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Showing posts from 2020

Mortgage Forgiveness

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During the mortgage meltdown that caused the Great Recession a decade ago, some homeowners lost their homes to foreclosure or constructed a short sale to get out from under the debt.In most of the cases, the lenders forgave all or part of the debt owed them.Similarly, in the early 90's after the failure of the Savings & Loans in the U.S., thousands of homeowners lost their homes in the same way but back then, the policy of the IRS was to consider the forgiven debt as income.Today, it is still considered income which means that a homeowner could lose their home because they could not afford to pay for it and to make matters worse, they would owe income tax on the debt relieved.The good news is that in 2007, Congress passed the Mortgage Forgiveness Act and it has continued to be extended with its current expiration of 12/31/20.The amount forgiven for income tax purposes may not be the same amount owed to the lender.Mortgage forgiveness has a limited exclusion for discharged home…

Convenience at a Cost

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The convenience of selling your home without the hassle of getting it ready, putting it on the market, showings, open houses, negotiations and repairs comes at a cost ... a significant part of your equity.The companies, referred to as iBuyers, that buy homes from sellers are for-profit organizations.They expect to make a profit from sellers who are willing to discount the proceeds they'll realize as an alternative to the conventional method of selling a home for people who need a quick sale.The promotions for these companies generally state that you can receive a cash offer in a few minutes after putting your address online.The discount can be between 10 to 18% compared to normal selling costs from 6 to 9%.The cost to a person with a $100,000 equity could be as much as ten thousand dollars.Even after you have accepted an offer, there can be contingencies in the contract that allow the company to inspect the home to discover the condition and reassess the offer to possibly make eve…

It Starts Before the Statement is Sent

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The deadline for challenging your property tax assessment this year may be later than normal due to the stay at home orders but when you are notified, you'll want to be ready to decide whether you can save some money on property taxes this year.There are two elements that determine the amount of property taxes you'll pay for the year: the assessment of value and the property tax rate.Both determinations occur long before the property tax statement is sent.Property owners are notified in writing what their assessed value is for the year.It is estimated that most owners don't challenge that value even though it could lower their tax bill.Not all appeals are successful, but many homeowners believe that it is worth the effort to try.Procedures for challenging the assessment are generally included with the letter and a deadline for filing the challenge.An initial step is to determine the accuracy of the information on your property's record such as market value and square f…

One More Reason to Refinance

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Taking cash out of the equity of your home could be a legitimate way to fund a temporary cash crisis now or to have it on-hand if the need arises.  Most homeowners can pull out the difference in 80% of the fair market value of their home and what they currently owe.The most frequently cited reasons for refinancing are to lower the payment, eliminate the private mortgage insurance, combine mortgages, consolidate debt, convert an ARM to a fixed rate mortgage, remove a person from the loan or to take cash out for another reason.The option of using your equity to deal with unexpected living expenses or potential lost wages in the future could be a good reason for doing a cash-out refinance.  It is important to consider that it could increase your monthly payment instead of lowering it which would result in higher expenses during uncertain economic times.Some lenders have recently raised the minimum credit score requirement but borrowers with good credit and the ability to repay should be …

Check This Off Your LIst

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Everyone knows someone it has happened to or has heard a tragic story.It could have been a fire, a flood, a burglary or some other disaster but to file a claim on their insurance, they need the receipts or a list for what is being claimed.Since you're at home anyway and may even have kids at home who need something to do, now is a great time to get a current home inventory done.One of the easiest ways to accomplish this seemingly, daunting task is to put together a collection of pictures of every room in your home.The more valuable, the more important it is to take a close-up picture.It will be necessary to open the drawers and closets and, in some cases, to pull things out in order to show everything in the picture.That's why having someone to help you makes it faster and easier.Not to get distracted from the job at hand, you may discover things that you had forgotten you had which is why you should do an inventory rather than trying to reconstruct it after the loss.In some c…

Mortgage Closing Scams

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The American bank robber, Willie Sutton, was asked why he robbed banks and his answer was "because that is where the money is."During his 40-year career, he stole about $2 million but Internet scammers are stealing many times that amount in phishing schemes preying on unsuspecting home buyers.These crooks know where the money is because buyers have the down payment and closing costs and are expecting to transfer it to the close the sale of their home.The FBI, in their 2018 Internet Crime Report, stated victims lost over $149 million and the CFPB estimates the losses at over $1 billion as a result of fraud in real estate transactions.The scammers want to take advantage of the situation while it is still in the buyer's account. Commonly, during the closing process, scammers will send spoofed emails to homebuyers from someone they expect to hear from regarding the transaction like the real estate agent or the settlement agent.They will include false instructions for the clo…

What Buyers Can Do While Staying at Home

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While you're isolating at home, there are things you can do to help buy a home now or in the near future.Instead of spending time surfing the Internet looking at homes, do the groundwork necessary to be able to purchase the home that you find.There is a lot of documentation necessary to qualify for a mortgage and to be approved.This part of the homebuying process can be done in advance, long before you even start looking at homes much less finding the one that you want.Assemble all documents to make a pre-approvalPhoto IDTwo months current pay stubsLast two years' W2sComplete copies of checking and savings statements for last three monthsCopies of statements for IRAs, 401k, savings, CDs, money market funds, etc.Employment history for last two years with addresses and contactsProof of commissioned or bonus incomeResidency history for last two years with addresses and contactsAssets for down payment, closing costs, and reserves; must provide paper trailIf self-employed, last two…

Showing Procedures During Covid-19

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During these unsettling times, sellers and buyers are concerned about staying healthy and virus-free as we all are.To keep all parties safe, new procedures should be considered regarding the procedure for showing houses.Agents are reporting that they are selling homes where the buyers have not physically been in the home and base their decision on the virtual tour found online.Some states have suspended showings because they are not considered essential services and other states have not addressed the subject.In the spirit of stepping up to do what is necessary, the following suggestions should be considered:Buyers should view the pictures online first to see if the home meets their needs.Most listing agents upload enough pictures to get a good idea of what a home looks like.Buyers should ask their agent questions that the photos don't address.Then, their agent can go through the listing agent to ask the seller direct.It may be possible for the agent or owner to do a Facetime walk…

Why have a mortgage during retirement?

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You don't have to watch TV for long before Tom Selleck, Henry Winkler or Robert Wagner will tell you why seniors should consider a reverse mortgage.However, there are a seniors who are resisting the conventional wisdom of having their home paid for and opting for a mortgage with payments on their home.In some cases, seniors will downsize into a smaller home and have a large amount of equity to pay cash for the new home.In other situations, they may have their home paid for and decide to do a cash-out refinance which will require making payments.The logic behind either of these examples could be motivated by the fact that since mortgage rates are so low currently, the owners can reinvest the money at a higher yield and make money on their equity.This will give them more money for their retirement income.A common question that is asked by owners considering such a strategy is whether they'll be able to qualify for the new mortgage since they may no longer be employed.The Equal C…

Shopping for a Mortgage

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A lower rate will not only result in a lower payment, it will amortize the loan quicker.A $250,000 mortgage at 4.5% for 30 years will have a $1,266.71 principal and interest payment.At 4%, the same loan will have $1,193.54 payment saving $73.18 a month and the unpaid balance would be $1,776 lower at the end of five years.Mortgage lenders tend to price their mortgages based on the credit score of the borrower.The higher the credit score, the lower the mortgage rate.There is an inverse relationship that the lower the credit score, the higher risk and therefore, a higher rate is needed to balance the risk.In order to get a valid rate that will be available to you with your credit score, you need to be pre-approved. The process of making a loan application before you find a home, allows the lender to verify your credit, income, and ability to repay the loan.Lenders usually only charge the cost of the credit report for this type of service.Be aware that pre-approval is not the same thing a…

Get Ready to Garage Sale

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A well-planned garage or yard sale can give you extra space in your home, get rid of unused items and make some money but it needs some of the same considerations that any business needs to be successful.Start early to research and planPromotion is keyDisplay items attractivelyPrice items rightOrganize checkoutDetermine the date of your sale, remembering that there are exceptions, but Saturdays are generally the best day.Experienced garage-salers believe that a well-planned one-day event will do as well as a multi-day event.Serious purchasers will look for the "new" sale and most people don't come back multiple days.Recognize that the first day of the sale will have the most people.Everyone will be looking for a bargain but some of them actually want to purchase things for them to resell at their own sales.Advertise in local newspapers and free online classified sites like Craigslist.If several families are going together for the sale, mention that in the ad; it will be …

What kind of properties are these?

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It is the way the property is used that determines the type of property it is, not what it looks like.  Based on the intent of the owner, the property could be a principal residence, income property, investment property or dealer property.A principal residence is a home that a person lives in.  There can be only one declared principal residence.  It is afforded certain benefits like deducting the interest and property taxes on a taxpayers' itemized deductions, up to limits.  Up to $250,000 of gain for a single taxpayer and up to $500,000 for a married couple filing jointly can be excluded from income if the property is owned and used as a principal residence for two out of the previous five years.An income property is an improved property that is rented for more than 12 months.  The improvements can be depreciated based on a 27.5-year life for residential property or 39-years for commercial property.  This is a non-cash deduction that shelters income.  When the property is sold, t…

Why Put More Down

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The least amount in a down payment is an attractive option when people are thinking of buying a home.  A common reason is to have cash available for furnishing the new home and  possible unexpected expenses. Some people don't have any options because they only have enough for a minimum down payment and the closing costs.  For those fortunate buyers who do have extra money available, let's look at why you'd want to do such a thing.Most loans in excess of 80% loan to value require mortgage insurance to protect the lenders for the upper portion of the loan if the home were to go into foreclosure.  FHA requires an up-front premium of 1.75% of the amount borrowed plus a monthly amount of .85% on the balance.  FHA mortgage insurance premium must be paid for the life of the loan.Mortgage insurance on conventional loans varies depending on the borrowers' credit and the amount of down payment being made.  Unlike FHA, when the unpaid balance reaches 78% of the original amount bo…

Financing Home Improvements

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Home improvement loans provide a source of funds for owners to finance the improvements they want to make.These are usually, personal installment loans that are not collateralized by the home itself.Since there is more risk for the lender with this type of loan, the interest rate is higher than a normal mortgage loan.In today's market, the rates on home improvement loans could vary between 6% and 36%.A borrower's credit score will determine the interest rate; the lower the score, the higher the rate and the higher the score, the lower the rate.Smaller loan amounts are under $40,000 with larger loan amounts over $40,000 based on the extent of the improvements to be made.With all things being equal, a larger loan may have a lower interest rate.Besides the interest rate being higher than a regular mortgage, the term is shorter.Similar to a car loan, the term can be between five and seven years.A $50,000 home improvement loan for a borrower, with good but not great credit, could h…

House-Hacking Rental Property

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House-hacking refers to buying a multifamily property on an owner-occupied mortgage, living in one unit and renting the others.  If you're thinking about becoming a rental mogul, starting early is an advantage.  Not only will you have longer to accumulate a larger portfolio, you can increase the leverage on the first acquisitions if they are owner-occupied.  Leverage is the use of other people's money to finance an investment.  The higher the loan-to-value, the greater the leverage which can increase the yield.A $200,000 rental property with an 80% LTV at 4.5% for 30 years producing a 16.88% before-tax rate of return would increase to a 23% return on investment by increasing the mortgage to 90%.  A typical down payment on an investor property in today's market is 20-25% but, in some cases, a higher loan-to-value is possible.Owner-occupied, multi-unit properties, two to four units, allow a borrower to occupy one of the units and rent the others out.  The cash flows from the…

Who Earns the Commission?

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What do you think the motivating reason would be for the 5% of all homebuyers who chose not to work with an agent but instead conducted their own home search, contacted the seller, negotiated the contract, located their financing, arranged their inspections and all of the other services provided by REALTORS®?Most people would probably guess the buyers were wanting to do the work themselves and earn the commission in the form a lower purchase price.Looking at it from the seller's perspective, what would be the reason for the 8% of all home sellers who chose not to work with an agent but instead did their own research to determine the value of their home, coordinated all of the marketing efforts necessary to have sufficient exposure to the market, negotiate directly with the buyer, and investigate all of the other steps necessary to close the sale?Is it possible and even probable, that they too were trying to earn the commission and net more proceeds from the sale?If the home sold f…

Take the Standard Deduction & the Home

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Now that the standard deduction is increased to $12,200 for single taxpayers and $24,400 for married ones, many homeowners are better off with the standard deduction than itemizing their deductions to write off their mortgage interest and property taxes.  There was some speculation that without the tax advantages, homeownership is not the investment it once was.By looking at the other benefits, you can see that homeownership is still one of the best investments people can make.A $275,000 home financed with a 4.5%, 30-year FHA loan would have an approximate total payment of $2,075.  The difference in the value of the home and the amount owed on the mortgage is called equity.  Two things cause equity to increase: the home appreciating in value and the principal loan balance being reduced with each payment made on an amortizing loan.In this example, if the home were appreciating at 2% annually, the value would increase by $5,500 the first year which would be $458.33 per month.  At the sa…

Understanding Reverse Mortgages

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Reverse mortgage loans are like traditional mortgages that permits homeowners to borrow money using their home as collateral while retaining title to the property.Reverse mortgage loans don't require monthly payments.The loan is due and payable when the borrower no longer lives in the home or dies, whichever comes first.Since no payments are made, interest and fees earned are added to the loan balance each month causing an increasing unpaid balance.Homeowners are required to pay property taxes, insurance and maintain the home, as their principal residence, in good condition.
Reverse mortgages provide older Americans including Baby Boomers access to their home's equity. Borrowers can use their equity to renovate their homes, eliminate personal debt, pay medical expenses or supplement their income with reverse mortgage funds.
Homeowners are required to be 62 years and older and meet the following requirements:
Own the home free and clear or owe very little on the current mortgage t…

Downsizing in 2020

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Approximately 52 million or 16% of Americans are age 65 and over.It is easy to understand that some of them are thinking of downsizing their home because they don't need the same space they did in the past.It can be liberating to divest yourself of "things" that have been accumulated over the years but are no longer needed.Moving to a less expensive home, could provide savings for unanticipated expenditures or cash that could be invested for additional income.Savings can be realized in the lower premiums for insurance and lower property taxes, as well as,  the lower utility costs associated with a smaller home.Typically, owners downsize to a home to 2/3 to 50% of their current home's size.In some situations, it is not only economically beneficial, but their interests may have changed so that a different style of home, area or city might fit their lifestyle better.The sale of a home with a lot of profit will not necessarily trigger a tax liability.Homeowners are eligi…