 5.35% to 5% adjustable
4. US Bank – 85% at 6.3%
5. Chase – 80% at 9.38%
Here are some assumptions you can make about most HELOCs…
1. Will have an adjustable rate and will fluctuate with the market rate during the term of the loan. BELLCO is running a special right now on a FIXED RATE HELOC
2. Can only be taken out a your primary residence
3. Payments are typically interest only
4. You will have to pay for an appraisal, closing cost, and it will usually benefit you to open an account at the institution
5. Unlike a second mortgage, a HELOC gives you access the the equity but you don’t have to pull out a lump sum
So now that you know what some local banks are offering, let’s think through a few scenarios on how you could utilize a HELOC. We must mention, HELOCs are NOT bottomless piggy banks to fund affluent lifestyles that you really can’t afford. The frivolous use of HELOCs in part lead to the Great Recession in 2008.
1. Moving Up – Many homeowners utilize the equity they have in their first home to purchase a second home. In Denver’s competitive housing market it can be extremely difficult to purchase a new home with a contingency to sell your current home. Also, many families don’t want to sell their current home without having a replacement home under contract. HELOCs are a solution many buyers are utilizing to avoid this dilemma. You can make an non-contingent offer, use funds from a HELOC as the down payment on your replacement property, and close on your new home THEN list your first home. With the proceeds from the closing of your first home you will have to pay off the first mortgage and HELOC in full. All the banks we spoke with confirmed that a HELOC can be used for anything… including the purchase of another home, but MAKE SURE TO CHECK WITH YOUR LENDER!
2. Home Improvement – Are there aspects of your home that you would like to improve? If so, a HELOC might be a great option for you. A HELOC allows you to borrow against the equity you already have in your home. Allowing you to finance these larger purchases over time instead of in one lump sum. Keep in mind that many of these rates are typically not fixed and payment are interest only, so having an established payment plan that includes a strategy to pay down the principle will be in your best interest. When considering home improvements, be sure to be mindful and discuss your improvement plans with your trusted real estate agent. Your agent can help you navigate what improvements are going to bring the most value back into the home when you sell. Take it from us, there is nothing more discouraging than putting a lot of money into a home that does not increase the value.
3. Consolidating other higher interest loans – Have you evaluated the interest rate on your student loan and credit cards? It can be extremely difficult to pay off high interest loan debt if you interest rate is 19.24% (average credit card interest rate). It might benefit you to use a HELOC to pay off debt with a higher interest rate.
We can help you with any real estate questions including: How much is my house worth? What is the best strategy to buy a second home? What renovation projects give the best return on investment. Call us: 303-720-8491
Capital gains exemption, the mortgage interest deduction, depreciation of investment properties, and 1031 exchange could save you thousands. Class taught by Lutz CPA in conjunction with Living Room Real Estate. RSVP required, please reserve your seat on EventBrite.com.
5:30 pm – Networking, Happy Hour and light food served
6:30 pm – Class, followed by Q & A
Hannah & Brandon, Edgewater
Kassidy Benson, Buyer Representative
Read their client testimonial here
Mark your calendar. I hope you can make it!
Meet at the local watering hole and learn the neighborhood characteristics, market stats and amenities.
After a drink, we will look at one or two houses for sale in the neighborhood.
Thursday, JUNE 14th at 6PM
Plimoth, 2335 E 28th Ave, Denver, CO 80205
in Denver’s Skyland neighborhood.