Category Archives: Foreclosures and Short-Sales

Mortgage Interest Deduction (MID) Per Residence

A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.


A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.


The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.


The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.

Knowing The Current Value Of Your Home Is Important!

Knowing the current value of your home is important when you’re considering a move, refinancing or getting a home equity loan. Prices are determined by recent sales and the supply and demand of current inventory.


The process of selecting comparable properties involves matching similar features like bedrooms, baths, square footage and updates. In addition to price, there are other factors that affect the value and ultimately, the sale of a home.


Location plays a significant role because of the unique combination of improvements and land. Beneficial considerations would be convenience to schools, shopping, transportation and proximity to freeways. Undesirable concerns could include being in the vicinity of busy streets, high-tension lines, commercial property and other things.


To receive a computerized estimate on the value of your home that includes prices of comparable homes that have sold recently and homes currently for sale, click here.


Value is not totally objective and does require a certain amount of subjective considerations. If you have questions after you receive your report by email, contact us and we’ll be happy to talk to you about your concerns.

How Long Do I Have to Wait Before We Can Buy Again?

>The question concerning people who’ve had a foreclosure, short sale or bankruptcy is when they will be able to qualify for a mortgage loan.  It takes different amounts of time to heal credit scores based on the event.


The following chart is meant to be a general guide for how long a person might have to wait.  During this waiting period, it’s important that the person be current on all payments and maintains a history of good credit.


























































 



FHA



VA



USDA



FNMA/Freddie Mac



Jumbo



Foreclosure



3 years



2 years



3 years



7 years



7 years



Deed-in-Lieu of Foreclosure



3 years



2 years



3 years



2 years

<80%



4 years

81-90%



7 years

> 90%



7 years



Short Sale



3 years



2 years



3 years



2 years

<80%



7 years

81-90%



7 years

> 90%



7 years



Chapter 7 Bankruptcy



2 years



2 years



3 years



4 years



7 years



Chapter 13 Bankruptcy



1 year



1 year



1 year



2 years



7 years



A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage.  We want to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between.

When Mortgage Debt Is Cancelled…

The Mortgage Forgiveness Relief Act of 2007 was passed by Congress to avoid additional financial hardship that some homeowners might experience due to a foreclosure or short sale. The law affects mortgage relief that occurs from January 1, 2007 to December 31, 2012.


Normally, IRS considers partial or total debt forgiven by a lender to be treated as ordinary income. This not only affects foreclosures but even short sales where only part of the debt is forgiven would trigger additional taxes for the homeowner. There are exceptions that apply such as bankruptcy and insolvency.


The forgiveness is only applicable to taxpayers’ principal residence and only acquisition debt used to buy, build or improve the home. The additional cash taken out when refinancing a home will not be eligible for the relief unless it is used for capital improvements.


The lender is required to submit a 1099 form to IRS and provide the homeowner a copy who will file the forgiven amount on Form 982 as part of their 1040 tax return. How this affects your individual situation may differ due to other circumstances and advice from a tax professional is recommended.

Another Indication – The Right Time To Purchase A Home In The Pacific Northwest…

The Housing Affordability Index was developed over thirty years ago to help consumers determine when it is a good time to buy a home. It’s considered advantageous to the buyer when the index is over 100 because a median income family can qualify for a median price home.


Recent figures released by the National Association of REALTORS’ economic department show that the 2011 index of 184.5 is the highest annual average since it has been calculated. The most recent month released, December 2011, was 194.9. The index is also broken down into four regions of the country.


The two major components that contribute to the index are home prices and mortgage interest rates which are lower than they’ve been in the last five years which account for the dramatic rise in the index since 2006.


The Housing Affordability Index is another indication that this is a good time to buy a home for people who have good credit, a down payment and want a home. It may be the best time we’ll see in our lifetimes.

Great Investment! Attention Pacific Northwest Home Owners…

If you invest in a savings account, you’ll make less than 1% and will have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment on a regular basis and you’ll essentially, earn at the mortgage interest rate which is certain to be more than you’re earning in the bank.


Making additional principal contributions on your mortgage will save interest, retire debt and build equity. An extra $100 a month in the example shown will save thousands in interest and short the term of the mortgage as well.



Reducing your cost of housing is another way to improve the investment in your home. Becoming debt-free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.

Significant Problems in Real Estate Buying & Selling in The Pacific Northwest!

“The significant problems you face today cannot be solved at the same level of thinking you were at when you created them.” Albert Einstein


The housing market has definitely caused significant problems for some people but is also providing some amazing opportunities for others. Agents aren’t like retailers who wake up one day realizing they have the wrong merchandise on the shelves.


Everyone needs a place to live and whether you rent or buy, you pay for the house you occupy. While the home for sale remains the same, the methods that produce results have to change.


Listing agents are diametrically opposed to the objectives of buyer’s agents. This is not to say that there cannot be a win-win situation but each agent is trying to negotiate the best price and best terms for their client.


Financing can make listings more marketable and structure a transaction to provide the buyer with the cheapest cost of housing. Personal experience is a great teacher but a very expensive way to learn. An expert, like a Residential Finance Consultant can provide information and tools to make better decisions to be able to profit in the current market.

Investment Alternative: Investing in rentals can provide stability, safety and a higher rate of return.


To say the investment market is unsettling is an obvious understatement. The market is down 8% in the last ten days and the news doesn’t give much hope that things are going to get better in the near term.


Preservation of capital is probably today’s most important investment consideration and making a profit would be a bonus. Of all the conventional investment alternatives like stocks, bonds, mutual funds, gold, commodities, CDs and annuities, housing is the best asset class in America.


Homes have had a 30% to 40% price correction in the past four years. Mortgage rates are at near all-time low rates with 30 year terms available for investors. Rents have increased significantly over the past two years while vacancy rates have decreased. People will always need a place to live.


Five year certificates of deposits earn a little over 2% but rental properties are yielding eight to ten times more than that. Income properties are tangible assets that have benefitted dramatically in inflationary times. Cash assets can be devastated by inflation and diversifying into income properties can provide real protection.


Single family homes offer investors the opportunity to borrow large loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control. Investing in rentals can provide stability, safety and a higher rate of return.






 


Woulda-Coulda-Shoulda – Whatcom County Home Buyers & Sellers….

It is the mantra of people who missed a great deal. It’s the theme song of the procrastinator. It’s the refrain that reminds us of the one that got away.


Some people are still beating themselves up because they didn’t recognize the housing bubble was really going to burst. It is impossible to change the past but will they see the signs of the next housing trend?


In the past four years, prices have adjusted with 30% corrections nationally and much more in areas with high percentages of foreclosures. New homes are almost non-existent. Interest rates are slightly above record lows. Consumer goods are skyrocketing; our budget deficit and national debt are staggering and escalating inflation appears certain.


“Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.” states Shawn Tully, Senior Editor at-Large for Fortune magazine in a March 28, 2011 article.


“If I would have known that this was the best buyer’s market ever, I could have taken advantage of the prices and interest rates; I should have fixed my cost of housing for years to come.” Don’t catch yourself saying this. You owe it to yourself and your family to get firsthand information to see what your options really are.

Targeting The Mortgage Interest Deduction…

It’s obviously going to be a Herculean task for Congress to balance the budget and reduce the deficit. It’s sort of like the country song lyric that goes “everyone wants to go to Heaven but nobody wants to go now.” It is estimated that the mortgage interest deduction cost the government $100 Billion last year which is why it is a target for cuts.


The Mortgage Interest Deduction has been part of Income Tax laws in this country since 1913. The United States of America is one of the few countries in the world that allow such a deduction. Our goverment has always supported homeownership as is evidenced in the different tax benefits it receives.



  • Mortgage interest deuction up to $1,000,000 in acquisition debt on a principal residence and second home
  • Deduction of interest on Home Equity debt of $100,000 over acquisition debt used for any purpose
  • Capital gain exclusion on up to $500,000 for married couples filing jointly and $250,000 for single homeowners
  • Favorable long-term capital gain rates if gain exceeds exclusion limits
  • Property tax deduction


There is an interesting relationship between a good economy and a healthy housing market. Contrasted to profits from the stock market which tend to be plowed back into other investments, profits from home sales tend to be spent on consumer products that directly benefit the economy.


The National Association of REALTORS supports the MID and reports that one job is created for every two homes sold. It further states that $60,000 is pumped into the economy for each home sold and that homeownership accounts for over $2 Trillion of the U.S. gross domestic product.


American homeowers are currently paying 80-90% of all federal income tax collected. Some economists believe that a healthy housing market is a leading indicator for economic recovery and that tampering with a significant homeowner benefit like the mortgage interest deduction would hurt the economy.