F.A.Q's
Here is a collection of frequently asked questions that we have put together to help you in buying or selling a home. If you have any other questions not listed here, feel free to call or send an email.
Buyers
Generally, real property never depreciates in value, or more so, it is not very common for property to depreciate. This is why it's a great investment. Make sure you carefully consider location and community when choosing a home, it can effect the homes future value greatly.
If you are in a newly developed area, do some research on the construction of the surrounding areas being developed to determine if they may effect your homes value.
Generally yes, provided that you are still within the investigation period allowed in the purchase agreement (normally 14 days) or if you have found additional adverse material facts that will affect the property contrary to what was specified in the contract. Both parties must agree to the cancelation of the contract. Most of time, the monies incurred during this time are not refundable, specially if independent contractors are involved. e.i. appraisers, professional home inspectors, termite companies, septic services, civil engineers, etc.
This is the reason I always recommend a reasonable investigation period period in the contract, and for the buyer to satisfy him/herself before spending any money in escrow that may not be refundable.
I the monies are not recovered as expected, an attorney is usually recommended to determine who is the liable party.
This is really just a matter of preference, but both newer and older homes offer distinct advantages, depending upon your unique taste and lifestyle.
Older homes can generally cost less than new homes, however, there are many cases where new homes can also cost less then older homes. Most new homes will not have any backyard landscaping and some don''t include any front landscaping either. With an older home, the landscaping is normally already completed and could have 10''s of thousands of dollars in landscaping done, which is included in the purchase price.
Taxes on some older homes may also be lower. Some people are charmed by the elegance of an older home but shy away because they''re concerned about potential maintenance costs. Consider a home warranty to get the peace of mind you deserve. A good Home Warranty plan protects you against unexpected repairs on many home systems and appliances for a full year or more after you move in.
In a new house, you can pick your own color schemes, flooring, kitchen cabinets, appliances, custom wiring for TV''s, electrical, computers, phones and speakers, etc., as well as have more upgrade options. Modern features like media rooms, extra-large closets and extra-large bathrooms and tubs are also more attainable in ground-up construction. In a used home, you rely largely on the previous resident''s tastes and technological whims, unless you plan to farm thousands into a remodeling and rewiring.
New-home designers can use new building materials such as glazed Energy Star windows, thicker insulation and other technology that will lower future energy costs for the owner. Most states now have minimum energy-efficiency requirements for new construction. Kitchens and laundry areas in new homes are designed to house more efficient energy-saving appliances. Older homes, unless they have undergone an energy retrofit, usually cost much more per square foot to air-condition and heat.
Builders have to follow very strict guidelines in new-homes and additions, especially in the West and Northwest, where earthquake safety standards must be observed. In general, new homes are usually more fire-safe and better accommodating of new security and garage-door systems.
Older homes can be better judged for their quality and timeless beauty. New homes that now possess a smooth veneer might reveal the use of substandard building materials or shoddy workmanship over time.
As you can see there are advantages and dis-advantages to each, but it really comes down to what fits you and what you are looking for in a home.
The answer is yes. Your mortgage interest is deductible and also your discount points.The discount points have to be divided by the life of the loan.
For example, let's say you paid $2,000.0 in discount points in relation to your mortgage and the mortgage is amortized for 30 years. You must divide $2,000.00 by 30 and deduct the result($66.67) every year until you sell or refinance. If you don't finish deducting the whole $2,00.00 before you sell or refinance, then you deduct the remaining balance on the year you sell or refinance.
REALTOR is a trademark of the National Association of Realtors.
If you're preapproved, it means that you have undergone the extensive financial background check, which includes looking at your credit history, previous tax returns and verifying your employment - and the lender is willing to give you a loan, basically meaning you're approved!
You will usually be provided an accurate figure which shows the maximum amount that you are approved for. Most sellers prefer buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.
Listing Agents usually deal with sellers, and are the ones who will list a property for sale on the Multiple Listing Service.
Selling Agents (also Buyers Agents) mostly deal with the homebuyers, usually only listing just a few homes for sale. They will sell the homes (which have been placed in the MLS) via the listing agents.
The majority of agents will focus on one or the other. Some agents will also divide their time between sellers and buyers and are usually regarded as the best ones since they are dealing with both sides of the coin.
If you phone an agent from a magazine or newspaper ad, you are usually contacting the listing agent. These agents will place ads to show the seller that they are making an effort to sell their home. Also their advertising efforts can draw others who may decide to sell their homes.
Unfortunately, that is an IRS code. The silver lining on this code is that you only have to live 2 years in your home to be exempt from capital gain taxes. Other conditions apply but you may call my office regarding this capital gain exemption.
During the time you are making mortgage payments on the home you are buying, the home continues to appreciate in value due to inflation. Part of the mortgage payment your making every month helps reduce the loan balance bringing your principal down gradually until you pay off the loan. In addition to this. the mortgage interest and the the property taxes that you are paying monthly included in your monthly payment are tax deductible on your schedule A of your 1040 tax return, giving you an additional source of funds in the form of a tax refund. So you get double benefits. You gain equity from your home increase in value, and you get to deduct mortgage interest and property taxes.
This does not happen when you rent because you don't own the home. The landlord get the increased equity and he gets to deduct the expenses.
The appraiser is an independent agent contracted by the lender or by the buyer to appraise the property and gets paid for his services whether the loan gets approved or not, and whether escrow closes or not. If you are not willing to risk your appraisal money, make sure you have been approved 100% and make sure that you like your property 100% and that you have read all disclosures before spending additional money into escrow.
A real estate agent is more than just a sales person. A real estate agent may act on your behalf, providing you with advice and guidance when buying or selling a home. Due to the constant changing of the market, the information available on listings is not always 100% accurate. There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with a real estate agent.
If you are in the market to buy, it would be advisable to use a Buyer's Agent. They can make recommendations on what terms and prices to offer as well as negotiating a deal with your best interest in mind.
Again escrow companies are independent corporation that act as a middle party to the transaction to ensure that the contract is carried out or completed as instructed in the contract and escrow instructions. If the buyer or seller defaults, the escrow collects a a cancellation fee for the services provided during the time the escrow was open. If you are not willing to take the risk, then you should not open escrow until you are 100% satisfied that your escrow is going to close. In the real world such warranties are not assured because there may be many factors beyond the parties control. for example, borrower laid off, discovery of faulty construction of property, disclosures not submitted on time, delays of signatures from parties involved, etc.
Mortgage
The Real Estate Settlement Procedures Act (RESPA) sets standards for the calculation of the amount mortgage lenders require borrowers to deposit into the escrow account. RESPA limits the initial deposit into an escrow account to an amount equal to the sum sufficient to pay taxes, insurance premiums, and other charges on the mortgaged property for the first payment period, plus a cushion.
An escrow cushion is an amount of money held in the escrow account to prevent the account from being overdrawn when increases in disbursements occur.
On a monthly basis, mortgage lenders may not require borrowers to pay more than one-twelfth of the total amount of the estimated annual taxes, insurance premiums, and other charges, plus an amount necessary to maintain the allowable cushion.
Yes. but only the interest portion and the property tax portion. the principal amount is not. Your lender normally sends you a yearly statement reflecting the interest and the property taxes.
Contrary to what most people believe, These are not refundable credits or refundable amount at the end of the year. these are deductible expenses that reduce your taxable income thus increasing your refund in proportion to the amounts withheld from your employer and or other credits.
Discount points are also deductible personal expenses that usually divided by the years of the loan life and deducted according to the amount allocated to each year. You may deduct the entire amount the year you refinance the home or the year that you sell the home.
The easiest way to avoid PMI is by putting 20% down payment; however, PMI can also be avoided if you only have 5% or 10% for the down payment. The way to accomplish this is via a first and second mortgage combination commonly referred to as 80/10/10^s or 80/15/5^s.
These two methods combine a first mortgage lien for 80% of the home price with a second mortgage lien for either 10% or 15% of the home price leaving the remaining 5% or 10% as the down payment. Because the first lien is at the magical 80% loan=to-value, there is no PMI required, even though a second mortgage is being |piggybacked| onto the financing thus allowing for the lessor down payment.
While the second lien terms are not as attractive as first lien rates, the second mortgage is still home mortgage interest and thus deductible as such on your federal tax return where PMI is insurance and offers no deduction.
This question is best answered after careful consideration of your own personal financial goals. Buying down the interest rate (paying points on the mortgage - one point is one percent of your mortgage amount) may not be in your best interest. Here are some reasons why:
Mortgage interest paid is tax deductible in most cases (seek the advice of an accountant or the IRS).
The funds are no longer available to invest, save or use (ie. purchase an IRA, pay off credit card debt at a higher rate, etc.)
Falling interest rates can be taken advantage of sooner if discount points are not paid to buy down the interest rate (the original interest rate was higher).
In the past, if a consumer bought down the interest rate and then refinanced (buying down the rate again), it is possible not enough time will have elapsed to recover the |buy down| amount through the reduced monthly payment. This also occurs if the consumer sells the home before recovering the |buy down| amount.
Not only does the amount paid in discount fees (buy down amount) need to be recovered, the |time value| of the money spent or its |present value| also needs to be recovered. Present value is the income you could have earned or the satisfaction you could have received through alternative use of your money. Remembe to consider the tax consequences of your ultimate decision.
Individuals should do what best fits their own personal situation and goals.
Many tax authorities will mail an informational copy of the real estate tax statement to the homeowner in addition to the Credit Union. However, there are some statements tax authorities do not forward to the credit union, and in special cases we will need your assistance in obtaining the bill. If you receive a statement for any of the following, please forward it to our office by mail or fax.
- delinquent real estate taxes
- supplemental or additional real estate taxes
- special assessments
- if the tax authority will not honor a bill request from another party.
Owners
Generally yes. Starting with the mortgage interest, property taxes, maintenance, legal fees, advertising, even depreciation ( the invisible wear and tear of the dwelling) is deductible.
See more deductible expenses here
Renters
You save money initially because the rent payments are usually less than the mortgage payments on a house. However you will eventually miss out on the appreciation and the increase of equity of the house and on income tax refund benefits that you would normally qualify if you owned the home.
Sellers
The answer is no. Provided you meet the following criteria;
It must be your main residence. Vacation homes, rental homes and investment homes do not qualify.
You must have lived in you main home at least two years during the past five years. confusing?
Lets say you have owned a home for at least five years. If you lived in it at least two years out of the five years you owned it your capital gain is tax free. the two years don't have to be consecutives as long as they are within the five year period.
It gets a little more detailed but if you are confused please call my office.
No. If you prefer a lower-priced offer, perhaps with a better-qualified buyer and/or more attractive terms, you can accept that offer instead. Or you can give counteroffers to one or more of the buyers.
Beware, however, that if you turn down a full-priced offer, you may owe your agent a full commission even if you decide not to sell your home.
You must take into account the prevailing state of the real estate market and especially local market conditions. The real estate market continually changes, and market fluctuations affect property values. So it is critical to determine your listing price based on the most recent comparable sales in your neighborhood.
It would be a good idea to get a Home Value Request, or CMA, also known as Comparable Market Analysis.
In most cases it is, but only the amount that the bank discounts from the original debt. For example, if you owe $300,000 to the bank and you sell you house for $280,000, the bank will lose $20,000 and give you a 1099 form for the amount of $20,000 which according to the I.R.S. is taxable income to you.
If the property in question is your primary residence and you have lived in it at least two years or you were financially insolvent in the year of the short sale then the 1099 form that you receive from the mortgage company is not taxable. In most cases, you, the seller, home owner is financially insolvent. This is the reason you are doing the short sale and your short sale is non taxable.
See additional short sale gain consequences and calculations.
Along with economic factors such as supply and demand, the time of year you choose to sell can impact both the length of time it takes to sell your home and its ultimate selling price.
Typically, the real estate market picks up around February, continues strong through late May and June, and tapers off during July and August. The summer is usually the busiest time for moving since school is out and buyers may be looking to get their children in school before the new school year. September through November generally marks a rally not as strong as late winter and spring, followed by a slowdown from Thanksgiving through and beyond the Christmas and New Year holiday period.
- You might help sell similar homes that are priced lower.
- Your home may be on the market longer.
- You could lose market interest and qualified buyers.
- You might create a negative impression of the property.
- You could lose money as a result of making extra mortgage payments while incurring taxes, insurance and unplanned maintenance costs.
- You may have to accept less money.
- A potential buyer may face appraisal and financing problems resulting from the inflated price.
It is not recommended to sell your home any higher than the appraised value unless demand is high in your area. Ask you real estate agent which price would be right for your home. Also make sure you get a Home Value Request to assist in determining the best sales price for your home.
A report made by a qualified person setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.
In conventional mortgages and in the HUD-FHA Direct Endorsement Program, the lender receives a copy of the complete report, showing the basis for the appraiser's estimate.
In VA cases and in HUD applications processed by HUD, the lender receives only a statement of the estimate of value, without any detailed supporting data.
The 593 c form is used by an escrow corporation that is required by the Franchise Tax Board in order to determine if the seller has to pay capital gain taxes.
It used to be that the escrow company had to collect 3.5% of the sales amount at the time of the closing of the escrow and forward this amount to the Franchise tax board.
You had to wait until you filed taxes in order to claim the overpaid tax amount.
Recently the collection procedure has changed to enable escrow to collect the designated Franchise tax board percentage of the capital gain amount only and not the whole sales amount.
A short sale is when a lender or mortgage company approves a lower sales price than what is owed on the existing loan. This usually happens when there is real estate market down turn. Due to loss of equity the seller or home owner does not have funds or sales proceeds to complete the sale or is financial insolvent due to a financial hardship or other personal reason. The lender or mortgage company then may offer a sale in compromise or short sale in order to avoid foreclosure.
Why would the bank be willing to lose money in order to allow the owner to sell his property? you may ask. Banks are not in the business to hold and own real estate properties. They are in the business to make interest in the money they lend. Oftentimes it is more cost effective for the bank to complete a short sale than to go through the whole legal process of a foreclosure. see, additional short sale taxable consequences.
An Exclusive Agency listing allows your agent to market your home and enter it into the MLS. The agent will receive a commission if your home sells through any real estate company or by another agent. He will NOT receive a commission if you, the seller, find a buyer on your own. Because a commission is not guaranteed, your agent may not be highly motivated to market your property. Thus, this type of listing is not common and should be avoided.
With a short sale you the seller avoids a foreclosure in his credit record. While late payments will still go to the debtor credit history they are not as bad as a foreclosure or repossessed item in the debtor's credit history.
Most Real estate brokers are willing to assist you in a short sale transaction provided that the mortgage company or bank involved in the transaction approves the short sale and a sales commission to the Broker usually a discounted commision.
A real estate agent is more than just a sales person. A real estate agent may act on your behalf, providing you with advice and guidance when buying or selling a home. Due to the constant changing of the market, the information available on listings is not always 100% accurate. There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with a real estate agent.
You don't need to use a commissioned real estate agent to sell your home, but you may want to consider the benefits of having a real estate agent versus not using a real estate agent.
In addition, many people would rather use an Agent due to the complexities of modern Real Estate transactions since they usually incorporate legal and financial attributes, which takes them well beyond more simple transactions, such as the sale of an automobile.
There are several advantages when using a real estate agent to sell your home, such as - your listing will be added to the Multiple Listing Service (MLS) so that large numbers of buyers will have access to the seller's property. In addition, your real estate agent absorbs all of the cost of advertising and marketing, and the screening that will be done of potential buyers by Agents. The Agent will also handle the details of negotiation.
Deciding whether to use an Agent or not depends on if you feel fully confident that you can handle all of the details, then you may well want to attempt selling your house on your own. If not, you most likely will want to use a real estate agent and leave the details to them.
