Closing costs are typically a function of the size of the loan. The higher the amount of the loan the lower the percentage will be because many of the costs are fixed regardless of loan size, ie. appraisal cost for a property is usually the same until you get above $500,000.00. A lender will give you a Good Faith Estimate (GFE) and this will give you a good idea of the costs associated with the loan.
:http://www.trulia.com/profile/id/1316104
Saturday, October 30, 2010
What is the downside to buying or refinancing a home in today’s market?
A: There really is no downside. The economic forecast remains uncertain, but, if borrower(s) qualify for their mortgage, there have been few times when the mortgage market was so favorable. Interest rates for a 30 year fixed rate mortgage have been hovering at 1950's levels for months and remain at that level today in spite of rate cuts, stock market fluctuations and losses, and bailout schemes and rumors galore. The inventory of existing homes is exceptional. There are ample homes in all price ranges, and locations.
Information from The Office of Housing Enterprise Oversight (OHEO) tells us that Oklahoma ranks number 10 in the nation for housing appreciation. This nugget of information lets us know that our Oklahoma housing prices are appreciating faster than 40 other states. Another valuable piece of information from the OHEO website is that a home purchased in Oklahoma in 2005 for $100,000.00 would now be worth $115,000.00. Oats says “This is certainly not an appreciation factor that would significantly affect your net worth, but not bad for an asset that you lived in and enjoyed, wrote part of the expense off on your taxes, and used as an excuse to supplement the income of plumbers and other home repair folks."
Information from The Office of Housing Enterprise Oversight (OHEO) tells us that Oklahoma ranks number 10 in the nation for housing appreciation. This nugget of information lets us know that our Oklahoma housing prices are appreciating faster than 40 other states. Another valuable piece of information from the OHEO website is that a home purchased in Oklahoma in 2005 for $100,000.00 would now be worth $115,000.00. Oats says “This is certainly not an appreciation factor that would significantly affect your net worth, but not bad for an asset that you lived in and enjoyed, wrote part of the expense off on your taxes, and used as an excuse to supplement the income of plumbers and other home repair folks."
Friday, April 24, 2009
$8,000 Home Buyer Tax Credit at a Glance
$8,000 Home Buyer Tax Credit at a Glance
· The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
· The tax credit does not have to be repaid.
· The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
· The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
1. Who is eligible to claim the tax credit?First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
2. What is the definition of a first-time home buyer?The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
3. How is the amount of the tax credit determined?The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. Are there any income limits for claiming the tax credit?Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What is "modified adjusted gross income"?Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
7. Can you give me an example of how the partial tax credit is determined?Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
9. How do I claim the tax credit? Do I need to complete a form or application?Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
10. What types of homes will qualify for the tax credit?Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
11. I read that the tax credit is "refundable." What does that mean?The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?No. You can claim only one.
16. I am not a U.S. citizen. Can I claim the tax credit?Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
17. Is a tax credit the same as a tax deduction?No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
18. I bought a home in 2008. Do I qualify for this credit?No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.
20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
· The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
· The tax credit does not have to be repaid.
· The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
· The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
1. Who is eligible to claim the tax credit?First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
2. What is the definition of a first-time home buyer?The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
3. How is the amount of the tax credit determined?The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. Are there any income limits for claiming the tax credit?Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What is "modified adjusted gross income"?Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
7. Can you give me an example of how the partial tax credit is determined?Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
9. How do I claim the tax credit? Do I need to complete a form or application?Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
10. What types of homes will qualify for the tax credit?Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
11. I read that the tax credit is "refundable." What does that mean?The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?No. You can claim only one.
16. I am not a U.S. citizen. Can I claim the tax credit?Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
17. Is a tax credit the same as a tax deduction?No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
18. I bought a home in 2008. Do I qualify for this credit?No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.
20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
Wednesday, July 23, 2008
What is a reverse mortgage?
A reverse mortgage is a special type of home loan that allows a homeowner to convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.
To be eligible for a HUD reverse mortgage, FHA requires that: the borrower is a homeowner, 62 years of age or older; own your home outright; or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and you must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. The counseling service is free of charge and available locally (even by phone). Additionally, there are NO credit, NO income and NO health requirements.
Proceeds received from a reverse mortgage are loan advances and not taxable income. For your specific situation, we recommend that you consult your tax advisor. Money from a reverse mortgage is not considered income, nor does it affect Social Security or Medicare. Homeowners on SSI or Medicaid should consult the agency for pertinent rules. Your home must be a single-family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, and the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment." You do not need to repay the loan as long as you or one of the borrowers (ex. spouse) continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs. For other questions concerning a reverse mortgage contact your qualified reverse mortgage lender.
To be eligible for a HUD reverse mortgage, FHA requires that: the borrower is a homeowner, 62 years of age or older; own your home outright; or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and you must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. The counseling service is free of charge and available locally (even by phone). Additionally, there are NO credit, NO income and NO health requirements.
Proceeds received from a reverse mortgage are loan advances and not taxable income. For your specific situation, we recommend that you consult your tax advisor. Money from a reverse mortgage is not considered income, nor does it affect Social Security or Medicare. Homeowners on SSI or Medicaid should consult the agency for pertinent rules. Your home must be a single-family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, and the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment." You do not need to repay the loan as long as you or one of the borrowers (ex. spouse) continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs. For other questions concerning a reverse mortgage contact your qualified reverse mortgage lender.
Tuesday, May 27, 2008
Five Don't's of Mortgage Qualification
In my last article I wrote about the do’s of qualifying for a mortgage so now it is time for the don’ts. Resisting the temptation to splurge or slip-up in the credit arena is at the top of the list.
Five don'ts
1. First off, don't make any big purchases in the months prior to your application. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender's credit scoring systems. Plus, the human underwriter won't want to see you adding a couple of hundred dollars per month to your monthly expenses. Generally, you want your total debt obligation to be no more than 36 percent of your gross monthly income. You certainly don't want to load up on consumer debt if you're anticipating purchasing a home and you're unsure of what your mortgage payment is going to be and if you think you're within the range of exceeding that 36 percent guideline
2. Don't try shooting for that six-bedroom house if it's going to be too much of a stretch in your current budget. Lenders consider what's known in the industry as "payment shock" when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won't qualify for a mortgage or will end up having to cover too much loan with too little money. If you've paid all your bills on time, but you've been paying $450 in rent with a roommate and now you're going to have a $1,650 principal, interest, tax and insurance payment on a house, how would you handle your monthly payment? You have to make sure you're comfortable about that kind of a debt load.
3. Don't just get pre-qualified for a mortgage, get pre-approved. To get pre-qualified, a borrower need only submit credit, income and debt information voluntarily to a mortgage broker or lender. That means the resulting estimate of the maximum mortgage and home that's affordable is exactly that -- an estimate. Before they can get pre-approved, however, mortgage seekers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. That puts a borrower much closer to obtaining a loan and locking in a rate and term.
4. Don't forget what kind of money personality you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But that approach won't work for people who spend any extra cash laying around on dinner and a movie twice a week. They can force themselves into saving and accumulating equity faster by going with the shorter term and higher payment.
5. Last but not least, don't forget that homeownership brings with it many burdens. The cost of defaulting on a loan is much greater than the penalty of missing a rent payment.
Well, that’s it for this time. Obviously there are many other factors to consider when applying for a mortgage, but these high points should provoke some thought and I hope assist you in the mortgage process.
Five don'ts
1. First off, don't make any big purchases in the months prior to your application. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender's credit scoring systems. Plus, the human underwriter won't want to see you adding a couple of hundred dollars per month to your monthly expenses. Generally, you want your total debt obligation to be no more than 36 percent of your gross monthly income. You certainly don't want to load up on consumer debt if you're anticipating purchasing a home and you're unsure of what your mortgage payment is going to be and if you think you're within the range of exceeding that 36 percent guideline
2. Don't try shooting for that six-bedroom house if it's going to be too much of a stretch in your current budget. Lenders consider what's known in the industry as "payment shock" when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won't qualify for a mortgage or will end up having to cover too much loan with too little money. If you've paid all your bills on time, but you've been paying $450 in rent with a roommate and now you're going to have a $1,650 principal, interest, tax and insurance payment on a house, how would you handle your monthly payment? You have to make sure you're comfortable about that kind of a debt load.
3. Don't just get pre-qualified for a mortgage, get pre-approved. To get pre-qualified, a borrower need only submit credit, income and debt information voluntarily to a mortgage broker or lender. That means the resulting estimate of the maximum mortgage and home that's affordable is exactly that -- an estimate. Before they can get pre-approved, however, mortgage seekers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. That puts a borrower much closer to obtaining a loan and locking in a rate and term.
4. Don't forget what kind of money personality you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But that approach won't work for people who spend any extra cash laying around on dinner and a movie twice a week. They can force themselves into saving and accumulating equity faster by going with the shorter term and higher payment.
5. Last but not least, don't forget that homeownership brings with it many burdens. The cost of defaulting on a loan is much greater than the penalty of missing a rent payment.
Well, that’s it for this time. Obviously there are many other factors to consider when applying for a mortgage, but these high points should provoke some thought and I hope assist you in the mortgage process.
Thursday, May 8, 2008
What are the do’s and don’t for qualifying for a mortgage?
Here's the good news: You probably can qualify for a mortgage. The possible bad news is that you may have to impose some self-discipline to get where you want to be.
This is so important I’m going to list it twice. Pay your bills on time. There is no single element that can so dramatically impact the success of an application as your credit history.
So now for the list of do’s and don’ts.
Five do's1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get -- if you get one at all.
2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That's because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, than the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called "revolving" loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance.
If you had to prioritize -- and I would hope you wouldn't be in that situation -- pay your mortgage loans, pay your installment loans, pay your revolving loans.
3. Consider paying off more debt and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower's credit score, especially if they're filed in the months prior to the home loan review process.
5. Increase the size of the down payment you're able to make by saving as much as possible, as often as possible. Don't put the savings into something volatile, such as an individual stock. But evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.
It depends on how much you have saved already, but I think it's important to take a portion of each month's income and set it aside for the down payment
While these are all good steps to follow, borrowers have to think of what they shouldn't do as well. The five don’t’s will be in my next article.
This is so important I’m going to list it twice. Pay your bills on time. There is no single element that can so dramatically impact the success of an application as your credit history.
So now for the list of do’s and don’ts.
Five do's1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get -- if you get one at all.
2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That's because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, than the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called "revolving" loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance.
If you had to prioritize -- and I would hope you wouldn't be in that situation -- pay your mortgage loans, pay your installment loans, pay your revolving loans.
3. Consider paying off more debt and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower's credit score, especially if they're filed in the months prior to the home loan review process.
5. Increase the size of the down payment you're able to make by saving as much as possible, as often as possible. Don't put the savings into something volatile, such as an individual stock. But evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.
It depends on how much you have saved already, but I think it's important to take a portion of each month's income and set it aside for the down payment
While these are all good steps to follow, borrowers have to think of what they shouldn't do as well. The five don’t’s will be in my next article.
Friday, April 18, 2008
Changes in the Mortgage Business
What are some of the changes that are happening in the mortgage business?
“The times, they are a-changing’”. Bob Dylan gave those words to us in 1964 and they couldn’t be more appropriate in today’s mortgage market. Even though interest rates remain at a consistently low level, we are experiencing a conservative ‘belt tightening” from all of the lenders in the housing market. Buyers that would have qualified with few or no problems as recently as sixty days ago are now being required to fulfill conditions that may preclude them from getting the loan to purchase their home. There are too many changes to adequately address in this limited space, but let’s look at some of the changes that are significantly impacting our systems.
No down payment programs are virtually a thing of the past. During recent years no down payment home purchase programs have been available to a large segment of our population. The programs targeted 1st time homebuyers and allowed them to acquire their first home using underwriting standards that were drafted with that home-buying population is mind. The loans were underwritten and funded with a requirement for private mortgage insurance (PMI), which offset a portion of the risk assumed by the lender. Unfortunately, the meltdown of the sub prime mortgage market has affected other mortgage market segments and PMI is no longer available for higher risk loans, thus effectively eliminating the zero down payment programs. The only exception to the no down payment rule is the home purchase program available to veterans through the Veterans Administration and some down payment assistance programs available through non-profit corporations and our Native American tribes.
An issue that is related to the same underlying problem of a deteriorating housing market is the stricter underwriting guidelines that have been adopted by local and national players in the mortgage industry. Some of the challenges that a mortgage client might encounter are: more documented cash reserves; closer scrutiny of the property appraisal report; increased amount of down payment; and increased length of time to process and close a loan. Changes in requirements seem to change daily and the rules of even six months ago no longer apply. That is why the services of an experienced professional are even more important today than they have been in the past.
“The times, they are a-changing’”. Bob Dylan gave those words to us in 1964 and they couldn’t be more appropriate in today’s mortgage market. Even though interest rates remain at a consistently low level, we are experiencing a conservative ‘belt tightening” from all of the lenders in the housing market. Buyers that would have qualified with few or no problems as recently as sixty days ago are now being required to fulfill conditions that may preclude them from getting the loan to purchase their home. There are too many changes to adequately address in this limited space, but let’s look at some of the changes that are significantly impacting our systems.
No down payment programs are virtually a thing of the past. During recent years no down payment home purchase programs have been available to a large segment of our population. The programs targeted 1st time homebuyers and allowed them to acquire their first home using underwriting standards that were drafted with that home-buying population is mind. The loans were underwritten and funded with a requirement for private mortgage insurance (PMI), which offset a portion of the risk assumed by the lender. Unfortunately, the meltdown of the sub prime mortgage market has affected other mortgage market segments and PMI is no longer available for higher risk loans, thus effectively eliminating the zero down payment programs. The only exception to the no down payment rule is the home purchase program available to veterans through the Veterans Administration and some down payment assistance programs available through non-profit corporations and our Native American tribes.
An issue that is related to the same underlying problem of a deteriorating housing market is the stricter underwriting guidelines that have been adopted by local and national players in the mortgage industry. Some of the challenges that a mortgage client might encounter are: more documented cash reserves; closer scrutiny of the property appraisal report; increased amount of down payment; and increased length of time to process and close a loan. Changes in requirements seem to change daily and the rules of even six months ago no longer apply. That is why the services of an experienced professional are even more important today than they have been in the past.
Subscribe to:
Posts (Atom)
