Archives: February 2012

Property Sale By Surviving Spouse – RULES DISCUSSED!

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The IRS has given special consideration regarding the sale of their jointly-owned principal residence after the death of a spouse. If the surviving spouse does not remarry prior to the sale of the home, they may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people.

The sale needs to take place after 2008 and no more than two years after the date of death of the spouse

  • Surviving spouse must not have remarried
  • Both spouses must have used the home as their principal residences for two of the last five years prior to the death
  • Both spouses must have owned the home for two of the last five years prior to the death
  • Neither spouse may have excluded gain from the sale of another principal residence during the last two years prior to the death
If you have been widowed in the last two years and have gain in your principal residence, it would be worth investigating the possibilities. Contact your tax professional for advice about your specific situation. Contact me to find out what your home is worth in today’s market. See IRS Publication 523 – surviving spouse.

HOME BUYER ALERT! Waiting Might Cost MORE! Tips for Pacific Northwest Home Buyers.

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The housing market has been in a downward trend for four years. There is some speculation that inventories will not reduce any time soon which will be necessary for prices to rise. However, there are other factors that can increase the cost of housing, specifically mortgages. FHA accounts for a large percentage of the current housing loans and is expected to be even more prominent when the Qualified Residential Mortgage Guidelines go into effect.

1. Rising rates are almost certain, due to looming inflation fueled by higher gas and food prices and the enormous amount of deficit spending

2. FHA loan limits have been reduced – they are lower than conventional limits in most markets and FHA has suggested that they might be reduced further.

3. FHA might increase the down payment to 5% or higher in an effort to have a more secure loan that will have less likelihood of going to foreclosure.

4. FHA might decrease the amount of seller contributions in a similar move to require the buyer to have a larger investment in the home and therefore be a more “qualified” borrower.

5. Congress may decide to increase the up-front MIP to build up the FHA reserves. The annual MIP has been adjusted twice since October 2010 when the Up-Front MIP was actually reduced.

6. Due to tougher conventional requirements, demand for FHA loans could exceed maximum annual insurable limits. If Congress is having a hard time raising the limit on national debt, they might not even consider raising the limits for FHA.

In an effort to solidify the lending industry, qualifying is becoming harder for the buyer and more expensive at the same time. Many of the rules changes could go into effect next year. In addition, market factors could easily play a role in increasing buyer’s costs. Waiting will very probably require a larger up-front investment for buyers in the future.

You Must Be This Tall To Ride (BUY) – For PNW Home Buyers

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Do you remember going to the State Fair or Six Flags as a child? There was a terrific ride your older siblings were going on but there, at the entrance gate, was a sign that read “You must be this tall to ride.”

After standing in line and thinking you had just about made it, you found out that you weren’t tall enough. Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.

It’s remarkably similar when buying a home. You can go through the entire property search process to find the right home and negotiate the contract only to find out that you don’t measure up “financially.” It’s something that no one wants to go through if they have a choice

Regardless of what you think you know, if you’re buying a home, you need to physically visit with a trusted mortgage professional before you get serious. You’ll find out your credit score which will directly affect the mortgage rate you’ll pay. You’ll discover possible blemishes on your credit that may be able to be corrected. You’ll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations.

Remember how some rides didn’t turn out to be as good as you thought they were going to be? You certainly don’t want that disappointment with a lender involving one of the biggest decisions of your life. Contact me for a list of trusted mortgage professionals.

Keep Track Of Home Improvements – For Pacific Northwest Home Owners!

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People are staying longer in their homes according to the National Association of Realtors and the U.S. Census. Over time, even a modest appreciation could result in a significant gain and homeowners should have a strategy to minimize possible taxes.


Maintenance on a principal residence is not deductible but improvements can add to the basis which can reduce the gain in the sale. Improvements are easily identified if they add to the value of a home, prolong its useful life or adapt it to new uses.


Receipts and other proof, such as pictures, should be kept during ownership and for several years after the sale of the home. They can include the closing statements from the purchase and sale of the home and all receipts for improvements, additions or other items that affect the home’s adjusted basis or cost.


For a principal residence, basis includes the price paid, plus certain acquisition costs and capital improvements made. When the property is sold for more than the basis, there is a gain. Currently, homeowners that meet the requirements can exclude up to $250,000 of gain if single or up to $500,000 if married filing jointly.


A simple strategy is to put documents that affect the basis of the home in one envelope. Any receipt for money spent on the home that isn’t the house payment or utilities, goes into the envelope. Your tax advisor will be able to sort through them to determine the capital improvements.


For more information on determining basis or capital improvements, see IRS publication 523, Selling Your Home.

7 Reasons for FHA Assumptions – PNW Mortgage Lending Tips

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FHA loans that originated with lower interest rates have great advantages for buyers and sellers.

  1. Interest rate won’t change for qualified buyer
  2. Lower interest rate means lower payments
  3. Lower closing costs than originating a new mortgage
  4. Easier to qualify for an assumption than a new loan
  5. Lower interest rate loans amortize faster than higher ones
  6. Equity grows faster because loan is further along the amortization schedule
  7. Assumable mortgage could make the home more marketable
Any FHA lender can approve a buyer for the assumption of an existing FHA mortgage but the most likely place to start would be the current note holder. The seller may have acquired a loan information letter that will verify that the mortgage is an FHA loan, the rate, the unpaid balance and how to make application for approval.

Approving the new buyer on the assumption will allow the seller to receive a release of liability on the loan. This will eliminate the possibility of further financial responsibility if the buyer doesn’t continue to make the payments.

Competing with Cash – Pacific Northwest Real Estate – What can we do?

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It’s not fair! 29% of all sales made in the fall and winter of 2011 were cash. How does a buyer who needs a mortgage compete with a cash buyer?

You’ve been looking for a home for months after thinking about it for years. You’ve found the home you want and meets your family’s needs. You write a contract but before it’s even presented to the seller, another offer comes in. With all the homes on the market, you’d think you wouldn’t have to deal with multiple offers but you’d be surprised how many times it does happen.

There are some proven strategies that can minimize the advantage of an all-cash buyer.

  1. Get pre-approved and submit the letter from the lender with the offer
  2. Move fast to minimize competing with other offers
  3. Submit larger than normal earnest money to show your sincerity
  4. Be flexible about closing and possession
  5. Avoid unnecessary contingencies in the contract
  6. Write a letter emotionalizing why you want the home

Last Minute Valentine Gifts Without Shopping – Pacific Northwest Style!

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What do they want? What do they need? Will it fit? Do they already have one? These are the common thoughts running through our minds when trying to find the perfect gift.


The gift of really listening with no interrupting, no daydreaming and no planning your response is exactly what people want when they have something important to say.


The gift of affection with appropriate hugs, kisses and pats on the back can demonstrate your love for family and friends better than words.


The gift of laughter by sharing cartoons and funny stories will say “I love to laugh with you.”


The gift of a simple written note shows sincerity and real heartfelt sentiment that may be remembered for a lifetime and could even change a life.


The gift of a sincere compliment supports a person’s need to be accepted and appreciated. “You look great in that color”, “That was outstanding” or “I really enjoyed that” can make someone’s day.


The gift of random kindness or good deeds like holding a door or allowing someone to move ahead of you in a checkout lane shows respect for others.


Your smile, however, may be your most rewarding gift. Invariably, the person receiving the smile will in turn, smile back. The gift you gave will now be given back to you. It will be the right size and you can always use one more.</P

Home Energy Audit – Money Smart Pacific Northwest Home Owners

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With the exception of a mortgage payment, the largest homeowner expense is utilities; and energy is the major component. There are lots of contributing factors such as air leaks, insulation, heating and cooling equipment, water heaters and lighting.


It’s estimated that 75% of the electricity to power home electronics is consumed when the products are turned off. Computers, monitors, TVs, cable and satellite boxes, DVRs and power adaptors are spinning your electric meter even when they’re not being used.


Unplugging devices can actually make a difference in the size of your electric bill. Plugging several of these offenders into a power strip with a single on/off switch may make the task easier. Most computers have options to put them into sleep mode or even turn off when not in use.


Take 3 1/2 minutes and watch Energy 101. Consider hiring a professional home energy auditor or do-it-yourself. The Department of Energy has a checklist with some valuable suggestions.

Converting a Home to a Rental In The Pacific Northwest Real Estate Market

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What’s keeping you from taking advantage of the low prices and mortgage rates available today? Concerned that you may need to sell in a few years and won’t be able to get your equity out of your home?


Suppose a buyer purchases a home and finds out that they need to move in two years. Instead of selling the home, they could convert it to a rental. It’s possible that it could have a positive cash flow even with the small down payment. In most cases, the conversion would not accelerate the mortgage.


The price of homes and low interest rates combined with a very strong rental market in most areas has attracted a lot of investors. Non-owner occupied mortgages generally require 20-30% down payment compared to a 3.5% down payment for a FHA owner occupant.


The following example looks at a home that might have been purchased as a principal residence and then converted to a rental at the end of two years. There are certainly lots of variables to consider but the high indicated rate of return merits closer examination of the possibilities.


For the buyer who has good credit and ample funds for down payment and acquisition costs, there may never be as good a time to buy a home as now. For the buyer who is concerned that they might have to move in the near future, converting it to a rental might make a great investment opportunity.



 

Deductible Is the Point – TAXATION TIPS…

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Points refer to prepaid interest on a home mortgage and can be fully deductible by the buyer in the year paid if the right conditions exist. The points must be used to buy, build or improve a taxpayer’s principal residence but not all fees charged by the lender are necessarily deductible.


According to IRS Publication 936, “The term ‘points’ is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. A borrower is treated as paying any points that a home seller pays for the borrower’s mortgage.”


If you purchased a home in 2011, have your tax professional evaluate your closing statement to see if there are loan fees that may be used as a deduction on your tax return regardless of whether you or the seller paid them.


Refinancing a principal residence or purchasing an investment or income property require that points must be deducted ratably over the term of the mortgage rather than deducting them fully in the year paid. Borrowers in these situations should consider the benefits of lower interest rates from paying point to higher interest rates without points.


This article is meant to provide information that can be discussed with your tax professional about your specific situation and is not to be considered tax advice.