Monthly Archives: March 2014
Good news for people shopping for a mortgage — and for current homeowners facing foreclosure because they can no longer afford their home loan: New mortgage regulations drafted by the Consumer Financial Protection Bureau recently took effect and they provide a slew of new rights and protections for consumers.
One of the cornerstones of the new mortgage rules is that lenders now are required to evaluate whether borrowers can afford to repay a mortgage over the long term — that is, after the initial teaser rate has expired. Otherwise, the loan won’t be considered what’s now referred to as a “qualified mortgage.”
Qualified mortgages are designed to help protect consumers from the kinds of risky loans that brought the housing market to its knees back in 2008. But obtaining that designation is also important to lenders because it will protect them from lawsuits by borrowers who later prove unable to pay off their loans.
Under the new ability-to-pay rules, lenders now must assess — and document — multiple components of the borrower’s financial state before offering a mortgage, including the borrower’s income, savings and other assets, debt (including alimony, child support and student loans), employment status and credit history, as well as other anticipated mortgage-related costs (home and mortgage insurance, property taxes, etc.)
Qualified mortgages must meet the following guidelines:
– The term can’t be longer than 30 years.
– Interest-only, negative amortization and balloon-payment loans aren’t allowed.
– Loans over $100,000 can’t have upfront points and fees that exceed 3 percent of the total loan amount.
– If the loan has an adjustable interest rate, the lender must ensure that the borrower qualifies at the fully indexed rate (the highest rate to which it might climb), versus the initial teaser rate.
– Generally, borrowers must have a total monthly debt-to-income ratio (including regular bills, outstanding debts and potential mortgage payments) of 43 percent or less.
– The guidelines don’t specify a minimum down payment or credit score to qualify.
– Loans that are eligible to be bought, guaranteed or insured by government agencies like Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veteran’s Administration are considered qualified mortgages until at least 2021, even if they don’t meet all QM requirements.
Most lenders adopted much tighter lending practices after the financial crisis. The CFPB estimates that over 90 percent of existing mortgages already comply with the guidelines. So-called “no-documentation” and “low-documentation” loans, where borrowers with shaky paperwork used to be approved regardless of whether or not they could actually afford the mortgage, are now forbidden.
Lenders may still issue mortgages that aren’t qualified, provided they reasonably believe borrowers can repay — and have documentation to back up that assessment. For example, many lenders plan to continue making interest-only and jumbo loans or waive the 43 percent debt-to-income ratio for certain customers. However, they’ll have fewer legal protections than with qualified mortgages should a buyer later default and decide to sue.
New, tougher regulations also apply to mortgage servicers. (Lenders frequently sell loans to investors after the mortgage has been signed. Those investors, not the consumers, often choose the mortgage servicing company, which is responsible for collecting payments, handling customer service, escrow accounts, collections, loan modifications and foreclosures.)
For example, mortgage servicers now must:
– Send borrowers clear monthly statements that show how payments are being credited, including a breakdown of payments by principal, interest, fees and escrow.
– Fix mistakes and respond to borrower inquiries promptly.
– Credit payments on the date received.
– Provide early notice to borrowers with adjustable-rate mortgages when their rate is about to change.
– Contact most borrowers by the time they are 36 days late with their payment.
– Inform borrowers who fall behind on mortgage payments of all available alternatives to foreclosure (e.g., payment deferment or loan modification).
With limited exceptions, mortgage services now cannot: initiate foreclosures until borrowers are more than 120 days delinquent (allowing time to apply for a loan modification or other alternative); start foreclosure proceedings while also working with a homeowner who has already submitted a complete application for help; or hold a foreclosure sale until all other alternatives have been considered.
A few other features of the new mortgage rules include:
– Anyone who is paid to offer, arrange or assist in finding you a loan cannot be paid more to steer you into a higher-cost mortgage.
– If you pay someone directly in connection with a mortgage, he or she generally cannot also receive payment from someone else for the same transaction.
– Self-employed individuals and others with inconsistent income may have to show additional qualifying information, such as several years’ tax returns.
– The new qualified mortgage rules do allow exceptions for refinancing a consumer out of a risky loan. For example, the ability-to-repay rule may not necessarily apply when a lender refinances a borrower from a riskier mortgage to one that’s more stable.
Bottom line: You should never enter into a mortgage (or other loan) you can’t understand or afford. But it’s nice to know that stronger regulations are now in place to help prevent another housing meltdown.
Source: huffingtonpost.com by Jason Alderman
Your Loan in the Valley
It’s human nature to want to amass as many tax deductions as you can when you purchase a home. Many taxpayers, though, are too aggressive, confusing personal property and investment property tax rules. They wind up trying to take deductions they are not entitled to, risking fines and penalties (and perhaps missing other tax breaks).
It is vital to understand your personal residence tax deductions, including what you can and cannot deduct on your personal home.
Taxes on Your Personal Residence
Unlike rental property purchases, you cannot deduct the purchase price of your personal residence in any way whatsoever. The IRS considers personal residences to be personal property and not a business expense. Nor can you deduct the cost of repairs, maintenance or renovations on your personal residence. Before we get into the nuts and bolts, let’s deal with the “Thou Shalt Nots.”
Nondeductible Expenses for Personal Residences
I. Thou shalt not deduct insurance premiums on a personal residence.
II. Thou shalt not deduct for repairs and maintenance costs.
III. Thou shalt not take depreciation on personal residences, for thou already hast a capital gains exemption.
IV. The laborer is worth his wages. But thou shalt not deduct the wages paid to thy maidservant, nor thy manservant, nor thy cook, carpenter, or layer of tiles; for thy home is not a business investment, but for thine own use.
V. Thou shalt not deduct closing or settlement costs, nor appraisal costs, nor stamp fees and document fees. It is an abomination. But amounts thou payest as advance payments on interest – these thou shalt deduct gradually over the life of the loan.
VI. Thou shalt not deduct utilities, gas, cable, or electricity, except if thou engage in a trade or business from thy home, in proportion to thy square cubits.
VII. Thou shalt not deduct special assessments on a property, except if the tax applies to all properties, uniformly, in the jurisdiction.
VIII. Thou shalt not deduct the principal portion of thy personal mortgage payment.
IX. Thou shalt not deduct fees paid to thy landlord, nor thy property tax collector for services rendered to thee concerning thy personal dwelling. Nay, even unto the trash collection fee.
X. Thou shalt not deduct amounts you pay for improvements to common areas. Thy payments for sidewalk improvements, building recreation areas and repaving parking lots for thy property complex are thine own.
But enough of the Thou Shalt Nots. What can you deduct? Well, it turns out that there are “Ten Commandments” you can refer to here, as well:
Deductible Expenses for Homebuyers
I. Thou shalt deduct thine interest payments on home mortgages up to $1 million ($500,000 if married and filing separately), provided that the debt is secured by thine own residence.
II. Thou shalt deduct any points paid at closing in lieu of interest, reporting the payment on IRS Form 1098 – Mortgage Interest Statement. But thou shalt not deduct all points paid that year, except if thy points are not excessive, points are standard practice in thine area, and the loan is secured by thy primary dwelling.
III. Thou shalt deduct the interest on home improvement or home equity loans with principal of up to $100,000, provided that the debt is also secured by a lien on thine own home.
IV. Thou shalt deduct property taxes attributable to the date of sale and after. The seller shall pay property taxes attributable for the year up to the date of sale. Therefore you may not deduct them.
V. Thou shalt deduct any penalties for prepayment of mortgages, as well as fees for late payments, provided the fees are not connected with any specific service.
VI. Thou shalt deduct any prepaid interest, except that if the prepayment is for a period of greater than one year, thou must deduct the interest in the year it would have been paid, hadst thou not paid the interest in advance in a prior year. Yea, verily.
VII. Thou shalt prepare an IRS Form 1098 – Mortgage Interest Statement.
VIII. Thou shalt deduct premium payments for PMI, or primary insurance, except if your adjusted gross income is above $109,000 for married couples filing joint tax returns, and $54,500 for individual filers.
IX. Thou shalt deduct thine interest payments, deductible points, sales and property taxes by preparing an IRS Form 1040, Individual Tax Return, and a Schedule A, Miscellaneous Itemized Deductions.
X. Thou shalt not use a Form 1040EZ for this purpose. It is an abomination.
Capital Gains Tax Exemption
While personal residences don’t qualify for many of the same tax breaks that investment properties qualify for, there is at least one powerful tax advantage to owning your personal home: the capital gains tax exemption. Normally, you have to pay capital gains taxes of between 5 and 15 percent on property you have held for over a year. However, the IRS exempts the first $250,000 of profit on the sale of a qualified personal residence. Married taxpayers can exempt up to $500,000 of profit from capital gains taxes. Special rules apply to active duty military personnel.
Income Limit on Home Mortgage Deduction
If your income is over $100,000 for the year, the IRS may reduce your allowable exemptions. If your adjusted gross income is over $109,000, or $54,500 if you are married and file separately, the IRS disallows your mortgage interest deductions.
Tax Deductions on Multiple Homes
You can deduct home mortgage interest on your primary residence and on one second home. You cannot deduct mortgage interest on other homes, except insofar as that interest is a business expense on rental properties.
There are many additional rules governing the taxation of personal residences not listed here. These are the basics, but the legislative environment is constantly changing. There is no substitute for enlisting the services of a qualified financial or real estate expert.
Source: realestate.com by
For more information on deductions available to homebuyers, talk with a Your Loan in the Valley Loan Executive
Your Loan in the Valley 2014
El ser Real Estate require de un sin número de conocimientos para competir en el mercado. Uno de los más importantes es saber manejar el sistema HUD.
Una solución fácil y explicada en 14 simples pasos, cortesía de Your Loan in the Valley.
Si estas buscando más información acerca de éste y otros temas, no dudes en comunicarte con us especialista de Your Loan in the Valle. 818 810 4646
Your Loan in the Valley 2014
What is a credit score?
Your credit score is a grade assigned to your credit history that expresses your creditworthiness as a single number. Higher credit scores mean you’re less of a risk, which means you are more likely to be able to borrow larger amounts at lower interest rates. Lower credit scores mean you’re higher risk, and are therefore more likely to be offered lower amounts at higher interest rates or be denied credit altogether.
The most commonly used credit scores are provided by Fair Isaac Corporation and are known as FICO® scores. They can range from 300 (the worst) to 850 (the best). Creditors differ, but a good score is usually considered to be 700 or above.
What is a credit report?
The three major credit bureaus—Experian, Equifax and TransUnion—collect information from public records and companies you do business with. They use that information to create a record (your credit report) that includes:
- Personal information to identify you, including name, current and previous addresses and Social Security number
- A list of your credit accounts, including reports from creditors
- Public record information and information from collection agencies, including delinquent accounts, bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments
- Credit inquiries (a list of everyone who has asked to see your report in the past two years)
All of the above financial information factors into your credit score.
What else should I know about my credit score?
Five key items on your credit report are calculated to create your credit score, but they don’t factor into the overall score equally. Some items in your credit report have more weight than others. Here’s the breakdown:
- Payment history (35%) Timely payments on all your accounts can help you get a higher score. The score is lowered for late payments, delinquent or overlimit accounts, bankruptcies and liens.
- Total amount you owe (30%) This is the ratio of what you owe to the amount of your available credit, or your debt-to-credit ratio. A high credit card balance can lower your credit score as it may reflect difficulty affording your monthly payments. However, if you have a high credit limit and you keep your balances low, your debt-to-credit ratio will be low, so a higher credit limit can help you protect your good credit score. But this is only the case if you continue to keep your balances low.
- Length of credit history (15%) This shows how long you’ve been using credit and how well (or poorly) you’ve managed your finances in the past.
- New credit accounts and inquiries (10%) This includes accounts you’ve opened recently, and recent inquiries from companies you’ve applied to for credit. Be aware that applying for too much credit can lower your score.
- Types of credit in use (10%) This includes all your credit accounts — credit cards, installment loans, mortgages and other types credit.
You may have a different FICO score for each of the credit bureau agencies. That is, each bureau uses their own formula when calculating the FICO score. Since all the bureaus use your credit report to perform their calculations, the different FICO scores are usually very similar.
Can I review my credit report?
Experts recommend that you review your credit report annually for accuracy. If you find any errors, report them to the credit bureaus—and to the originating creditor—to have them corrected. And if you think fraud or identity theft has occurred, contact the credit bureaus immediately. The Fair Credit Reporting Act (FCRA) requires that each of the reporting agencies provide you access to a free credit report. Here’s how:
1. Once a year, you are entitled to a free credit report from each of the three credit bureaus.
2. If your application for a credit card is denied, the credit bureau that reported your credit score must offer you a free report.
Can I improve my credit score?
The best things you can do to keep your credit score up is to pay your bills on time, and limit your debt payments to less than 20% of your income.
Your credit report and credit score tell creditors how you manage money. Make sure that you make the grade by staying on top of both.
Your Loan in the Valley
It now seems pretty clear that late 2012 or early 2013 was the ideal time to purchase a home: Real-estate prices and interest rates were both near record lows, creating an unprecedented buying opportunity for those who could muster a down payment and qualify for a mortgage.
We used data from research firm RealtyTrac to determine where housing affordability is deteriorating the most. At the top of the list is Salinas, Calif., where a median-priced home rose 40% from the end of 2012 to the end of 2013, to $388,000. When rising interest rates are factored in, the income required to purchase a typical home rose by a whopping 58%.
The 10 areas in the list below are ranked by the increase in income required to buy a typical home from December 2012 to December 2013. We also included RealtyTrac’s affordability-index rating for the county each city is located in, to exclude cities in which required incomes have risen but homes are still relatively cheap. (The affordability index represents the median income per county as a percentage of the required income for a typical home purchase, so cities with a rating below 100 are less affordable while those above 100 are more affordable). We also grouped cities in northern and southern California into two entries, since there are so many of them. Here are the 10 areas where home affordability is deteriorating the most:
With home prices rising nationwide by an average of about 11% in 2013, the income required to buy a typical home rose in all but a handful of cities. Still, affordability remains strong in the majority of markets, says Daren Blomquist of RealtyTrac. Here are the 10 cities where affordability has either improved during the past year, or barely changed (affordability-index data isn’t available for every city):
The problem with the most affordable cities is they tend to be less vibrant than those where demand for housing is strong and prices are rising. So while affordability may still be good in many cities, economic opportunity may be lacking.
Meanwhile, the other big factor that determines whether families can buy a home — even if they may have the money for a down payment — is whether their credit rating is strong enough to qualify for a mortgage. Banks have been loosening up, and some have recently begun to lend to subprime borrowers for the first time since the housing bubble began to burst back in 2006. But for some borrowers, it’s a Catch-22: Lending standards are easing just as affordability is worsening. Some families that might have been able to afford a home a year ago can’t now, even if they’re more likely to qualify for a mortgage.
All of these factors will determine whether the housing recovery continues or peters out, which some economists are starting to worry about. While 2013 seemed to be a nice comeback year for housing after six years of price declines, some analysts think it was illusory. “The housing price gains in 2013 may have been a mirage,” writes Jeffrey Rosen, chief economist at research firm Briefing.com. “First-time home buyers have been effectively priced out of the market.”
Rosen believes a surge of all-cash buyers — who are usually investors buying properties to flip or rent — pushed up prices in 2013, a trend that could reverse itself in 2014 as demand from investors wanes. If so, homes that have drifted beyond the reach of first-time buyers could become more affordable, not less. “Affordability conditions need to revert to where they were in January 2013,” Rosen says.
If that happens, potential homeowners should make sure they don’t miss a historic buying opportunity twice.
Source: yahoo.com By Rick Newman
Your Loan in the Valley