Tax Could Increase in 2014

Mortgage Foreclosure Debt Forgiveness Act of 2007 - a tax break for struggling mortgage borrowers is set to expire in January 2014. This law was created to help distressed home owners and prevent them from defaulitng on their loan. Normally, debt forgiveness results in taxable income. But under the Mortgage Foreclosure Debt Forgiveness Act, the home owner can exclude up to $2M of debt forgiven on his/her principal residence. 

According to National Association of Realtors (NAR) a return of the tax could have a BIG IMPACT on underwater home owners. 

Once the law expires, a home owner who owns a $400,000 property and sells it for $250,000, the forgiven debt of $150,000 will be taxed after January 1 of 2014. The tax payable could reach up to $35,000. In addition to that, the debt that was forgiven from 2007 to 2013 must be included in the taxable income.  

NAR president Gary Thomas firmly believes that extending the Mortgage Foreclosure Debt Forgiveness Act is detrimental to the continuous recovery of the housing market. 

"If it's allowed to expire, many distressed homeowners may opt instead for continued default until foreclosure or simply to walk away from the property," said Thomas. "Either way, this would destabilize communities as foreclosed and vacant houses drive down values in the surrounding neighborhood." (Source: www.money.cnn.com)

There's a very slim chance that the government will extend the bill. With only approximately 2 weeks into the year and Christmas season at that.  Our best bet is if the government extends the bill by next year and apply it retroactively.

If you have any more questions, please feel free to contact me.

Getting a Mortgage is About to Get Harder

 

Starting January 10, 2014, the New Qualified Mortgage Rule (QM) will take effect to avoid the repeat of the housing and credit crisis happened 5 years ago. The new rule prohibits banks from approving mortgages to potential borrowers that have higher than 43% of debt-to-income ratio. It means that potential borrowers' total debt liability should not exceed 43% of income.

The new QM rule will make it more difficult for first time buyers to purchase their own home.  First time home buyers may have limited income or existing college loans.  This will result to 30 - 40% decrease in the total market. When this market is taken out of the equation,prices are going to be stagnant or decline. Stagnant or declining pricing means underwater home owners will stay in that position, encouraging short sales and foreclosures. 

Borrowers that do not meet the Ability-to-Repay (ATR) standard will likely see decrease in credit availability and increased in borrowing costs. In addition, borrowers with inconsistent income such as self-employed, contract workers, individuals with cyclical or seasonal employment, or those primarily reliant on investment income will likely have some difficulties satisfying the underwriting criteria despite good credit histories.  (Source: First Look - Implications of the ability to repay rule and the qualified mortgage definition)

Mortgage lenders are going to look sharply on (1) Current or reasonably expected income and assets, (2) Current employment (3) Monthly payments on covered transactions (4) Monthly payments on simultaneous loans (5) Monthly payments for mortgage related obligations (6) Current debt obligations alimony and child support (7) Monthly debt-to-income ratios or residual income and (8) Credit history.

Bottom line is... it will be harder for the potential home buyers to obtain a loan once the new rule takes effect due to the increased required documentation, higher down payments and stricter underwriting guidelines.  

As for the seller, if you want to sell quickly, that will not be happening for next year.  Currently, the average closing period is 45 days, it will definitely take longer once the new QM rule takes effect.

So, if you're shopping for a mortgage, it's a MUST that you close your loan before the end of the year.  It is important to ACT NOW! Not in a few weeks or a few months, but NOW!!! While lending policies are still manageable. Once the new rule takes effect it will be harder for both buyers and sellers to close transactions.

If you need to understand how and when the new regulations may impact you, don't hesitate to contact me. I can provide good tips and guidance to get through the mortgage process as smoothly as possible. 

 

 

THE COMPETITIVE HOUSING MARKET

Houses may be more expensive than before, but they are selling faster. The reason? According to the National Association of Realtors, the supply of available properties is down more than 7% year over year.

"The declining inventory of for-sale homes over the past year naturally creates pressure for buyers to take advantage of the inventory that is on the market," said Stan Humphries, chief economist at Zillow. "This demand has been fueled by huge resets in home prices, historically low mortgage rates and a slowly improving economy." 

The current competitive market means potential buyers must have all their financials in order before they even ask their Realtors to schedule a showing. 

Humphries also said, "Home shoppers in today's environment need to be prepared to move quickly, with pre-approvals in place and an established sense of what they're willing to pay." 

DON'T WAIT! Grab your new home now while it's still affordable. AND while there are available inventory in the market.  

Whether buying or selling at this current competitive market, the James Team at Keller Williams is committed to providing great customer service for your family and giving you an advantage for purchasing the home of your dreams, an investment property and also selling your home!! Don't wait another moment and contact us today!!

BUYING AND SELLING YOUR HOME DURING OFF-PEAK SEASON

Holiday season can be one of the best times of the year for buying your new home or selling your existing home.  There is a misconception that the Alaskan housing market does a complete halt once the snow hits the ground, this is actually far from the truth!  Instead of going with the "norm", why not take advantage of the housing market with some helpful tips?

When you buy or sell during off season, the housing inventory (depending on price range) is typically low in comparison with the Spring and Summer months.  So what does this mean and how does low housing inventory impact you when buying or selling??

From a BUYING perspective, it is very important to work with a Realtor who knows the local market and can actually guide you into the home PRIOR to it going on the market.  With inventory traditionally low during the Holidays, some homes are selling within days or even hours of going on the market!! That is the difference between a TOP REALTOR TEAM and an average real estate licensee.  From a SELLING perspective, this is also a GREAT BENEFIT to working with our team because we are focused on bringing PRE-QUALIFIED BUYERS into your home and our seamless strategic pre-marketing!!

These are just a few tips, please contact our office for more info and detailed recommendations.  Viewing a property during the Winter months can tell you a lot about what you can really expect from a property during the worst weather conditions:

1. Drive by houses after a snowfall and you'll discover if the property is properly insulated.  A helpful tip is to contact the utility company for monthly utility costs.

2. Drive by the home after a recent snow fall to see how the roads and sidewalks are being maintained. 

3. Tour a house during a hard rain and you can check if there are no overflowing gutters or standing water in the crawl space or on the lot.

4.  Stay in a house on a cold day and check out if the furnace heats the whole house.  How are the living rooms, bedrooms and bathrooms? 

Whether buying or selling in the Holiday Season or any other time of the year, the James Team at Keller Williams is committed to providing great customer service for your family and giving you an advantage for purchasing the home of your dreams, an investment property and also selling your home!! Don't wait another moment and contact us today!!

Using 401(k) for Down Payment

Worried about down payment on your first home?  You may be able to tap into your 401(k) for your down payment. NOW is the perfect time to buy a house so it might be worth to touch your retirement money earlier than planned.

 

You can generally borrow up to half of your balance, up to a maximum of $50,000, from the account at any age and for any reason without tax or penalty.  The interest you pay on the loan, generally the prime rate plus one or two percentage points, goes back into your account.

 

Loans taken from 401(k)s must be paid within 5 years, but your employer may give you up to 15 years to repay a 401(k) loan if you are using the money to buy a home.  

 

There is one down side to borrowing from your 401(k). If you lose or leave your job, you generally have just 60 or 90 days to pay back the loan or it will be subjected to taxes, plus a 10% early withdrawal penalty if you're under 55 when you leave 

your job. (Source:www.realestate.msn.com)

 

In principle, it's not a good idea to tap into your retirement funds, since you'll need those funds when you get old.  But, borrowing from 401(k) can be the quickest, simplest, lowest-cost way to get the funds you need. Requesting for a 401(k) doesn't require credit checks and it doesn't affect your credit rating.  Getting your 401(k) loan can be just few clicks away and you can have your check on hand within a few days. 

In addition to that, it's easy to repay your loan. You can pay your loan earlier than scheduled without prepayment penalty. You can also pay it back through payroll deductions.

 

Just like any type of loan, you should always have a clear plan of paying on time or earlier. If you have any questions on your 401(k) loan, don't hesitate to call me.

Effects of Government Shutdown 2013 to Real Estate

What is the government shutdown's impact on real estate?  What happens from today onward? 

National Association of Home Builders Chief Economist David Crowe said, "Spike in mortgage interest rates, along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation's debt limit, have caused builders and consumers to take pause".  He added, “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved we expect builder and consumer optimism will bounce back.” (Source: www.realtor.org)

According to realtor.com, Crowe's view seems to be the same as other industry observers.

The main impact of the government shutdown in the real estate industry was the difficulty in obtaining IRS 4506T (copy of tax returns) documents needed to close most borrowers' loans. 

Only USDA (United States Department of Agriculture) and Jumbo loans were greatly affected by the shutdown.  USDA loans were completely inaccessible to borrowers.  Jumbo loans, on the other hand, were requiring documentation from IRS.  But this should be back to normal within the next few weeks.  

Many lenders remained operational through the shutdown and still processing FHA loans.  There might be a slight backlog of approvals on the FHA's end, but there shouldn't be any significant delays.  

"Best advice is to buy a home at the current lower prices and historically low rates.  Rates will rise and property values will follow due to limited supply" advised Cal Haupt, Chief Executive Officer at Georgia-based Southeast Mortgage.

Government shutdown is the topic of the decade. Nobody really knows what will happen in the future.  Let's just keep our fingers crossed and hope for the best!

HOW TO SAVE ON CLOSING COSTS

Buying a home can already put a hole in your pocket and  paying for the closing costs can also be equally painful.  These fees must be paid (no matter what) to the lenders and other third parties such as title/escrow and insurance.

There are 2 types of closing costs. They are called recurring closing costs and non-recurring closing costs. Recurring closing costs are charges that must be paid more than once. On the other hand, non-recurring closing costs are once in a life time charges.

If you want to reduce the closing costs follow these advice:

1. Ask the seller if he/she could cover part of the closing costs as part of the transactions. The lowest amount that the seller can cover is 2% of the purchase price and the highest amount allowed is 9%.
2. Shop for closing costs. When looking for a lender, also make sure to look at their closing fee charges. Different lenders charge different closing fees. So, search for a lender with low rate and low fees - this could give you HUGE savings.
3. Read the contract carefully. Some lenders charge junk fees - and you don't want to pay for those.
4. IF you close towards the end of the month, you can reduce the number of days of per diem interest due at closing. However, this can be a busy time for lenders and they might not close in time.

If you have more questions on closing costs, feel free to contact me.