Steve & Scarlett Justice's Blog

These are mortgages that mean comfort and savings whether your buying, selling, refinancing or remodeling your home. It is easy to use, federally recognized, and can be applied to most home mortgages. EEM’s provide special benefits when purchasing a home that is energy efficient or can be made efficient through the installation of energy saving improvements. With lower utility bills you will have more money in your pocket each month. You can afford to allocate a larger portion of your income to housing expenses. You can pay for the energy improvements easily through your mortgage.  Your lender can increase your loan to cover the energy improvement costs. Monthly mortgage payments increase slightly, but you actually save money because your energy bills will be lower.

Buyers benefits

• Qualify for a larger loan on a better home
• Get a more comfortable home
• Save money every month from day one
• Increase resale value of your home

Sellers benefits

• Sell your home more quickly
• Make your house affordable to more people
• Attract attention in a competitive market

Remodeling/Refinances

• Get all the EEM benefits without moving
• Make improvements that save you money
• Increase the potential resale value of your home

Energy efficient homes costs less to own than non-efficient homes. You may want to check out Energy Efficient Mortgages if you are interested in saving money.  

Fannie Mae recently announced that is it extending it’s seller assistance incentive on all Fannie Mae Homepath properties. Buyers will received 3.5% of the final sales price as a credit towards closing costs or their choice of selected appliances. This offer is available to any owner occupant who closes on the purchase of a property listed on www.HomePath.com by June 30th.

Properties listed on www.HomePath.com are owned by Fannie Mae and include single family homes, condos and townhomes. Hompath properties also may be eligible for HomePath Renovation Mortgage financing, which gives the buyers an opportunity to purchase a home that needs repairs with as little as 3 percent down. 

This is the final week for home buyers to enter a binding contract to take advantage of the federal tax credits for certain home buyers.  Eligible purchasers must enter contract by April 30 and close escrow before July 1 to claim the tax credits on their federal tax returns.  A one-year extension may be available for members of the military and other federal employees who served on official duty outside the U.S. for at least 90 days from January 1, 2009 to April 30, 2010.  

First-time buyers may be eligible for up to $8,000, while existing homeowners may be eligible for a tax credit of up to $6,500.  Neither credit requires repayment if buyers live in the residence for three or more years.

They finally passed it. Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure or a loan modification. It was just signed into law on Monday. This puts the State in line with the Federal law. For debt forgiven on a loan secured by a “qualified principal residence” borrowers will now be exempt from both federal and state income tax consquences. The existing federal exemption is for indebtedness up to $2 million, where the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

“Qualified principal residence” indebtedness is defined as debt incured in acquiring, construction, or substantially improving a principal residence. It includes both first and second trust deeds. It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 to 2012. Californias who have already filed their 2009 tax return may claim the exemption by filing a Form 540X amendment.

Taxpayers who do not qualify for the above exemptions (for example a second home or rental property) may nevertheless be exempt under other provisions. Most notably, taxpayers who are bankrupt are exempt from debt relief income tax. Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent  their current liablities exceed current assets.

For more information go to California Franchise Tax board Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation web page. 

Of course each person’s tax issues are different so check with your tax preparer to see what applies to your specific case.  

Undisclosed payments in a short sale transaction, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud and licensing laws.

This is starting to happen with second lien holders and may constitute loan fraud which is punishable by 30 years imprisonment and a $1 million dollar fine. Depending on the specific circumstances, carrying out these payment requests also may violate other laws and regulations and an agent’s participation may be subject to license revocation by the Department of Real Estate or other disciplinary action.

Agents and their clients are encouraged to file complaints regarding fraudulent activities to the proper authorities.

First time home buyer tax credit

If you are looking for your first home the IRS will give you an $8,000 tax credit (maximum, or 10 percent of the sales price, whichever is less) on your federal tax return if you close escrow by April 30, 2010. The credit applies to homes purchased for $800,000 or less, and the credit does not require repayment if you live in this residence for three or more years. If you or your spouse have not owned a home in the last three years you qualify for this credit.

The full $8,000 credit is available to married couples filing a joint return whose modified adjusted gross income is $150,000 or less. You must be 18 on the date of purchase.

Exisiting Homeowner Tax Credit

If you already own a home, but  you want to move up, theres something for you too. Congress also granted existing homeowners a tax credit of up to $6,500 maximum or 10 percent of the purchase price, whichever is less.

To be eligible for this credit you must have lived in your current home for for five consecutive years out of the last eight and must purchase a new or existing home by April 30, 2010. You do not need to sell your current home to qualify for this credit. Single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum tax credit. Buyers with a written binding contract on April 30, 2010 have until July 1, 2010 to close escrow.

What’s the catch?

No catch. Neither tax credit requires repayment if you occupy the home for three years or longer. buyers who combine these credits with low intterest rates and low median sales prices will have a once in a generation chance to purchase more hme for their dollars.

Claim it

Use IRS form 5405 to claim either credit; the IRS requires a copy of your HUD 1 Settlement Statement to verify the purchase.

I work with several different Banks in helping them market their foreclosed properties and people always ask me, “What bank is selling this property” I tell them and then ask them why they wanted to know.  Nine times out of ten they tell me they want to contact the bank so they can negotiate an offer. The banks selling the foreclosed properties don’t work that way.

FACT

Banks hire Realtors to list and sell their Foreclosed properties

The banks hire local realtors to manage the properties for them, list them for sale and sell the properties. The listing agent helps the bank will all sorts of things such as getting any remaining personal property removed, paying for and making sure that all the utilities are on, paying for and coordinating any repairs or maintenance the property may need, showing the property, writing up offers and selling the property for them.  The banks typically have several hundred thousand foreclosure properties through out the United States. Can you just image a bank President in Texas trying to manage any of those items from Texas for properties in all the different states? I would think he would have other more pressing matters than talking to contractors, gardeners and people wanting to see the house.  Can you imagine the questions? Is the house on 123 Main Street still available? Is it close to shopping? I’m sure the bank president in Texas would have no idea, nor should he. That is not his job. It is the job of the local Realtor to help buyers with local information and help them see the homes.

FACT

Foreclosures are such great deals the banks are grateful for any offer. NOT!

Banks know what the market is because the local realtor that has the property listed for sale tells them. The bank also has the home appraised before it is even put on the market. Typically the bank list the house about 10 to 20 percent under what market value is because they want the home sold as soon as possible. That does not mean that they are going to give it away and sell it for 50% less. I think sometimes buyers go to these weekend seminars and come away with some really interesting thoughts or they just think the banks are desperate. Every once in a while a buyer will get a screaming deal on a foreclosed home, but it will be a home that has been on the market a very long time or the area and or condition is not that good. Otherwise, it will not happen.   

FACT

All types of homes are foreclosed homes

I have seen some homes that you have to hold your nose when you go into them so as not to breathe as it smells so bad and I have seen homes that are just pristine. There are all types of homes that are foreclosed properties. Some don’t even need any repairs at all and others have the whole kitchen missing. It just depends.

FACT

You get title insurance and good title

The title and escrow process is pretty much the same as when you buy a regular home. You get clear title. I have never heard of anyone buying a foreclosed home having an issue with title.

FACT

You need an experienced Realtor to help you with a foreclosure purchase

Yes, foreclosure purchases have a few different nuances about them and you should have a Realtor that is experienced in foreclosure properties assist you as you should when you purchase any other home. Each bank is different, so each transaction may be a little different in what the Bank will and will not do or pay for. Look to your Realtor for advise on these issues.

Don’t be afraid. You can buy a foreclosed home today and close escrow in 30 days. Just remember, typically, the foreclosed home you buy is “As Is” and the seller will not fixed anything. They are still great deals!

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.

Today I had the pleasure of meeting with my Allstate representative Aaron Clift about life and health insurance. Now, I know real estate frontwards and backwards but don’t ask me anything about life or health insurance. It is just not my thing. But Aaron knows all about insurance and he will patiently answer any of your questions. Yes, I know, sometimes it is difficult to ask those questions.  You think, wow, I have had this insurance for how long and I am not even sure what I have, let alone what it covers and doesn’t cover.

I gave a binder of paperwork to Aaron and asked his opinion of what coverage I had.  Aaron explained  it all to me, and made some suggestions.

He had his laptop and input my application for life insurance right then and there and I signed it just like I sign for Federal Express on one of those signature pads where you can’t really see your signature and we were good. I am still looking at the health insurance and reviewing his suggestions. But I am sure I will be changing over to his recommended health insurance as well in the next week or so. 

I am just a regular person that purchased a very small life insurance policy but he made me feel like I was important to him and his business. He even followed up with a thank you email and advised me as to what the next step would be.  We just don’t see this kind of customer service very often and it was very refreshing. So, if you need an insurance agent give Aaron Clift a call at 916-539-0964 or email at aaronclift@allstate.com. Tell him Scarlett sent you.

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.