Buying a home and not selling your current home?

As of October 2008 the lenders have changed the way they look at rental income if you are planning on renting out your current home and buying another home. The old rule of thumb where the lender gives you credit for 75% of rental income does not apply any longer.

FANNIE MAE rules as of August 1, 2008

It is much more difficult to qualify for the loan if you are keeping your current home and going to be renting it out and buying a new home. One of these three scenarios must apply:

1. Current home pending sale

  • The lender will count both house payments, the old house and the new house in the qualifying ratios unless there is an executed purchase contract on the old house and all the lenders financing contingencies have been cleared
  • Required cash reserves after closing; enough to make 6 months house payments on both properties, less if you can document 30% equity in the home you are selling

2. Existing home converts to a Second Home

  • Count both house payments, old and new in qualifying ratios
  • Require cash reserves of 6 months house payments on both properties, less if 30% equity in home converting to a second home

3. Existing home converts to a rental property

  • Count both house payments, old and new in qualifying ratios. Rent may be used to offset payment ONLY if a new appraisal verifies 30% equity, home is leased, and security deposit is verified
  • Cash reserves after closing, enough to make 6 months house payments on both properties

Bottom line-

Anytime you are thinking of retaining ownership in your current primary residence and need to close on a new primary residence, you must qualify with both payments and you have cash reserves of 6 months payments for both properties. The only time this does not apply is if you have 30% or more equity in the property you are retaining and a lease with a verified security deposit or the home is sold with a valid purchase contract and all financing contingencies have been removed.

Be sure and speak with your lender as soon as possible if you are thinking of retaining your current primary residence as a rental and purchasing a new primary residence. Your lender can advise you as to the best way to proceed.

WOOHOO! $8,000 Tax Credit extended and Expanded!

Homebuyer Tax Credit Update!

On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers April 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.

TAX CREDIT OVERVIEW

Who Gets What?

First-Time Homebuyers (FTHBs):First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.
  
What is a Tax Credit?

A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

  • They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
  • They do not use the home as your principal residence.
  • They are a nonresident alien.
  • They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

 Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

As always regarding tax talk, check with your own personal tax advisor to discuss your situation to confirm you qualify.

What do Real Estate Brokers do to help buyers purchase a home?

Have you ever wondered what Real Estate Brokers do to help the buyers with their home purchase? There are a gazillion things that go on behind the scenes to help the buyers purchase a home that is going to work for them. Here is a list of some of the things Real Estate Brokers do. The list is not all inclusive as each transaction is different but it gives you a general idea of what is going on with any real estate purchase.

1. Explain the benefits of a Buyers Broker Agreement.

2. Determine what price range the buyer is pre approved for and type of properties that will meet the loan criteria. If buyer does not have a lender or a pre approval, provide recommendations to a lender.

3. Explain the benefits and differences of different types of financing and why one home will qualify for one type of financing and another one won’t.

4. Discuss with the buyers the type of home they would like to purchase.  What features are  important and you “must have” and what are just wish list items.

5. Determine eligible homes that match the buyers and set up appointments to show the homes to the buyers.

6. When viewing the homes with the buyers bring any defects to their attention as well as positive items.

7. Discuss with the buyers their likes and dislikes in regards to the properties they have seen.

8. If they have an interest in a particular property suggest they make an offer.

9. Work with the buyers to draft an offer on a property. Make suggestions as to terms, price and inspections contingencies.

10. Explain the offer and the contingencies to the buyer at the time an offer is drafted.

11. Submit the offer to the listing agent as well as the preapproval letter, copy of the Earnest Money Deposit check and any additional documentation requested by the listing agent or the Seller.

12. Follow up with the Listing agent to confirm reciept of the offer and continue to follow up with them until the offer has been accepted, countered or declined.

13. Keep repeating until the buyer has an accepted offer.

14. Once the buyer has an accepted offer, then set up the home inspections, termite inspection, roof inspection or any other inspection the buyer requests. If the buyer needs recommendations as to inspectors supply them as well.

15. Provide the Lender and Escrow company copies of the executed contract and set up the Escrow file.

16. Meet the inspectors at the property with or without the buyers and provide the buyers with the inspectors reports. Discuss the reports with the buyers and make recommendations at to any requested repairs.

17. Submit any requested repairs to the Seller. On Bank owned properties the Seller typically will not do an repairs. Follow up with the Listing agent to determine if the Seller will complete the requested repairs and advise the buyer.

18. Advise the Buyer that their job now is to work closely with their loan officer to provide the loan officer any follow up documentation that the loan officer may need to process their loan.

19. Follow up with the Loan Officer, Escrow Company and Buyers as to status fo the transaction. Keep all parties informed.

20. Work with the Loan Officer to make sure the appraisal has been ordered and come in at value.

21. All inspections are complete, the appraisal is complete and the file has come out of underwriting with an approval, subject to conditions. Work with the Lender and Buyer to obtain any outstanding conditions.

22. Work with the Lender when loan documents are drawn and sent to the title company.

23. Review the Buyers estimated closing statement for accuracy before the document signing appointment is set. Meet with the Buyers at the loan signing to answer any questions about the loan documents and any other final documents. Explain any items on the estimated closing statements to the Buyers and advise them of the amount of funds that need to be brought into the signing in the form of a cashiers check or wired.

24. Conduct a walk through of the property to assure that it is in the same condition as when it was purchased.

25. Follow up with the Lender to confirm the loan documents were received, everything is in order an when funding of the loan may occur.

26. The loan is funded and recorded!

27. Meet the Buyers at the property and deliver them the key to their new home.

28. Call the new homeowners within a couple of days to make sure they have settled in and are comfortable in their new home. Advise the buyers they will be receiving in the mail the HUD One Settlement Statement that they will need for their next years taxes.

As you can see there are quite a few things going on behind the scenes. It really is a happy time when the new homeowner finally gets the key to their  home.  We are helping people with a time in their lives,  not just selling them a home. I am grateful to be a part of it.

Playing it safe

Do you feel as though your entire home has been invaded by toys? If so, then it’s probably time to think about creating a dedicated playroom. But to create a space where your children or grandchildren can play without constant supervision, you need to think safety first.

Start by doing a “crawl-through” of the room you plan to use, keeping an eye out for sharp edges, electrical cords and uncovered outlets. If you find these hazards, purchase rubber edges, outlet covers and cord keeping devices. Push on the furniture, including bookcases, shelves, tables and chairs to check for stability. Secure items that seem unsteady  by bolting them to the wall or remove them from this room. If the playroom is on the second floor place any thing a child can climb on like kitchen sets and drawing tables away from windows to minimize the risk of a fall. Make sure that the toys are accessible to kids. Keep toys off high shelves or in plastic storage bins with lids that snap close. Put them in storage containers that are easily accessible by the kids.

If you are starting a room from scratch, think about materials you use to furnish the room. Cork is great for floors because it is hypoallergenic and can withstand moisture from the inevitable spills. Cotton fabrics are a good choice because they clean up easily and are better for children with allergies.

Once you have a dedicated playroom the kids will love it and so will you!