Should the Mortgage Interest Deduction be eliminated?

There is a lot of talk on Capitol Hill about eliminating the Mortgage Interest Deduction (MID). The federal government is facing a huge gap between the money they take in versus what they spend. I know there is a ton of waste going on in the government but that is a discussion for later. The fact is, law makers are looking to get more money from us tax payers and just about every tax deduction is on the table for elimination or overhaul. According to CNN Money, MID is costing  the government $573 BILLION in tax revenue from 2009-2013. Can’t you see them rubbing their hands together, with an evil laugh and drooling when they see that number?

Looking further into what the MID includes, I think there are some things that can be done to the MID without eliminating it completely.  Did you know a second home’s mortgage interest can be deducted? According to the IRS, a second home is considered a second residence and not an investment property. If you have a second home you are probably making enough money to lose that the tax deduction on the second home. Did you know that a yacht qualifies as a second home? Me neither. I get that some people choose to live on a boat and it actually sounds kind of cool. What I don’t get is that you can claim that yacht as your second residence and get a tax break on the mortgage interest.  Come on now! I don’t think eliminating the yacht interest write off from the tax code is going to have much effect on the rich or super rich buying a yacht. They all still want to be on their boat feeling like Captain Jack Sparrow or screaming “I’m the king of the world” from the front of it. Well, at least that’s what I would do.

I don’t see how the elimination of the MID helps the home owners or the already fragile Real Estate market. I am sure there are other things that can be done to modify the MID in the tax code (the National Association of Realtors is 100% against changing any of it) but I think a complete elimination of the MID is a bad idea. There are many homeowners that are still making payments on homes that are worth 50% of what they owe because the tax deduction makes it worth it for them. Would you still pay on your upside down mortgage if can’t use the deduction?  If you are in the market to buy your first home, would you still want to buy if there was no more MID?

 

So You Wanna Buy a House?…

Great! So you’ve decided that you want to buy a house? You’ve never done this before, or maybe you have but it’s been a long time or maybe last time you bought your house directly from the owner when the market was high… What do you do? Where do you start?

Most people start by looking on the Internet. They start looking, maybe send an email or two to a listing agent, check Craigslist, etc… When they find something they want to see, they might call the listing agent and ask to see it. The listing agent may or may not even answer their phone (that’s the truth). The prospective buyers may get lucky, get a listing agent on the phone who agrees to show them the property without even knowing if the buyers are qualified to purchase the house. Two hours later, they see the house, but realize it doesn’t quite fit the bill. Repeat that scenario several times and just tote up the hours wasted. You can bet the buyers feel pretty discouraged at that point.

Here’s a few tips that I counsel prospective buyers to use:

• Interview buyer’s agents to find a qualified Realtor® who knows their market, has a proven track record, and with whom you are comfortable working with. Some good questions to ask yourself are: Has this professional demonstrated a comprehensive knowledge about the market and area in which you would like to buy? Are you confident that they have your best interests at heart? Are you confident in their negotiating skills? Do they have a strategy for helping you find the best deal?

Now, why would a buyer want to use a Realtor®? WHY NOT? For one, it’s free to the buyer (the seller pays the commission out of the listing agreement). Secondly, you want their expertise! Realtors® are market experts bound by their agency agreement with you to represent you and your best interests in the transaction. Third, if you don’t work with a Realtor®, you may not be able to see most of the homes on the market as you would not have access to the MLS lockboxes.

• Get pre-approved with a reputable lender. If you don’t have a reputable lender, usually your Realtor® can point you in the right direction. This is crucial to do before you start looking at homes. It will prepare you for the purchase price you can afford and tell you what you can expect your payment to be. Plus, by getting pre-approved, you will have an edge over buyers who just get pre-qualified. You will demonstrate to a seller that you are serious about purchasing, qualified to purchase the house they are selling, and that you have a certainty to close (no suprises since the lender has already approved your application).
• Set clear expectations with your Realtor® so you know what to expect and to ensure that you are all working together to meet your goal of home ownership. For example, if you need to bring Mom or Dad along for a second opinion, make that known so arrangements can be made. Or if you need to move by a certain date, make that known up-front to avoid a last minute dash to find a place to live.
• Communicate with your Realtor®. Eliminate assumption and ambiguity by asking all the questions you have (no question is dumb and if they’re experienced they’ve probably heard it all before anyway). If you are not happy with something, tell them. Allow them the chance to make it right and give you the service you deserve. Sometimes that can be hard, but better than starting all over with someone new. Go to them with you questions first before soliciting feedback from friends and family who aren’t the market experts. Better to get the right information than misinformation, even from people who mean well.

These tips may seem simple, but they can save you so much time and energy. I’ve met many clients who started looking online, got nowhere and ended up in a time crunch at the end to find a home. Think of all the time they could have saved by doing a little homework up front! As always, if I can help you find the home or your dreams or the Realtor® to help you get that home of your dreams. Drop me a line! Happy Hunting!!!

Buying a Distressed Property? Three Things Buyers Should Know!

Who doesn’t want the best deal on the market? Anyone? NO! Of course you want the best deal! In today’s market, that means looking at distressed property (REOs: properties that have already gone through foreclosure & Short Sales: properties not yet in foreclosure where the bank needs to approve a short payoff). Because of the nature of these sales, there are things you need to know before purchasing. Here are the top 3 things I make sure to discuss with my clients:

1. Timing – REOs and Short Sales alike can take longer than traditional sales. If you need to move or give notice on your current rental, make sure you discuss your timeframes clearly with your Realtor® and set expectations before you start looking at houses. Part of setting expectations will be making sure you have a customized strategy that will accomplish the goals you set with your Realtor®.
2. Pre-Approved Financing – Part of your strategy should include getting pre-approved from your lender. A pre-approval is different than a pre-qualification. A pre-approval requires you to submit the documentation that supports your income, assets, and credit history. Once you are pre-approved, you have your “golden ticket” to start home shopping!
3. Patience, Patience, Patience! Be prepared for delays at every turn. Some markets (like CA) are beginning to experience a shortage of inventory, which makes the offer process very competitive. Be prepared to put your strongest offer forth and don’t get discouraged if your offer isn’t accepted. New inventory comes on the market everyday. Even once your offer is accepted, don’t hold your breath yet. You still need to do your inspections, the appraisal needs to be done, the loan docs need to be ready for signing, and undoubtedly you’ll need some bank official’s signature on some obscure form that’s required for closing. Rely on your Realtor® and loan officer to keep you updated on the process and help you understand the reasons behind any delay. Take it step-by-step, one hurdle at a time and you will make your way to closing!

Don’t shy away from distressed properties, they just require savvy buyers! If you’d like a list of distressed properties in your area, Contact Me. Even if you aren’t in CA, I can connect you to a top-notch Realtor® in your local market who can help!

The Ins and Outs of the Short Sale Process

I have to admit – the content of this post is a little dry and wordy, but there is a lot of great information in here for people wanting to know how short sales work. So, grab a cup of coffee and read on!

What is a short sale?

A short sale is a process that allows homeowners to sell their home for less than what they owe on it through a negotiated settlement. The settlement requires the lender(s) to agree to accept a short payoff for the secured mortgage(s). In order to qualify, the homeowner usually needs to demonstrate a hardship where they can no longer afford the mortgage payment.

What are the steps to the short sale process?

1.    Contact your lender – as I’ve mentioned in other posts, this is always the first place you want to start. Call your lender(s) as soon as you see signs that you are in financial trouble or experiencing a hardship. (Don’t know if you’re in trouble? Take my quick self assessment quiz now!) Make sure to stay in constant contact with your lender and provide accurate information. You never want to misrepresent your situation to your lender(s).
2.    Gather your hardship package – this is the group of documents that the lender will ask for to review your situation so they can offer potential solutions. See my post, The Critical Elements of the Hardship Package for more information on assembling the necessary documents.
3.    Identify the benefits of a short sale – Why go through the short sale process, which can sometimes take up to 120 days to complete? Depending on your specific situation, there several benefits of short sale vs. foreclosure. For more on this topic, click here.
4.    Find the right Realtor® – make sure to find a Realtor® who has a successful track record with short sale negotiations, someone who presents a comprehensive marketing plan for your property, and someone who has a negotiating strategy in place tailored to your situation. Make sure to check the license, certifications and designations that the Realtor® carries (you can usually do this through your state’s Department of Real Estate). And lastly, make sure you hire someone who you are comfortable with. You’re going to be sharing some details about your life with them, you might as well feel comfortable doing it! If you need help finding the right Realtor® for you, please send me a message through my Contact page and I can find one for you through my extensive national referral network.
5.    Let your Realtor go to work for you – meet with your Realtor® to sign the listing agreement, go over the marketing plan for your home, and give them your hardship package. As soon as you receive an offer on your property, your Realtor® will present the offer to you to review all the terms of the sale. They will also handle negotiating with the buyer through a counter offer(s). Once the terms of the sale are agreeable, your Realtor® will have the title company provide an estimated HUD and will send the entire hardship package (including the offer/counter offers) to the lender. They’ll handle dealing with your lender(s) on a regular basis through the negotiation process until an approval is reached.
6.    Maintain the property – while you are waiting for an approval on the sale of your home, stay in the property and maintain it as much as possible. Remember that you are asking the lender to take a significant loss on the property and you should do your best to maintain it to sell quickly. If the property is located in an HOA (Home Owner’s Association), try to stay current on the HOA fees as most lenders will not agree to pay off any liens (just the mortgages) in order to sell the property. Also, maintain the utilities on the property so that they remain on when the property goes into escrow and the potential buyer needs to do their inspections.
7.    Seek professional counsel – there are potential tax and legal consequences for both short sale and foreclosure. Before deciding whether or not a short sale is for you and certainly before you enter into any kind of agreement, make sure you contact the appropriate professional to address any concerns you may have. Also, be careful with whom you share your situation with – not every situation is the same. What works for your friend with their lender may not work for you. Seek information and advice from industry professionals with proven track records, don’t rely not the advice of friends and family – even though they mean well. When an approval is reached with the lender(s), be sure to read the approval conditions very carefully. It is also a good idea to have an attorney review the approval prior to moving into contract with a buyer or agreeing to any terms set forth in the approval.
8.    Be Patient – the short sale process takes time, be prepared to wait on the lender for a response. Keep in mind that due to market conditions, lenders are dealing with a huge influx of work out packages (requests for loan modifications, short sales, and even foreclosures). Every time new legislation is passed which offers more help to homeowners, the loss mitigation departments at the banks get even busier. It may take longer when the 1st and 2nd mortgages are held by two different lenders. Each lender must agree to the sale and one may try to hold out for a better payout. In the end, patience and cooperation from all parties involved is needed for a successful transaction.
9.    Plan for the future – this includes finding a new place to live after the sale goes through. Although many homeowners prematurely vacate their property prior to a short sale approval, this is not necessary. Lenders prefer you stay in the property to maintain it since the goal is to avoid foreclosure. Most homeowners that move out early do it out of fear of not being to qualify for a rental. As soon as you start to experience financial difficulty, start putting together a rental application packet. In this packet include a copy of your credit report, pictures of your home (to show you are a trustworthy tenant who is able to maintain a property), complete rental application with personal references, and a cover letter stating why you would be a good tenant to consider. Share your situation and the steps you took to remedy the situation (i.e. short sale) to show that you are not a victim, but a responsible homeowner trying to work out a debt in good faith. Locate property managers in the area where you’d like to move to and share with them your situation and rental application packet. That way, they can keep you in mind as they receive vacancies on properties for rent.
10.    Keep accurate records – like the settlement of any debt, you’ll want to keep copies of the approval letters and/or agreements to show that your debt was once and for all settled. A good practice is to monitor all three of your credit reports for false information. If the debt reports incorrectly, you’ll have the documentation at hand to dispute the credit lines and have them corrected.

Finally, when you’ve received the approval on the short sale from the lender be prepare to move out and leave the property clean and in the same condition in which it was when the buyer first made their offer and when they did their inspections of the property. You’re ready to move on with the next phase of your life knowing that it was worth the wait to have this debt settled and that you have the documentation to prove it. Plus, by doing a short sale instead of walking away from the property, you have protected your credit and put yourself in a much better position to purchase another home within 2-3 years. If you have questions on this topic, please Contact me. Since we also like sharing on this blog, please be sure to share your thoughts, experiences, and tips here on the Comment section below!