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FHA Waives 3-year Foreclosure Waiting Period

Effective for FHA Case Numbers assigned on, or after, August 15, 2013, borrowers with a recent history of bankruptcy, foreclosure, judgment, short sale, loan modification or deed-in-lieu can apply — and get FHA-approved — for an FHA-insured mortgage.

The FHA has waived its 3-year foreclosure waiting period. If you’ve experienced any of the following financial difficulties, you may be program-eligible :

  • Pre-foreclosure sales
  • Short sales
  • Deed-in-lieu
  • Foreclosure
  • Chapter 7 bankruptcy
  • Chapter 13 bankruptcy
  • Loan modification
  • Forbearance agreements

The FHA realizes that, sometimes, credit events may be beyond your control, and that credit histories don’t always reflect a person’s true ability or willingness to pay on a mortgage.

FHA mortgage insurance is available for any loan which meets the following two conditions :

  • The loan must be made by an approved FHA lender
  • The loan must meet the minimum standards of the “FHA Mortgage Guidelines”.

The minimum standards of the FHA mortgage guidelines are straight-forward.

Some of the more well-known rules require mortgage applicants to show a minimum credit score of 500; to make a downpayment of at least 3.5% on a purchase; and, to verify income via W-2 or federal tax returns.

The guidelines also include such arcane topics as U.S. citizenship requirements for borrowers; relocation rules for trailing homes and income; and, minimum standards for condominiums and co-ops.

Loans failing to meet FHA mortgage guidelines do not get insured and the Federal Housing Administration has been steadily tightening its requirements since last decade’s housing downturn.

On August 15, 2013, though, the Federal Housing Administration moved to relax its guidelines for borrowers who “experienced periods of financial difficulty due to extenuating circumstances”.

Dubbed the “Back To Work – Extenuating Circumstances Program”, the FHA removed the familiar waiting periods that typically followed a derogatory credit event.

Use the Q&A below to learn more about the FHA’s Back to Work – Extenuating Circumstances program. 

What is the FHA Back To Work – Extenuating Circumstances program?

The FHA Back To Work – Extenuating Circumstances program is the FHA’s “second chance” for mortgage applicants who have experienced financial hardship as a result of unemployment or severe reduction in income.

Can I use the Back to Work as a first-time home buyer?

Yes, you can use the program as a first-time buyer.

Can I use the Back To Work program as a repeat home buyer?

Yes, you can use the program as a repeat home buyer.

Can I use the Back To Work program for an FHA 203k construction loan?

Yes, you can use the program for an FHA 203k construction loan.

Does the FHA Back To Work program waive the traditional 3-year waiting period after a foreclosure, short sale, or deed-in-lieu?

Yes, the program waives the agency’s three-year waiting period. You no longer need to wait three years to apply for an FHA loan after experiencing a foreclosure, short sale or deed-in-lieu.

Does the Back To Work program waive the traditional 2-year waiting period after bankruptcy?

Yes, the program waives the agency’s two-year waiting period. You no longer need to wait two years to apply for an FHA loan after experiencing a Chapter 7 or Chapter 13 bankruptcy.

Which types of “events” are covered by the FHA Back To Work – Extenuating Circumstances program?

The program can be used by anyone who’s experienced a pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification; or who has entered into a forbearance agreement.

How do I apply for the program?

You can apply for an FHA Back to Work – Extenuating Circumstances mortgage with any FHA-approved lender. The mortgage approval process is the same for any other FHA-insured mortgage.

What are mortgage rates for the FHA Back To Work program?

Mortgage rates are the same as mortgage rates for any other FHA loan. There is no premium on your interest rate, nor are there additional fees to pay at closing. Your mortgage rate will be unaffected by the FHA Back To Work program.

My current lender says that it’s not participating in the program? What do I do?

If your current lender is not participating in the FHA Back To Work program, you can find another lender that does.

What are the minimum eligibility requirements of the FHA Back To Work program?

In order to qualify, you must meet several minimum eligibility standards. The first is that you must have experienced an “economic event” (e.g.; pre-foreclosure sale, short sale, deed-in-lieu, foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification, forbearance agreement). The second is that you must demonstrate a full recovery from the event. And, third, you must agree to complete housing counseling prior to closing. You must also show that your household income declined by 20% or more for a period of at least 6 months, which coincided with the above “economic event”.

How do I document a 20% loss of household income for the FHA?

In order to document a 20% loss of household income, you must present federal tax returns or W-2s, or a written Verification of Employment evidencing prior income. For loss of income based on seasonal or part-time employment, two years of seasonal or part-time employment in the same field must be verified and documented as well. Income after the onset of the economic event, which should represent a loss of at least 20% for at least six months, should be verified according to standard FHA guidelines. This may include W-2s, pay stubs, unemployment income receipts, or other. Your lender will help you determine the best method of verification.

How do I document a “satisfactory” credit history since my “economic event” for the FHA?

Your lender will review your credit report as part of the FHA Back To Work approval process. All accounts will be reviewed — ones which went delinquent and ones which remained current. Your lender will attempt to determine three things — that you showed good credit history prior to the economic event; that your derogatory credit occurred after the onset of the economic event; and, that you have re-established a 12-month history of perfect payment history on major accounts. Minor delinquencies are allowed on revolving accounts.

Does the “20 percent loss of income” eligibility condition apply to me only, or to everyone in the household?

The “20 percent loss of income” eligibility condition applies to everyone in the household. If one member of the household lost income as the result of a job less but the household income did not fall by 20 percent or more for a period of at least months, the borrower will not be FHA Ba Extenuating Circumstances-eligible.

Is the FHA Back To Work Program limited by loan size?

No, the program is not limited by loan size. The FHA will always insure up to your area’s local FHA loan limit. Your lender, however, may not. If your lender will not make a loan big enough for your needs, find another FHA-approved lender. There are many of them.

With the FHA Back To Work Program, how soon until I can buy a home after foreclosure?

Via the program, you can buy a home 12 months after a foreclosure.

With the FHA Back To Work Program, how soon until I can buy a home after a short sale?

Via the program, you can buy a home 12 months after a short sale.

With the FHA Back To Work Program, how soon until I can buy a home after a deed-in-lieu of foreclosure?

Via the program, you can buy a home 12 months after a deed-in-lieu of foreclosure.

With the FHA Back To Work Program, how soon until I can buy a home after Chapter 7 bankruptcy?

Via the program, you can buy a home 12 months after filing for Chapter 13 bankruptcy.

With the FHA Back To Work Program, how soon until I can buy a home after Chapter 13 bankruptcy?

Via the program, you can buy a home 12 months after filing for Chapter 13 bankruptcy.

Is there a counseling requirement in order to use the FHA Back To Work program?

Yes, in order to the use the program, you must agree to attend housing counseling.

Will my housing counselor help me shop for mortgage rates?

No, your housing counselor will not help you shop for mortgage rates. However, many counselors can help you read a Good Faith Estimate which may help you make better lending decisions.

Why do I need to take housing counseling?

The housing counseling required by the FHA Back To Work program will address the cause of your economic event, and help you consider actions which may prevent reoccurance.

How long is the housing counseling session I am required to take?

The housing counseling required will typically last one hour.

Do I have to take housing counseling in-person?

No, you do not have to take the housing counseling in-person. Housing counseling may also be conducted by phone or via the internet.

If I complete counseling, am I automatically approved for the FHA loan?

No, you are not automatically approved for the FHA loan if you complete the housing counseling required. You must still qualify for the FHA mortgage based on Federal Housing Administration mortgage guidelines.

What is the minimum credit score requirement for the FHA Back To Work program?

There is no minimum credit score requirement for the FHA Back To Work program, necessarily. The program follows standard FHA mortgage guidelines. Credit scores below 500 are not allowed, but borrowers with no credit score whatsoever remain eligible. The Federal Housing Administration doesn’t change mortgage rates based on credit score.

Are modified mortgages eligible for FHA Back To Work?

Yes, modified mortgages are eligible.

Are loans on a payment plan eligible for FHA Back To Work?

Yes, loans on a payment plan are eligible.

I lost my job because my employer went out of business? Does this qualify for the program?

Yes, job loss resulting from an employer going out of business is Back-to-Work eligible. Your lender will ask you to provide a written termination notice or publicly-available documentation of the business closure.

Can I use Unemployment Income receipts to document that I was out of work?

Yes, you can use Unemployment Income receipt to document that you were out of work.

I am unemployed. Can I still use the program?

Yes, you can use the FHA Back To Work program if you are unemployed.

I am still in Chapter 13 bankruptcy. Do I need the court’s permission to enter into the mortgage?

Yes, if your Chapter 13 bankruptcy has not been discharged prior to the date of your loan application, you must have written permission from Bankruptcy Court to enter into the purchase transaction.

When does the FHA Back To Work – Extenuating Circumstances program end?

The FHA Back To Work – Extenuating Circumstances program ends September 30, 2016.

CLICK HERE to read the release from HUD

SOURCE: The Mortgage Reports

5 Ridiculous Seller Sayings That Kill Deals!

When I need a good laugh, I like to read Vanity Fair magazine’s ‘Actual Complaints from Actual Rich People’ column. The monthly column is a super-short, super-funny compilation of woes of the very rich, as overheard by the author.  My guess is that most of these sayings seemed totally sensible to the person who said them in the course of the conversation. In retrospect and out of context, though, they seem crazy and out-of-touch, even ridiculous.

Here’s a recent example: “I don’t ask my wife how many horses she has, she doesn’t ask me how many cars I have.”

Ridiculous, right?  Well, while these folks are easy to poke fun at, many of us say things during a heated moment or emotional experience that we have a hard time standing behind later. Selling your home is one of those experiences that causes even the most stable, calm human being to feel panic, outrage, anxiety, and sometimes all of the above, all at the same time.

These volatile emotions give rise to a handful of seller sayings that seem silly when seen in a sober light.  Here they are, along with some insights to help you ensure you don’t let them foul up your home selling decisions.


 

Don’t Let Emotions Sabotage Your Sale!

1.  But I spent X years or $X on that!  The ability to customize your home to your personal tastes and your family’s wants and needs is one of the biggest non-financial perks of home ownership.  Creating a soundproof meditation room or a floating pool theater is your right as a home owner.

MOO-15750039I encourage owners to make changes to their homes that will improve their quality of life while they live there, rather than fixating on whether they’ll be able to recoup their investment when they sell it 20 years down the line. (Of course, if you’re planning to sell in the near future, it might not make sense to invest in super-personalized home improvement projects.)

That said, the fact that YOU loved the idea of having a sports court, billiards room or Japanese garden enough to spend tens of thousands of dollars on it does not necessarily mean that your home’s buyer will place the same value on it – or any value, for that matter. I was once involved in a sale where the sellers had spent decades cultivating a beautifully complex Japanese garden which the buyers, busy professionals, had no time or interest in maintaining.

Not only were they not willing to pay a premium for it, they planned to rip it out and replace it with low-maintenance, low-water landscaping.

Let it go. Understand that other than the kitchen, bathroom, amenity and decor upgrades that appeal to many home buyers, if you’ve invested your time or money in customizations for your own personal enjoyment, then your enjoyment is your return on that investment.  If your home’s eventual buyer also happens to love them, fantastic!  But don’t approach the home selling process expecting every buyer to share your value system and pay through the nose for them.

 

2.  We just need to find a buyer who understands my tastes.  There are certainly occasions, with rare properties, where there is truly a narrow niche of buyers that will have to find, understand and appreciate a property. In cases like that, with acreage, converted warehouses, horse properties, and the like, this saying is not ridiculous at all.

But this saying is ridiculous when it is uttered by the owner of a home with potentially wide appeal as a reason for not staging or preparing their home for sale, or in the effort to avoid neutralizing highly, uh, personal design and decor choices.

If your home is lagging on the market while others sell, and your agent has suggested that you tone down the polka dot paint job or delete the Al Pacino mural on your dining room walls, think about how much time and money your decision to wait for the buyer who understands these design choices is costing you.

Rethink your position: as the ultimate marketing decision-maker in your home’s sale, your job is to maximize your home’s appeal to a broad segment of ready, willing and able buyers (not to find the one needle in a haystack who likes the Godfather as much as you). You’re moving on from the property, so move on emotionally, too. Don’t let your emotional attachment to your decor decisions or stubborn refusal to spend on staging keep your life or your finances stuck.

3.  I want to price it high, so I have room to come down.  Now, in all fairness – there’s a time and a place for this.  By that I mean that there are certainly local markets where it’s very much standard practice for buyers to expect to come in below asking, and sellers can price their properties a few thousand dollars higher than the target price point without killing their deals.  If you live in a place like this, your agent will surely work with you to price accordingly.

That said, when the market is slow enough that buyers are routinely paying below asking for homes, pricing your home above-market is actually dangerous. It runs the risk of causing no one to view your home as a good enough value to see it in the first place.

If other sellers are pricing appropriately and yours is priced too high over what the market will bear, many buyers won’t even bother trying to negotiate you down.  Rather, they’ll go find one of the homes on the market with a more realistic price, they’ll wait until you lower the price or they’ll wait until your home has been lagging so long they sense you might be desperate, and will swoop in with a lowball offer of their own.

Even in a relatively hot market climate like today’s, the aggressively priced homes get the most buyer traffic and, accordingly, get the most offers. In turn, these bidding wars drive the eventual sales price up. If you want to sell your home in a buyer’s market, or sell it at top dollar in a seller’s market, overpricing it might actually sabotage your success.

4.  That offer is an insult – I won’t even dignify it with a response. Your home might be very personal to you. It represents a massive investment of your money, time, hopes and dreams. It probably also represents your personal tastes, style and some precious memories of your family’s life.

But once it’s on the market, get a thick skin and decide not to take anything – anything – personally. If someone offers to pay many thousands of dollars for your home, it’s not an insult, even if the offer is far afield from what you are willing to sell the home for, or from what you believe it is worth. They might be deeply misguided, and not yet experienced enough in the market to know that the offer was unreasonable. Or they might just love your home and be going for it, even though it’s really outside of their personal resources.

Finally, they might actually just be trying to get you to come down a bit on the asking price. Some buyers see making a very low offer as part and parcel of negotiations.

In any event, you should always respond to an offer made by a qualified buyer. If you have another offer or offer(s) that are more realistic, just respond with a pleasant decline.  If you have no other offers, respond with what you and your agent formulate as an appropriate counter.  You might be surprised at how even a very low offer can come together with a respectful, reality-based counteroffer and a little negotiating.

5.  I need $X to get the home I want and take my Australia trip – let’s list the place for that.There are lots of respectable strategies for setting a list price, but all of them have their basis in one thing: data. They all start with a look at the nearby, similar homes that have recently sold, and what they sold for; this is what agents call “comparable sales data.”

Depending on market dynamics, trends in inventory and home values, how similar/dissimilar your home is to the recently sold properties and what your own priorities are (e.g., sell fast, sell for top dollar, etc.), an experienced local agent might advise you to start with “the comps” and adjust your home’s list price down a bit, or to start with “the comps” and adjust upwards to get to your home’s list price.

But never will a savvy, experienced agent tell you that the proper way to price your home or understand its value is to do the math on how much cash you want and need, and set your list price by that.

Of course – you need to do your “move up math” in the process of listing your home in order to know whether your home sale is feasible or not. And you might actually have to factor in what you need to pay off your mortgage and move into your pricing decisions – that’s not bizarre.

But you should do so only with the awareness that your home’s ultimate value is based on what a qualified buyer is willing to pay for it – not what you need to move.

SOURCE: Trulia

IRS TIPS: Renting Your Vacation Home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.

Here are some tips from the IRS about this type of rental property.

• You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.

You may also be subject to paying Net Investment Income Tax on your rental income.

• If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.

Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

• If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

• If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

Get Publication 527 for more details on this topic. It is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

  • Publication 527, Residential Rental Property (Including Rental of Vacation Homes)
  • Tax Topic 415 – Renting Residential and Vacation Property

IRS YouTube Videos:

IRS Podcasts:

Realtor® Association Warns About ‘Pocket Listings’

It's A Secret - A Pocket Listing In IdahoPocket listing are nothing new, but before putting your home on the market with just an individual agent or company, i.e. not listed in the MLS,  you should be aware of the pitfalls as it may reduce your final sales price. It doesn’t matter if your in Sun Valley Idaho or New York, the sames issues apply.

Below is an article about how the California Association of Realtors is dealing with this issue in an attempt to make sure these potential problems are disclosed to sellers prior to putting their properties on the market for sale. Many times the only person that gains from a “Pocket Listing” is the listing broker.  Now to the article, plus a link to the disclosure publication CAR created.

Pocket listings can adversely affect a seller’s goal of getting the best price reasonably for a home

About 1-in-4 home sales are reportedly pocket listings in some Northern California markets, and the California Association of REALTORS® is warning agents to tread carefully.

Sun Valley Idaho Pocket ListingsCAR says that pocket listings or off-MLS listings are not illegal if the listing agent fully discloses the pros and cons to the home seller and follows the rules, but CAR says pocket listings “may not be in the best interest of the property owner — particularly if a client does not know about the benefits of marketing his or her property through the MLS.”

CAR warns that “pocket listings” can adversely affect a seller’s goal of getting the best price reasonably for a home.

The increase in pocket listings has alarmed many in the industry, particularly at a time with inventory shortages in many markets. For example, 26 percent of home sales were pocket listings in the first quarter of 2013 in some Northern California markets, according to a recent study by MLSListings Inc. That’s an increase from 15 percent in 2012

CAR has published a booklet on pocket listings for agents to provide to their clients, “The Pros and Cons of Off-MLS Listings: What Consumers and Real Estate Agents Should Know.” CLICK TO READ

Don’t Be Fooled By These 3 Real Estate Myths

As the real estate market significantly rebounds, some buyers and sellers are dipping their toes in the waters for the first time. Inevitably, they come into the market with assumptions about how it works.

Their assumptions may come from TV reality shows or watching their parents’ house-hunting experiences. Maybe they’ve learned about real estate from a co-worker’s recent home buying or selling experience. The trouble is, the new buyer or seller’s assumptions are sometimes based on outdated or generalized “real estate myths.” Here are three such myths that many less-seasoned home buyers and sellers assume are true.

Myth No. 1: Spring is the best time to sell a home

Historically, real estate seasons were tied to summer and the end of the school year. Families were the typical buyers or sellers, and they wanted to move during the summer so their kids could start anew in September. That’s how spring became the prime selling season. It’s true there are still more homes for sale in the spring, which means there’s a lot of activity and buzz. But spring isn’t necessarily the best time to sell a home anymore.

The reality: The best time to sell is during the holidays and right after

Today, more than half of buyers aren’t married, and their decisions aren’t based upon school schedules. So spring isn’t as relevant as it used to be. Instead, the best time to sell a home is in November, December and January.

It’s a supply-and-demand issue. Most sellers assume buyers aren’t seriously looking during this prolonged holiday season. And yet, many buyers are looking at properties in person and online right up until Christmas Eve. If the right home goes on the market in mid-December, a serious buyer — and there will be a lot of them — will take note.

After New Year’s Eve, most buyers jump back into their routine with a resolve to get into the real estate market, even though many sellers wouldn’t even consider listing in January. The net effect: Savvy sellers will face less competition for a still-strong pool of buyers during this period. And that makes November-January a great time to sell.

Myth No. 2: Always start with your lowest offer

There’s no generalized strategy for making an offer on a home anywhere, ever. A seller could have overpriced or underpriced the home on purpose. Some markets may be more competitive than others. But, somehow, in the back of the buyer’s head is good old Uncle Bob saying “never offer the full asking price.” That strategy might work if you’re trying to buy a used computer on eBay. And it worked in some real estate markets years ago. But times have changed.

The reality: A low offer may get you nowhere fast

A buyer in a strong, tight inventory market today would be wasting their time making low offers right from the start. It’s likely a home that’s priced right and shows well can receive multiple offers, sometimes even over the asking price. In this environment, constantly throwing in low offers because that’s what your Uncle Bob advised you to do will likely lead to disappointment. Instead, work with a good local real estate agent to understand the market. You’ll quickly learn after a few weeks on the open house circuit (and maybe a disappointment or two) that starting low may not get you anywhere.

Myth No. 3: A cash offer trumps all

There’s an assumption that a seller, considering two different offers, will always go with the cash offer because there’s less risk. As a result, many buyers who hear they’re competing with a cash offer assume they won’t get the home. They may not even make a formal offer. At the same time, many cash buyers assume that because they’re paying cash, they can make an offer below the asking price, and it will likely be accepted.

The reality: A savvy seller may be more tempted by a solid financed offer

Consider a seller with a home priced at $399,000. The seller receives two offers: One is a cash offer of $375,000. The other is an offer for the full asking price, with 25 percent down, a bank pre-approval letter and swift contingency periods.

A good buyer’s agent, upon learning their client is competing with a cash offer, will arm the seller with lots of data supporting their client’s finances, such as a credit report and verification of income or assets. The agent might even arrange a call between the seller and the buyer’s lender.

Learn your market

When you become a buyer or seller, especially for the first time, the most important thing you can do is learn your market. Talk to a savvy local agent, and don’t make assumptions based on what you think you know. Real estate is local. Every market is different, with its own customs. If you believe there are general rules for real estate strategy that apply everywhere, anytime, you’ll likely be fooled — not only in April, but every other month of the year.

SOURCE: Fox Business News

 

TAX TIP: Important Facts about Mortgage Debt Forgiveness

If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.

Here are 10 key facts from the IRS about mortgage debt forgiveness:

1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.

2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.

3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.

4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.

5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.

6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.

7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.

8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.

9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.

10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.

SOURCE: IRS Tax Tips 2013-31

Ten Tax Tips for Individuals Selling Their Home

 

The Internal Revenue Service has some important information for those who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income.Here are 10 tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the full exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale of your home on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude. Most tax software can also help with
this calculation.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523, Selling Your Home, for details.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at IRS.gov or by calling 800-TAX-FORM
(800-829-3676).

It’s Possible to Recover From Foreclosure

Foreclosure is a traumatic experience, financially and emotionally.

But there is life after the ordeal.

“Yes, of course,” said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas. “We have no choice but to move on.”

Foreclosure can happen to homeowners for various reasons.

“Some people chose to go that way; other people, it was forced upon them,” Mark said. “Regardless of how you get there, your first step is to rebuild your financial life. You won’t be able to get a fresh start until you deal with what caused your financial crisis in the first place.

It may be possible to negotiate a deed in lieu of foreclosure or short sale-type event that includes removal of deficiency held against you for the balance owed.

“Whatever caused the foreclosure — is it still going on in your life?” Mark said. “Most people think of the foreclosure as the crisis itself, but remember that the foreclosure is an outcome of whatever underlying crisis is going on in your life that either impacted your income or caused expenses that made your mortgage unaffordable.

“You need to identify the root cause of any financial crisis in your life and if those are still going on, what are your steps toward addressing them?”

If your foreclosure was caused by an income crisis, such as unemployment, you need to determine how much income you have for basic needs, such as housing, transportation, utilities, food and any necessary medical care.

“What income and resources do they have and is it enough to cover their base needs?” Mark said.

TIME HEALS WOUNDS:

While you may be tempted, don’t rush back into homeownership.

“That just really shouldn’t be your biggest financial priority if you’re coming off of foreclosure,” said Greg McBride, senior financial analyst at Bankrate.com. “Your biggest financial priority needs to be re-establishing your financial life.”

That’s not to say that you won’t ever own a home again.

“Long term, your goal is probably going to be how long it will be before you qualify for another mortgage,” Mark said. “A key is that it’s never as long as you think, but it doesn’t mean it’s easy, and it doesn’t mean it’s immediate.”

For one thing, you have to wait three years from the date of foreclosure before you’re eligible to apply for a new mortgage insured by the Federal Housing Administration and seven years before applying for a conventional mortgage, said Craig Jarrell, president of the Dallas region for Iberiabank Mortgage Co.

Second, a foreclosure stays on your credit report for seven years and can knock down your credit score by as much as 280 points, especially if your score was high to begin with.

“It may be that it’s wise and prudent to separate from the foreclosure from a time standpoint,” Mark said. “Time heals the credit wounds of the past, so the more time that’s expired since the event, the less impact it has on your credit report and score.”

FICO, the company that developed the widely used FICO credit score, said “it’s a common misconception” that a foreclosure will ruin your credit score for a long time.

“If you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years,” it said.

REBUILD YOUR CREDIT:

Spend that time re-establishing a pattern of financial responsibility and stability.

“The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations,” FICO said.

So paying your bills on time is critical.

“Don’t make any new late payments after the foreclosure on anything,” Jarrell said.

“That’s the single biggest factor in your credit score,” said McBride. “Second is, keep your debts modest and pay down your debt. That is the second biggest component of your credit score.”

On revolving credit, don’t use more than 10 percent of your available credit.

“If you keep your debt-to-available credit ratio below 10 percent, it actually boosts your credit score,” McBride said. “Anything above 30 percent hurts your score.”

So only use credit that you can pay off on time and in full each month.

You should also use this time to clean up your credit report.

You’re entitled to a free credit report once every 12 months from each of the three national credit bureaus — Experian, TransUnion and Equifax. Get a copy of each and check them for any inaccuracies.

If you find errors on your credit report, dispute them.

REPLENISH SAVINGS:

“Everybody focuses on credit in this area, but it’s important to point out that you have to rebuild your savings, too,” McBride said.

“If somebody’s been through foreclosure, a lot of times it’s been because they were out of work and so they may have run up other debts like credit cards and depleted all of their savings — perhaps even raided their retirement account,” he said.

“Replenishing those is more important than worrying about your credit.”

AVOID A HANGOVER:

You want to be sure that you don’t owe anything on your old mortgage. Sometimes proceeds from a foreclosure sale aren’t enough to cover what’s owed on the mortgage, which would leave you owing the difference.

That foreclosure hangover is called a “deficiency judgment.”

“Do they know whether or not they have escaped any sort of deficiency judgment?” Mark said. “If somebody has negotiated to do a deed in lieu of foreclosure or short sale-type event, they may have negotiated where they’re not going to have the deficiency held against them.”

But he added: “A lot of people won’t know, and if they don’t know, there’s a good chance they’ve got a deficiency judgment. So they need to figure out, OK, the house may be gone, but do you still owe on it?”

A foreclosure isn’t the end of the world, but you must have a clear plan on how you will restore your financial health.

SOURCE: LoanSafe-org

IRS Summertime Tax Tip 2012-08 – Renting Your Vacation Home

Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return. However, if you rent the property for only a short time each year, you may not be required to report the rental income.The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:

Rental Income and Expenses

Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.

Limitation on Vacation Home Rentals

When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.

Special Rule for Limited Rental Use

If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.

IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). The booklet offers more information about rental property, including special rules about personal use and how to report rental income and expenses.

SOURCE: IRS

Short Sale News: Home Affordable Foreclosure Alternatives Program Extended Through 2013

Please tell anyone you suspect in jeopardy of foreclosure about this breaking news

Don’t assume that because you’ve heard of the Home Affordable Foreclosure Alternatives (HAFA) program, that your friends, family and neighbors have too. There has been a lot of speculation as to whether HAFA would be extended. Recently, we received confirmation that it has been extended through 2013.

The HAFA program was established in 2009 to help the homeowner avoid foreclosure and move on with their lives without the longstanding negative impact of foreclosure. As always, the first step for any homeowner living under the cloud of an unmanageable mortgage is to talk to their bank to see if a loan modification is possible.

If the bank can not approve the loan modification, the homeowner should talk to a Realtor who is a short sale expert; (CDPE designation and has experience selling homes under short sale terms).

Foreclosure and Danger

It is critical for people to understand that a foreclosure posts on an individual’s public record and therefore can cripple opportunities for gainful employment, obtaining future credit and potentially buying an affordable home. This negative impact can last for up to seven years. For people who qualify, HAFA is an alternative to foreclosure.

This YouTube Video produced by the National Association of Realtors explains HAFA.

Why you should get involved

Many of us know families, often they are neighbors, who packed their things and left home without saying goodbye and without warning. They didn’t do it to be cruel or rude. Likely, they did it because they knew they were going to lose their home and they felt overwhelmed and embarrassed.

This is how the story goes

Eight months ago, your neighbor called their bank to tell them they could no longer afford their mortgage. They’ve worked very hard all their lives, and have been responsible with their finances, but something changed and now they’re facing a hardship.

Maybe they have an adjustable arm that has come due and their mortgage increased to the point that they can no longer afford it. Sometimes your neighbor is still paying the mortgage by going into their savings or 401K. They’re trying not to ruin their credit score but they know they’ll run out of money soon so they try to start the process of refinancing or a loan modification.

Unfortunately, the house isn’t worth what they paid for it (it doesn’t appraise) and so they can’t refinance. Every week they call the bank and the bank tells them someone will call, but they never do. Each time they call, they get a different person on the phone. They explain their situation again and again but because they’ve been paying their mortgage, the bank doesn’t “care”.  There are homeowners who haven’t paid their mortgage in many months – they’re the priority. By the way, your neighbor has no idea, that all this time, they’ve been talking to the wrong department within the bank.  They’re going in circles, not making any progress. They feel frustrated, helpless and overwhelmed.

Finally, they don’t have any money left to pay their mortgage and since they’ve already tried for months with the bank, they think it’s futile and they leave. They didn’t have an advocate and now they have a foreclosure that will be on their record for seven years.

The HAFA Short Sale Update

HAFA Supplemental Directive 12-02, effective June 1, 2012, impacts short sales with loans from non-government-sponsored enterprises in which the homeowner is eligible for the HAFA program.

Key enhancements include:

  • Time frame extended: The program has been extended to Dec. 31, 2013. The HAFA short sale or deed in lieu of foreclosure can be initiated up to Dec. 31, 2013; however, the transaction must have a closing date on or before Sept. 30, 2014.
  • Eligibility updated: Occupancy requirements for HAFA eligibility have been removed; however, the property can’t be owned or secured by a business entity.
  • The second lien maximum has been increased from $6,000 to $8,500. 
  • HAFA relocation assistance of $3,000 will be paid only to the primary resident (borrower or occupant) of the property at time the agreement is executed. The resident must vacate upon closing. Vacant properties are not eligible for HAFA relocation assistance.
  • Nonborrowers (tenant, legal dependent, parent or grandparent) can now qualify if occupying the property and must vacate upon closing.

Additional information: 

  •  This policy is effective June 1, 2012, for new HAFA-eligible short sales initiated. It also applies to current HAFA short sales prior to closing.
  • Tenants will be eligible only for the $3,000. Any money available from additional incentive payout opportunities must be paid to the borrower. The HUD-1 must reflect the breakdown.
  • The borrower will be responsible for requesting and managing the tenant relocation assistance, including submitting required proof of occupancy and other documentation.

We can help! For questions and urgent needs (such as a pending default notice and/or pending foreclosure action) contact Debra Hall or George Martin, Jr., as both brokers are trained & experienced local short sale specialist at 208-928-SOLD