Straight talk about Florida real estate, etc.

Tax Advantages from Home Sales

Posted by Rick Miller on Mon, Apr 21, 2014

Tax-free gains from home salesOne of the most significant tax advantages from home sales comes at the back end of ownership, when you decide to sell it for a profit. As the homeowner, you can exclude up to $250,000 of such profit from the federal capital gains tax. For married couples filing a joint tax return, the exclusion jumps to $500,000.

This big tax break does come with some basic requirements. It applies to the sale only of a principal residence, not of a vacation home or investment property. With some limited exceptions for poor health, job changes, and unforeseen circumstances, the taxpayer must have owned and used the home as a primary residence for at least two of the five years preceding the sale of the home. (But the two years need not be an uninterrupted time span.)

If the history of the home includes some business use, the owner cannot exclude that part of the gain that is equal to the depreciation claimed while the house was used as rental property. This scenario could arise when the owner rents out the house for a period of time but then moves back in, sells it, and otherwise qualifies for the exclusion related to that sale.

There is another two‑year rule that comes into play after a taxpayer claims the home‑sale exclusion. There is no limit to the number of times that the exclusion can be claimed for multiple sales, but, as a rule, once the exclusion is claimed, the taxpayer must wait two years before claiming another such exclusion.

For a married couple to qualify for the exclusion, it is sufficient if either spouse meets the ownership requirement. However, both spouses must meet the use requirement. Neither spouse is rendered ineligible for the exclusion because he or she had already excluded the gain on a different primary residence during the two years preceding the date of the current sale.

As you head into the new year, with the boost in economy coming from a much needed boost in home sales, keep it in mind.

That's all for now,

Rick

Topics: boost economy, IRS and home sales, tax advantages from home sales

Credit Unions Continue to Boost the Housing Market

Posted by Rick Miller on Mon, Mar 10, 2014
credit unions offer strong home loan dealsCredit Unions are a terrific source for a home loan, and they've been steadily boosting the economy by boosting the housing market for the past several years, even when the banks slowed dramatically. Credit Unions have historically been comprised of members who have something in common (work for the same employer, same union, etc.). Because they don't always have to compete with big banks, they can "customize" or get more creative with loan products.  And they can do this because many, if not most, of their loans are "portfolio" loans or loans the Credit Union keeps in-house rather than selling on the secondary market to Fannie Mae or Freddie Mac.

Thus, the Credit Union has flexibility to meet the needs of its customers. This flexibility does not mean the loans are risky--it simply means the loans are different than what is offered by the big banks. For instance, one Credit Union in Virginia is offering a 15/15 loan to its members. This adjustable rate mortgage offers a rate lower than a 30 year fixed rate mortgage and the rate is fixed for 15 years. This is a great way to help members buy a home. After 15 years, the rate adjusts one time for the final 15 year period. This arrangement is great for folks looking for the lowest interest rate and assurance that the rate will remain the same for 15 years. Other Credit Unions offer a similar loan on a 5/5 basis-rate adjusts every 5 years and has an attractive entry rate.

The point is that although Credit Unions are smaller and may take less risks than the big banks, there is no real rule. What you can be sure of is that they will tailor a product that is quite attractive to its members. And although Credit Unions require membership, often times that membership means only residence in a certain geographical area. So if you are a potential home buyer in the market for a loan, make sure to check out your local Credit Union. They're a solid part of Florida's housing market, and you'll love the great deals you'll find.

Topics: boost economy through housing, boost housing market, home buyers, buy a home, boost economy through boost to housing market, Florida's housing market

Valuable Secondary Mortgage Market Squashed by Dodd-Frank

Posted by Rick Miller on Wed, Feb 5, 2014

Save Housing From Dodd-FrankWhether you supported the Dodd-Frank law really does not matter for purposes of this note.

Dodd-Frank is important to all of us because it has significant effects in the real property arena--and that is where the economy is trying hardest to gather strength. I realize that there were abuses by lenders and others that helped lead to the bubble and subsequent collapse and bailout of the banking system. I realize that changes had to be made, and Dodd-Frank certainly makes changes. Whether those changes will ultimately help the system, history will determine. What is important is that many of those changes are having a significant and chilling effect on housing and the ability of many to afford housing.   

Not all financing is done by conventional (banks, credit unions, etc.) lenders.
I think the authors of Dodd-Frank assumed that it was. Here are just a few examples of lending done by private parties that after 30-plus years of practice, I believe are a necessary and crucial part of the real estate process in our country. Or were until Dodd-Frank passed.

  1. I have several clients who, prior to Dodd-Frank, sold lots and homes (or mobile homes) to folks with a minimal down payment and the client held the financing over a 10-20 year period.  The interest rate is generally higher (9-10%) than that charged by conventional lenders but the transaction amount is typically in the $70-80,000.00 range. Thus, the monthly payments remain affordable. The buyers/borrowers of these transactions can’t afford a higher down payment and typically do not have good credit scores. The only way these folks can own a home is to finance the purchase from an unconventional source. My clients get financial information from the prospective buyers relating to their ability to pay but it does not meet the thresholds established by Dodd-Frank to qualify as a Qualified Mortgage. This particular client has done 50-70 of these transactions annually for years and history reflects that that less than 5% of these deals ever go into foreclosure. The banks won’t make the deal; my client is a good judge of people and a lot of people have gotten a chance to become homeowners who would not otherwise have qualified.

    Post Dodd-Frank, I have advised this client they can no longer do these transactions. The net result is they are now renting out the properties to similar buyers with a Lease/Option Agreement.  The same money down is paid by the renters/buyers but the money paid down is now an “Option Payment” and the renters/buyers must obtain third party financing on their own in five (5) years if they want to complete the purchase. Dodd-Frank  prevents my client from financing the purchase price and, unless the renters/buyers financial situation improves significantly, the renters/buyers will remain renters the balance of their lifetime. No conventional bank or Credit Union will finance the deal. I suspect this is not what the authors of Dodd-Frank had in mind when this law was enacted.

  2. Another client of mine is a real estate salesperson. She is quite shrewd and when lenders are hesitant to finance a transaction involving one of her deals she will step in and do it on similar terms as the lender. Of course, she does not require much in the way of documentation from the buyer/borrower of their ability to pay and her mortgages typically balloon in 5 years-something not allowed under Dodd-Frank. I have represented and closed transactions as described for this salesperson for more than 20 years and not one has gone into foreclosure. I have advised her she can no longer finance these transactions. Thus, the buyers in these transactions will not be buying a home.

  3. Finally, I have a group of clients who are investors. They loan money for a living.  Most of these folks are retired and want to avoid the risk of the stock market but achieve a greater return than a CD or savings account will provide them. These individual lenders are not millionaires but they do have a nest egg they are trying to protect. They typically loan money at 8-10% and take first or second mortgages on one’s residence as security. They obviously are concerned about the security of the loan and getting repaid. But they do not do the research required (no individual can or does) to meet the rules of Dodd-Frank. They assure themselves that the borrowers can pay the loan and that the security is sufficient and a loan is made. I have handled loan closings like these for 30 years involving thousands of loans--again, less than 5% result in foreclosure. I don't think the banks, with all of their rules, can provide these stellar stats.

None of these loans will ever be made again as a result of Dodd-Frank
These loans are requested by the owner/borrowers; they are never sold by the lenders. Many times the owners are in the position of losing the home unless the loan is made. Often, the loans are made to stave off a Tax Deed sale on the home. These owners do not have a sufficient credit score to qualify for a conventional loan; the only way they can save their home is through a non-conventional, third party loan. These secondary mortgage loans are no longer available. As a result, a significant number of homeowners will lose their homes. A significant number of would-be buyers cannot buy, which slows the housing and economic recovery overall.

The point of this article is to explain that there is (was) a secondary mortgage market option available to folks that could allow them to buy or keep their home. In their quest to prevent predatory lending and avoid future bubbles, Dodd-Frank has made this market unavailable—without realizing that it was there.

Perhaps Dodd-Frank will meet its goal but without modification, Dodd-Frank will also prevent millions from ever becoming homeonwers and worse, become the law that prevents homeowners from saving their home. That’s a pretty sad whoops.

This issue is one worth getting involved in, because it affects real buyers and sellers--and thus, the  economy. Your Congressmen and women are a click away, and the addresses are linked below. Let’s see if anyone in government is listening.

Click here and be heard

Click here to find your area's Representatives or to find your area's Senator.

 

Rick

 

Topics: housing market, housing, Dodd-Frank, housing market boost, becoming homeowners, housingmarket, housing recovery

New FHA Rules Create Boomerang Buyers!

Posted by Rick Miller on Sun, Jan 26, 2014

new foreclosure rules create boomerang buyers2014 may be the year of the Boomerang Buyer. The Federal Housing Authority's (FHA) guidelines and technical updates to the Fannie Mae loan approval systems, called "The Back to Work" program, have opened the door for some buyers to get back into the market only a year after losing their home to foreclosure, bankruptcy, short sale or Deed in lieu of Foreclosure. That's a big deal.

The bottom line is that what was once up to a 7 year waiting period to get back into the home buying market after foreclosure, etc. can now be as little as one. But it's about more than helping people buy a home. The truth is that we need these Boomerang Buyers if the housing recovery is to continue. The investor market is about finished as purchasers and our younger, would-be buyers are busy struggling to find employment, to get started in life and of course, to pay back heavy student loans. The Boomerang Buyers offer a great potential group of buyers that could help continue housing’s impressive recovery.

Boomerang Eligibility Depends on Why the Foreclosure Happened
If a specific financial event, such as the loss of a job, caused the homeowners to lose the home, they qualify for the Boomerang program and can re-enter to buy in a year. Those who strategically default are not eligible.

Kudos On a Well Thought-out Program
Give credit to the regulators for creating this program. The Great Recession was a depression for housing. Those who defaulted through no fault of their own in this particular era deserve another chance to own a home once their financial difficulties are behind them. It's a major plus that by offering a boost to this segment, we will boost the economy through a boost to housing.

Qualified Mortgage Storm Hovering
The Qualified Mortgage (QM) rule went into effect January 10, 2014.  Expect the results to be known sooner rather than later.  This rule, put into effect by Dodd-Frank legislation to address predatory lending and the "too big to fail" financial institutions that lost billions as a result of bad loans and had to be bailed out by taxpayers, may put an unintended chill in the housing market.

A QM loan must require periodic payments without risky features. They can not have terms exceeding 30 years, must be insured by FHA or HUD and have a limit upfront points and fees to no more than 3 percent of the loan amount. The loan can not exceed a 43 percent debt to income ratio to qualify. Lenders must thoroughly examine a borrowers financials and determine that the borrower has the ability to repay the loan.

Many in Congress, as well as the private sector believe the new rules are too stringent and will have the opposite effect of their objective-i.e. they will keep folks out of the market rather than protecting them when they get in it. Clearly the effect will be harsher on the low to middle class borrower. The thought is that lenders will not take chances and risk violating the spirit of the rule, which will further tamp down the ability to buy a home--not a good result for a country still struggling with its housing market.

Look for revisions to this rule sooner rather than later if, as expected by many, QM puts a chill in the housing market due to its numerous regulations and burdens placed on lenders.

That's all for now,


Rick

Topics: foreclosure, Fannie Mae, boost economy through boost to housing, boost housing market, central Florida housing, Freddie Mac, FHA, buying and selling homes

Real News About Housing in 2014

Posted by Rick Miller on Mon, Jan 20, 2014

The real news about housing in 2014Home interest rates are rising and will continue to do so due to the leveling off of the Federal bond buying program (known as Q1,Q2 and Q3). The program was incredibly effective in reducing longterm interest rates to historical lows—the kind not seen in most borrowers’ lifetimes. 

Consequences
One result of these low interest rates was that millions of Americans were able to refinance their existing 6%-7% mortgages to rates as low as 3%. Another result was that millions were allowed to purchase homes they might not otherwise be qualified to purchase.

Enter HARP
What the bond buying program did not do was help the millions of existing homeowners who could not refinance due to plunging home values. In a matter of months they found themselves with little equity, no equity, or worse, underwater as their home value was less than their mortgage balance. The Feds answer to this was HARP-the Home Affordable Refinance Act. HARP came in two forms—HARP 1 and HARP 2. In short, the overall result of these programs was to allow underwater homeowners (or those with little equity) to refinance their mortgages at significantly lower interest rates as long as these homeowners were current on their existing mortgages and as long as their mortgages were insured by Fannie Mae or Freddie Mac. 

Housing Boost Secured
Q1, Q 2 and Q3 together with HARP 1 and HARP 2 provided significant stimulus to the economy and the housing market, in particular. Lower monthly payments for millions of homeowners and the ability to purchase homes for many who could not qualify in a "normal" market lifted the overall market, put dollars in the pockets of millions resulting in an increase of overall consumer spending. The net result of these programs over the last three years has been rising home values, increased sales volume and a significant increase in new construction.

So What’s Ahead?
For now, the QE programs are being wound down because the Feds believe that to continue them would set off inflation. HARP, too, is essentially complete—those who qualify to refinance under the programs have likely already done so. The current question becomes can housing sustain itself? And that is where the experts differ.

Unemployment Still High
Despite these fed stimulus programs, underemployment has remained stubbornly high. It hits especially hard on young adults—those between the ages of 25-34. This group is also stuck with student debt and limited employment options. Many have moved back home. We need this group to recover if we are to have a fully healthy housing market.

Dodd-Frank Dragging Us Down
This new law takes full effect January 10, 2014. It was enacted with noble intent, as a result of the housing bubble, the resulting crash and the bailouts required of many financial institutions—bailouts which required taxpayer funds to stay afloat. 

Like many federal laws enacted to correct perceived abuses of the free market, Dodd-Frank has unintended consequences which will chill the housing market. First, the law is massive in regulations which has required financial institutions to double or triple it's regulatory staff. Second, mortgages on primary residences must meet a set of standards to qualify as a "Qualified Mortgage." To be a Qualified Mortgage, borrowers must meet more stringent standards than in the past and Banks must analyze a borrowers ability to repay.  The result will be that fewer people will be able to borrow to purchase a home (up to 20 percent of those who would qualify to purchase a home in 2013 will not qualify in 2014). Ouch.

Interest Rates Heading Up…
nterest rates are going up. They’re still low in a historical context but even 5% and 6% will put a damper on housing. Combined with the increased regulatory effects of Dodd-Frank, high unemployment, and young people who are wandering, housing growth will slow in 2014.

That's all for now,

Rick

 

 

 

Topics: housing market, housing, boost housing market, home buyers, HARP, real estate, real estate deals, housing help, mortgage news, HARP 3, home interest rates, housing recovery, real estate lawyers, mortgage help

7 Great Reasons to Update Your Florida Will, Right Now

Posted by Rick Miller on Thu, Jan 9, 2014

update your Florida willYour Florida Will is kind of a time stamp for your life at the time you make it. It puts your wishes into writing for the court system, as to how you want your assets divided.

A Will that isn't updated to reflect changes that happen after it is made can cause real problems—and still it happens all the time. I've met with children from a first marriage whose parents left everything to their children from a second marriage only because the wording wasn't specific. I’ve had to explain to a widow that her husband had forgotten to change his Will to reflect his second marriage, and his first wife was still the beneficiary. Stop now and make sure your Will is as effective as possible. Here are the seven most common Will “oops” that I see. They are also seven great reasons to call Miller, Crosby & Miller and re-check your Will, today:

  1. You’ve moved. If you've moved to a new state, your current Will needs an update. Different states have different rules when it comes to Wills and trusts.
  2. Your assets changed—up or down. Update your Will to include different homes, artwork, personal worth, jewelry and other additions to your personal property.
  3. You married or divorced. If you've married since you made your Will, or created a trust, you’ll want the document to include your new spouse. If you’ve divorced, you’ll need to make that change, too. Either way, an experienced Wills lawyer at Miller, Crosby & Miller can help make sure your Will is accurate.
  4. You have a new child. If a new child has become part of your family, whether by birth or by adoption, then it’s time to make sure your Will accurately reflects how you want your current estate dispersed after your death—and that every child is named. But understand that in Florida, minors cannot accept gifts in excess of $5,000, and alternate arrangements must be made.
  5. Time has passed. Life changes fast. It’s good to take a new look at your Will every few years, just to make sure you’ve covered the changes in your life.
  6. Your beneficiary died. Unfortunately, sometimes the people you leave your estate to predecease you. Check your Will periodically to make sure the person(s) named to share your estate are still those you want.
  7. You changed your mind. As life moves on, you may change your mind about a myriad of decisions, including who should best raise the children, who your personal representative should be, to whom you should bequeath Aunt Betty’s’s diamond brooch and more.

Change is normal—but update your Will to reflect the changes in your life. Miller, Crosby & Miller can help. Use our Contact Form to ask specific questions or call us at 863-688-7038, today.

Click here for more Miller Crosby & Miller FAQs about Wills

Topics: wills, Florida wills, change your will, what is a will, probate, will and trust, a will is

HARP 3.0 Can't Come Too Soon

Posted by Rick Miller on Thu, Dec 5, 2013
HARP 3.0 needed now

According to the White House, more help is coming. The next version of HARP (Home Affordable Refinance Program) is HARP 3, an economic stimulus program that has some real (and new) teeth, and it’s on the table. HARP 3.0 is the third expansion of the program begun in 2009 to help homeowners whose homes had lost equity to get access to falling mortgage rates.

The original HARP programs were definitely a success—just not enough of one. Nearly three million underwater homeowners have used them to refinance for tremendous savings, but that leaves millions of ineligible homeowners still struggling. At this point, HARPs current restrictions have slowed its usefulness and the market is dragging. (Note: the Feds have extended the current HARP deadline for two years, to December 2015, so if you do qualify for the current program, call a qualified lender today.) The provisions in this HARP 3.0 should potentially reach millions of homeowners currently unable to refinance under previous programs.  

Check out the changes under discussion:

Screen shot 2013 12 03 at 10.16.39 AM resized 600
Each of these improvements would jump-start the now sluggish HARP 2.0 program. Together they should inject new energy into the U.S. economy through a boost to housing.

So when will it pass?
The bill is on the table, and we’ll see if Congress finally passes HARP 3, or if the Federal Home Finance Agency (FHFA) will grab the reins and pass HARP 3 by itself, as is its right. We’ll see…

That’s all for now,

Rick


Topics: central Florida housing, HARP, underwater mortgages, Florida real estate attorney, upside down mortgages, refinance, value of homes, HARP 3.0, boost to the housing market, homebuyers

New Rules Make Short Sales Faster and Easier

Posted by Rick Miller on Mon, Dec 2, 2013

new short sale rulesBoth Fannie Mae and Freddie Mac have updated their servicing guides to allow more borrowers to avoid foreclosure via short sales or a deed in lieu of foreclosures. These changes, part of the Treasurey’s Home Affordable Foreclosure Alternatives (HAFA), are aimed at making life easier for sellers by speeding up lenders’ decision-making process. The new rules are effective January 10, 2014.

New Short Sale Rules Key

  • Borrowers whose cash reserves exceed $50,000 are now eligible.
  • Borrowers who have gone through a Chpater 7 bankruptcy are now eligible.
  • Lenders must delay the next legal step in a foreclosure process if the first complete borrower response package is submitted more than 37 days prior to the scheduled foreclosure sale date.
  • Lender is required to give response within 10 days of receiving Request for Approval of Short Sale (RASS) document.
  • Once buyer closes, seller gets a $3,000 incentive to help with the move, and for ensuring the home is in good shape.

A short sale occurs when homeowners cannot afford the mortgage payments on these underwater mortgages—and there are still a lot of them out there. The problem is that under the current rules, the short sale just takes too long. The new rule requires a lender to come up with a minimum acceptable net amount that will be accepted, although there is no requirement that the amount be made public. The minimum will be affected by:

  • How much the borrower owes on the mortgage
  • The amount of any second mortgages
  • Any closing costs or other related expenses
  • The real estate commission

 There are more rules, of course, and paperwork. Lots of paperwork. But all these provisions provide greater protections and rights to borrowers whose mortgage balance exceeds the fair market value of their property. And speeding up the process is good for everyone concerned—which is a boost for the economy, overall.

That's all for now,

Rick

Topics: foreclosure, boost economy, housing, short sale, foreclosure process, boost for the economy

4 Steps That Help Single Home Buyers Buy a Home

Posted by Rick Miller on Mon, Nov 11, 2013

single home buyersTight mortgage standards may be keeping otherwise qualified single folks and first time would-be home buyers from becoming home owners. Central Florida single home buyers have been slowed for the past three years by tough mortgage lending rules which reward dual income households more likely to average higher credit scores. This is significant because historically, first time home buyers are instrumental in housing recoveries as they help existing home owners sell and trade. For now, the majority of the would-be buyers are renters, which is driving that business sky-high.

Single buyer market struggling
The overall market share of single buyers declined from 32 percent in 2010 to 25 percent in both 2012 and 2013. First time home buyers slipped to a 38 percent market share from 39 percent in the 2012 study.

Government help for the very low income
Many local, state and federal government agencies offer programs to help with home buying. There are loans and even help with down payments, but those are for very low income buyers. For information on where some of your tax dollars go, check http://www.homeloanlearningcenter.com/ConsumerHelpDesk/SpecialProgramsforHomebuyers.htm for details.

In the meantime, here is what I tell my single first-time home-buying clients who do want a place to call home:

1. Know what you can afford. What you can borrow and what you can afford are two different things. Before you buy a home, detail your expenses. Don't fall in love with a home you can't afford because you will talk yourself into affording it. I've seen it happen, over and over. You do not want to be a slave to your house payment.  Be honest about finances with your real-estate agent and lender and let them help you avoid taking on too much debt.
Come in under budget. If you buy a home below what you can afford, you'll have a cushion.


2. Shop until you find an agent you really trust. Get referrals from your friends and family network. Talk to them. Interview them. Do it again.

3. Know that you don't have to buy now. If you don't find the house you can afford to love, wait to buy a home. Set a monthly savings goal and a timeline and know that you can buy later.

4. Consider a roommate. Single buyers can find a roommate to help cover costs, but choose carefully. You'll help cover your costs, add some safety, but know that you're giving up some independence, too.


Topics: Florida law, Fannie Mae, home buyers, buy a home, central Florida homeowners, Florida housing, Freddie Mac, Florida real real estate market, Flroida real estate market, Florida housing market, Florida homeowners, FHA, Florida real estate market

The American Home Ownership Dream Alive and Well, Just Postponed

Posted by Rick Miller on Thu, Sep 26, 2013
Time to Buy, Not Rent

Owning remains cheaper than renting.

Interest rates have risen. Central Florida home values have increased. We are seeing a boost to the  economy through a boost to housing, and that is good for everyone. But interestingly, despite the increases in rates and prices, it remains cheaper to own than to rent. The gap has closed a bit but it is still 35 percent cheaper to buy a home than to rent.

It's About Supply and Demand
The demand for rentals caused by the real estate crash resulted in a lack of supply of apartment inventory and higher rents. Interest rates, while higher than they were only months ago, remain at historically low levels. And while home prices have risen, they are still not at the peak values reached in the mid-2000s. As a result of these factors, owning a home remains significantly cheaper than renting.

There is Some Relief for Responsible Homeowners
HARP 2.0 offers help getting out from under the underwater mortgages. Call or email me if you're not sure how to get started. HARP 3.0 is on the table with potential new help to those who lost homes because of circumstances (see last week's blog, Fannie Mae and FHA Reclassify Short Sale Borrowers).

Our Children and Grandchildren Will Succeed
The jobs are not prolific yet, but they are coming. Perhaps this will be another greatest generation as they learn that starting at the top is not reality, and that experience really does count for something. For sure they know things I don't, and they are working hard to learn more. Certainly for those who have jobs, this market is a good one in which homebuyers should reach to buy an affordable home.

That's all for now,


Rick

Topics: boost economy through housing, Fannie Mae, boost economy through boost to housing, home buyers, buy a home, central Florida housing, housing boost, HARP, boost economy through boost to housing market, HARP 3.0, home ownership, home prices, greathome deals, economy, Florida real estate, help for responsible homeowners, FHA, homeowners