Home Buyers Tax Credit Deadlines

Please REMEMBER the home buyer tax credit deadlines are sneaking up on us extremely quickly. With only 2 months left to get your home purchase into escrow – this is not very long if you have to find a home write an offer get it accepted and open escrow. So just a reminder to all of you out there in the market for a new home – now is the time to call your Real Estate Agent and get the ball rolling.

Whats the deadline?

 To qualify, first time and repeat buyers must have a binding written contract by April 30 2010 and close escrow by July 1st 2010.

How Much Money is Available?

The maximum allowable credit for first-time home buyers is $8,000. The maximum for repeat home buyers, also referred to in the legislation as “long time-residents”, is $6500.

What Properties are Eligible?

The Extended Home Buyers Tax Credit may be applied to primary residences, including single-family homes, condos, townhomes, and co-ops.

How do Buyers get the Benefit?

Home Buyers can apply the credit to their 2009 tax return, filed on or before April 15th 2010; or apply the credit on their 2010 return, filed on or before April 15, 2011.

Who Qualifies?

To qualify as a first-time home buyer, the purchaser or his or her spouse may not have owned a residence during the last three years prior to the purchase. To qualify as a repeat buyer, current home owners must have used the home being sold or vacated as a principal residence for five consecutive years within the last eight years.

Are There Income Limits?

The new law raises the income limits for people who purchase homes after Nov. 6 2009. The full credit will be available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000 – or $225,000 and $245,000 for joint filers – are eligible for a reduced credit. Those with higher incomes do not qualify.

content by courtesy of Realtor.org

Call Pam or Joanna TODAY if you have an interest in purchasing a home in San Diego County.

Pam Parton:  760-580-1615                               Joanna Woolley: 760-580-1630

FHA Loans – Income and Employment Requirements

This is the third in a series of four posts that deal with important aspects of FHA financing.  The first post provided an overview of the program while the second post detailed FHA credit requirements.  This post will discuss the income and employment requirements necessary to obtain an FHA home loan.

Income Documentation
For employees this is quite straightforward.  Copies of the most recent paystubs covering at least one month and W2s for the previous two years are required.  Complete Federal income tax returns for the previous two years may be required as well.

For self-employed people signed copies of personal tax returns for the previous two years are required.  If the business is a legal entity such as an “S” or “C” corporation, partnership or other legal entity then two years of business tax returns are also required.  A signed year-to-date Profit and Loss statement (P&L) will be needed to complete the income documentation.  FHA guidelines state that 25% or more ownership in a business is considered self-employment.

Types of Income for Employed People
The lender will review the paystubs together with the W2s and tax returns to establish a baseline amount of income as well as stability of the income.  In general, if base income is increasing they will likely be able to use the current income amounts.  On the other hand, income that is declining over the past two years will result in an averaging of the income.  A significant decline in base income will require a written explanation.

• Overtime – to be counted it must have been relatively constant for the past two years as well as currently.  There must be the prospect that it will continue and the employer will be required to state that it is likely to do so on a written Verification of Employment.  If used it will be averaged over time and added to the base income
• Bonuses – the rules are similar to considering overtime.
• Commissions – will be averaged over the prior two years and must demonstrate reasonable stability; tax returns will be reviewed and unreimbursed business expenses will be deducted from the income
• Child support, alimony and spousal maintenance – such income can be included provided that it can be shown to continue for at least the next three years.  It must be documented by a divorce decree, court order or separation agreement and actual receipt of the income documented by cancelled checks, bank statements or other positive means.
• Retirement income – Pension and Social Security income is acceptable and must be documented by award letters, IRS form 1099s and current “pay advices” (stubs).  Again, there must be the prospect of continuing for at least the next three years
• Insurance and government income – workman’s compensation, long-term disability or other similar income must be documented and expected to continue for at least three years

Self-Employed Income
Income and expenses will be analyzed from the past two years tax returns and current P&L.  The earnings will be averaged over this time period.  Income that appears stable or increasing will be considered, whereas declining earnings may not be considered acceptable.

Minimum Length of Employment
Stable employment in the same general field of work or business for two or more years is considered minimum.  Going from being an employee to self-employed, even in the same line of work, gets special scrutiny.  A person who has been self-employed for at least one year AND has at least two previous years of employed experience in the same field may be considered.  Formal training or education in the same line of work during the prior two years may be considered in lieu of employed experience.

The next post in this series will discuss the financial assets and down payment requirements for obtaining FHA financing.

For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 or paulforloans@aol.com

Home Prices Rise 8.6% in Southern California

Home Prices Rise

Home sale prices in Southern California showed new energy in January, bouncing 8.6% from the same month one year earlier — a period when the market was inundated with steeply discounted bank-owned properties.

 Compared with a very strong December, the median fell 6.1% to $271,500 in January, ending eight consecutive months of price appreciation or stability in the Southland, MDA DataQuick, a San Diego real estate research firm, quoted Tuesday.

The month-to-month decline was likely in part to the higher percentage of cheaper Inland Empire homes that sold in January compared with December as buyers in pricier areas stopped searching during the holidays and investors and first-time buyers made up a larger share of shoppers. Read the rest of this entry »

Trading Home Equity For Cash

Home Equity

Trading Home Equity for Cash

Would-be borrowers still find most home mortgages tough to get in this semifrozen credit environment. A major exception is reverse mortgages for homeowners over age 62. These mortgages represented a growing market for the past decade. Even in the recession of 2009, the number of reverse mortgages grew 4 percent over the previous fiscal year.

Banks, brokers and savings and loans are happy to approve reverse mortgages because the Federal Housing Administration insures them; thus, lenders will be repaid even if the value of the house falls below the balance of the loan. And many consumers find reverse mortgages simpler to qualify for, because eligibility primarily involves borrowers’ age, home value and equity — not their income or credit history. Read the rest of this entry »

FHA Home Loans – Credit Requirements

This is the second in a series of four posts that deal with important aspects of FHA financing.  The first post provided an overview of the program.  This post will detail the credit requirements necessary to obtain an FHA home loan.

Traditional Credit History
This describes the typical credit history that most people tend to establish over time.  As consumers utilize credit in its many forms (credit cards, car loans, student loans, mortgages etc.) detailed histories of how they have managed their credit responsibilities are collected by at least three credit bureaus.  In addition, each bureau also computes a composite credit score commonly known as your FICO score (stands for Fair Isaac Corporation, the company that created the current credit-scoring models).

The FHA lender will review the FICO scores as well as the details of the individual’s credit history to determine how well a Borrower has managed credit in the past.  NOTE: You may obtain a free credit report once each year, from each of the three major bureaus (Equifax, Experian and Transunion) by going to www.annualcreditreport.com.  There are many websites where you can obtain your FICO scores, usually for a fee.  One popular site is www.myfico.com.

Derogatory Credit
You knew we would get there eventually.  Derogatory, or negative, credit are the dents and dings that people can incur in their financial lives.  Here is a breakdown of how FHA lenders consider such items:

• all derogatory items within the last 24 months require a written and signed letter of explanation
• “minor” derogatory remarks older that 24 months do not require explanation
• all “major” derogs require written explanation, regardless of age (the FHA lender determines what is minor vs. major)
• collections are considered major derogs and must be explained; most FHA lenders will require them to be paid off
• judgments must likewise be paid off unless a verifiable repayment plan is in force and all payments have been made to-date
• a foreclosure must be at least 3 years old, but may be less than that for certain documented extenuating circumstances beyond the Borrower’s control (I.e. serious illness, death of a wage-earner).  Divorce will not normally be considered.
• Chapter 7 bankruptcy discharge must be at least 2 years old with no new derogatory credit issues after the discharge; may be less than 2 years with acceptable extenuating circumstances.  Less than 12 months not allowed
• Chapter 13 and/or Consumer Credit Counseling allowed with at least a 12-month history of on-time payments; permission of the bankruptcy court or counseling agency is required

Non-Traditional or Alternative Credit
The FHA allows for Borrowers without traditional credit histories to document their bill-paying behavior by showing on-time payment of other types of consumer bills such as rents, utility bills and car insurance.  Such documentation cannot be used to enhance an existing traditional credit report or offset other derogatory credit

A Final Word On Credit
As you can see, the FHA has certain minimum standards and requirements, yet also allows FHA-approved lenders a certain degree of discretion in some areas.  It is up to the lender’s underwriter to render a final decision on the creditworthiness of a particular Borrower.  Some lenders may add additional requirements as well, but can never ignore or toss out FHA guidelines.  Click here to go to the FHA’s consumer website.

The next post in this series, to be posted shortly, will discuss income and employment requirements for obtaining FHA financing.

For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 Ext. 315  or paulforloans@aol.com

Homeowners in Foreclosure Avoidance Program -New Rule

New Rules For Home Loan Modifications

Those seeking to ease their mortgage terms must now document their finances before a trial modification will be approved. Loan servicers must adopt the policy by June 1st 2010.

Taking borrowers at their word for how much they earn was a major cause of the mortgage meltdown. That practice may also be why an Obama administration program has struggled to convert temporary home loan modifications into permanent ones.

The government said last week that it would overhaul the program by requiring homeowners to document their incomes before trial modifications are granted. Read the rest of this entry »

FHA Loans – The Basic 203(b) Home Loan

This post will be the first of four brief articles covering the most important aspects of what has become the darling of the real estate market – the venerable FHA home loan.

Established in 1934, the Federal Housing Administration, as stated on its website “….  has served as an economic backstop working hand-in-hand with lenders to provide consumers with access to safe and affordable loans, even during times of tremendous market volatility as with the current subprime situation“.

This post will describe some highlights of the most common type of FHA financing, known as the Section 203(b) loan.

Subsequent posts will detail credit requirements; income and employment;  and finally assets, down payment and cash required to close.

Maximum Loan Amount

The current limit is the same as it was in 2009, varies county-by-county and is the lesser of 125% of the median house price in a given area, or the following amounts:

• Single family unit – $729,750
• Two family unit  – $934,200
• Three family unit  – $1,129,250
• Four family unit   – $1,403,400

Property Types Allowed

As noted above, FHA financing is available for single-family homes, condos and PUDs as well as 2 to 4 family properties provided that they are owner-occupied.  Second homes and investment properties are not allowed.  Condominiums must be FHA approved and HUD recently made it somewhat easier for a lender to initiate the approval process if necessary.

Other Notable Features

• Can be used to purchase or refinance a primary residence
• Minimum allowable down payment is 3.5% of the purchase price (for homebuyers with FICO scores below 580 the minimum down payment will be 10%)
• Down payment can be gifted
• For now the “Upfront Mortgage Insurance Premium” (UFMIP) is 1.75% of the purchase price; however this will be increased to 2.25% April 5, 2010.  FHA still allows this premium to be rolled (financed) into the loan
• Seller can credit up to 6% of the purchase price to closing costs (HUD plans to lower the maximum amount of Seller credit to 3% later this year, the date to be announced)
• No financial reserves required for 1 or 2 units, 3 months reserves for 3 to 4 unit properties
• Allows non-occupant co-borrowers (for example, Mom and Dad can be on the loan to help qualify, even though they will live elsewhere)
• Allows cashout refinancing to 95% of value ($417,000 maximum; 85% over $417,000)
• No prepayment penalties
• A borrower can have only one FHA loan at a time (fairly obvious since these are strictly owner-occupied loans and a person cannot have two “primary” residences.  Exceptions: you are relocating, selling your home to purchase a new home, or a divorce situation
• U.S. citizenship is not required:  the borrower must have a valid Social Security Number, hold Permanent Resident Alien status or be eligible to work in the United States and hold the appropriate work visas.

Watch for the next article in this series to be posted very shortly which will detail the credit requirements for obtaining an FHA home loan.

for more information contact Paul Gonzales, Manager, Countywide Mortgage Inc   (760) 746-7388  or  paulforloans@aol.com

San Diego Homeowners Do You Qualify for the Home Energy Tax Credit?

Home Energy Tax Credit

Homeowners, Do you Qualify?

Homeowners Tax Credit

 

The federal energy tax credit is based on 30% of the cost of an eligible HVAC system, including installation charges.

Replacing an aging heater and cooling system in your  home can save you money over time. According to Energy Star, a federal program that promotes energy efficient, states about half of what the average household spends on energy bills goes toward heating and cooling.

Upgrading your heating, ventilation and air conditioning in your home (HVAC) to energy- efficient units can cut utility costs by about 20%, or $200 annually, on average. A tax credit for heating and cooling systems can make the project more affordable. Read the rest of this entry »

Real Estate Tax Deductions

10 Often Overlooked Real Estate Tax Deductions

1. Home acquisition mortgage loan fees:  If you bought your primary or secondary home in 2009 you probably obtained a mortgage to finance the purchase.  That mortgage is called an “acquisition mortgage” because it enabled a purchase of the residence.  If you paid a loan fee to obtain that acquisition mortgage, usually called “points”, that loan fee qualifies as an itemized interest deduction.  Each point paid equals 1 percent of the amount borrowed.
2. Home Improvement loan fees:  If you paid a loan fee to obtain a home improvement loan, that loan fee is fully deductible in the tax year it was paid.
3. Loan fees paid to refinance a home loan or borrow against other real estate:  If you refinanced your existing home loan in 2009, or borrowed against other real estate, such as an apartment building, any loan fee you paid must be deducted over the life of the mortgage; i.e., if you paid a $1,000 loan fee to refinance with a new 33-year home mortgage, you can deduct $33.33 for each of the next 30 years.
4. When refinancing, deduct any undeducted loan fees:  Thanks to low mortgage interest rates, many home owners with equity in their homes refinanced in 2009.  These home owners should remember to deduct on the 2009 income tax returns any undeducted loan fees from prior mortgage refinance.
5. If you bought or sold property in 2009, remember to deduct prorated real estate taxes:  A major tax deduction many real estate buyers and sellers overlook is the prorated property tax they paid at the close of escrow.  Even if the other party remitted the payment to the tax collector, but your were charged a prorated portion of the tax bill,  be sure to deduct your share on your 2009 return. Read the rest of this entry »