Rumors about the 3.8% Medicare tax continue to circulate. Here's the definitive word on what's true and what's not on how the tax impacts real estate.
Ever since health care reform was enacted into law more than two years ago, rumors have been circulating on the Internet and in e-mails that the law contains a 3.8 percent tax on real estate. NAR quickly released material to show that the tax doesn't target real estate and will in fact affect very few home sales, because it's a tax that will only affect high-income households that realize a substantial gain on an asset sale, including on a home sale, once other factors are taken into account. Maybe 2-3 percent of home sellers will be affected.
Nevertheless, the rumors persist and the latest version that's circulating falsely say NAR is advocating for the tax's repeal. But while NAR doesn't support the tax (it was added into the health care law at the last minute and never considered in hearings), it's not advocating for its repeal at this time.
The characterization of the 3.8 percent tax as a tax on real estate is an example of an Internet rumor, says Heather Elias, NAR's director of social business media. Elias and Linda Goold, NAR's director of tax policy, sat down for a discussion of how the tax works and how Internet rumors work.
Goold says the tax will affect few home sellers because so many different pieces must fall into place a certain way for the tax to apply. First, any home sale gain must be more than the $250,000-$500,000 capital gains exclusion that's in effect today. That's gain, not sales amount, so you really have to reap a substantial amount for the tax to even come into play. Very few people are walking away with a gain of more than half a million dollars today, even in the high-end home market, so right off the bat only a few home sellers would be a candidate for the tax.
For the few households that do see a gain of more than the $250,000-$500,000 exclusion (that's $250,000 for single filers and $500,000 for joint filers), only the amount above the exclusion would be factored into the tax calculation, and that would still only apply to high-income households, which the law defines as single people earning $200,000 a year and joint filers earning $250,000 a year.
So, if you are a household with annual income of $250,000 or more and you earn a gain of more than $500,000 on your house (again, that's after the $500,000 exclusion), any amount of gain above the exclusion would be plugged into a formula to see if it's taxable. If it turns out that it's taxable, then the amount could be subject to the 3.8 percent tax. If the household had a gain of more than $500,000 but only earned $249,000 a year in income, the tax wouldn't apply.
(Note that these are just hypothetical examples. To know if a case would really be subject to the tax, a professional tax preparer or tax attorney has to look at all the particulars of the tax filer's case. Only a tax professional is in a position to say the tax is applicable, but the examples cited here could help you get a sense of how the tax works.)
The other thing about the tax worth noting is that, although it takes effect in 2013, any impact on taxes wouldn't happen until 2014. That's because the tax filer would do the calculation in 2014 for the 2013 tax year. Because it's not a tax on a real estate sale but rather on a capital gain, it's not calculated at the time of an asset sale, whether that asset is a house or something else. It's calculated at the time the filer figures his or her tax.
October 2012
By Robert Freedman
Wednesday, October 31, 2012
Wednesday, October 17, 2012
Know the pitfalls of refinancing....
The TV and radio ads make it all seem so easy. Walk into a lender's office, refinance your home loan at a rock-bottom rate, and walk out with a lower monthly payment.
Here's a little tip: It's not so easy.
If you know the pitfalls, you can at least prepare for them - and perhaps chart a wiser course. A few issues that could have your application earmarked for the ‘Rejected' pile:
1. Heightened credit score demands
If you're refinancing, that means you've successfully secured a home loan already. But since then, lenders have started to demand near-pristine credit scores. "Now to get access to the lowest rates, you need a FICO score above 740," says Keith Gumbinger, VP of mortgage information site HSH.com.
Not quite the perfect score of 850, but still quite challenging to achieve. Credit scorer FICO does not break out the average number for refi applicants, but the national average is 690 -- well below what will get you prime lending rates.
2. Low appraisal
While interest rates have gone down, so have U.S. home values. The average home value dropped a third from the start of 2007 to the start of 2012, according to housing analytics firm Fiserv. For refinancing, that's a problem.
Chicago's Jesse Raub and his wife have owned a home for about three years, and recently started the refi process. But then the appraisal came in low.
"Beware that the appraised value of your home may not be what you think it should be," says Raub, 27, who's a trainer and educator for Intelligentsia Coffee. "Our new mortgage amount was close to the total value of the home - which required us to get mortgage insurance as well."
3. A home equity line of credit
You may have forgotten that you once took out a home equity line of credit. You may have not even touched a penny of it. But it could still derail a refi, because it means another lender has a claim on the value of the home.
"If you're refinancing your first mortgage, the lender of the home-equity line has to agree to that," says Mike Fratantoni, vice president of research for the Washington, D.C.-based Mortgage Bankers Association.
Essentially, that lender needs to sign off on being second in line, and agree that the primary mortgage will always be paid off first (in the event of a foreclosure, for instance). "There may be fees associated with that, and so a home-equity line of credit is one more thing that could make a refi more difficult."
4. Condo or co-op troubles
If lenders are going to fork over hundreds of thousands of dollars, they don't want any issues to make them nervous. And when the property is subject to decisions of an unpredictable board of directors, that can make them nervous.
"Any number of issues might trip you up," says Gumbinger. "If the building finances aren't in good shape, or if the insurance isn't paid up, or if there are any units in foreclosure, or if there are any lawsuits against the condo association, or if the building is comprised largely of renters. All kinds of fun stuff can arise."
5. Timeliness requirements
Banks want to see the most up-to-date financial information possible before they sign off on a mortgage. But they also have a tendency to ask for document after document after document regarding your financial situation. If the refi process has ballooned to 60 or even 90 days, but they require documents from the last 30 days, that could put you on a carousel of paperwork straight from the ninth circle of hell.
So get out your yoga mat, breathe deeply, and have a mantra ready. You're going to need lots of patience. "Expect the worst," advises Erin Lantz, director of the mortgage marketplace for real estate site Zillow.com. "If you come to terms with that at the beginning, it will remove the stress later on."
(Follow us @ReutersMoney or finance/personal-finance">here Editing by Beth Pinsker Gladstone)
By Chris Taylor; NEW YORK; Sat Oct 13, 2012 9:00am EDT
Yes, at MIG have these issues too. But we know what we are doing and routinely get our clients closed in 20 - 40 days. Call or reply to this email if we can help.
Here's a little tip: It's not so easy.
If you know the pitfalls, you can at least prepare for them - and perhaps chart a wiser course. A few issues that could have your application earmarked for the ‘Rejected' pile:
1. Heightened credit score demands
If you're refinancing, that means you've successfully secured a home loan already. But since then, lenders have started to demand near-pristine credit scores. "Now to get access to the lowest rates, you need a FICO score above 740," says Keith Gumbinger, VP of mortgage information site HSH.com.
Not quite the perfect score of 850, but still quite challenging to achieve. Credit scorer FICO does not break out the average number for refi applicants, but the national average is 690 -- well below what will get you prime lending rates.
2. Low appraisal
While interest rates have gone down, so have U.S. home values. The average home value dropped a third from the start of 2007 to the start of 2012, according to housing analytics firm Fiserv. For refinancing, that's a problem.
Chicago's Jesse Raub and his wife have owned a home for about three years, and recently started the refi process. But then the appraisal came in low.
"Beware that the appraised value of your home may not be what you think it should be," says Raub, 27, who's a trainer and educator for Intelligentsia Coffee. "Our new mortgage amount was close to the total value of the home - which required us to get mortgage insurance as well."
3. A home equity line of credit
You may have forgotten that you once took out a home equity line of credit. You may have not even touched a penny of it. But it could still derail a refi, because it means another lender has a claim on the value of the home.
"If you're refinancing your first mortgage, the lender of the home-equity line has to agree to that," says Mike Fratantoni, vice president of research for the Washington, D.C.-based Mortgage Bankers Association.
Essentially, that lender needs to sign off on being second in line, and agree that the primary mortgage will always be paid off first (in the event of a foreclosure, for instance). "There may be fees associated with that, and so a home-equity line of credit is one more thing that could make a refi more difficult."
4. Condo or co-op troubles
If lenders are going to fork over hundreds of thousands of dollars, they don't want any issues to make them nervous. And when the property is subject to decisions of an unpredictable board of directors, that can make them nervous.
"Any number of issues might trip you up," says Gumbinger. "If the building finances aren't in good shape, or if the insurance isn't paid up, or if there are any units in foreclosure, or if there are any lawsuits against the condo association, or if the building is comprised largely of renters. All kinds of fun stuff can arise."
5. Timeliness requirements
Banks want to see the most up-to-date financial information possible before they sign off on a mortgage. But they also have a tendency to ask for document after document after document regarding your financial situation. If the refi process has ballooned to 60 or even 90 days, but they require documents from the last 30 days, that could put you on a carousel of paperwork straight from the ninth circle of hell.
So get out your yoga mat, breathe deeply, and have a mantra ready. You're going to need lots of patience. "Expect the worst," advises Erin Lantz, director of the mortgage marketplace for real estate site Zillow.com. "If you come to terms with that at the beginning, it will remove the stress later on."
(Follow us @ReutersMoney or finance/personal-finance">here Editing by Beth Pinsker Gladstone)
By Chris Taylor; NEW YORK; Sat Oct 13, 2012 9:00am EDT
Yes, at MIG have these issues too. But we know what we are doing and routinely get our clients closed in 20 - 40 days. Call or reply to this email if we can help.
Wednesday, October 10, 2012
Consumer Financial Protection Bureu Proposes New Rules
Have you ever heard, "I am from the government and I am here to help you."? (Yeah right) Anyway here is what is coming. Maybe it will be ok?
Consumer Financial Protection Bureau proposes rules to bring greater accountability to mortgage market
Rules Would Help Consumers Understand Mortgage Costs and Comparison Shop
WASHINGTON, D.C. - Today the Consumer Financial Protection Bureau (CFPB) proposed rules that would bring greater accountability to the mortgage loan origination market. These rules, which the CFPB is seeking comment on and will finalize by January 2013, would make it easier for consumers to understand mortgage costs and compare loans so they can choose the best deal.
"Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees," said CFPB Director Richard Cordray. "We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them."
The Dodd-Frank Wall Street Reform and Consumer Protection Act places certain restrictions on the points and fees offered with most mortgages and the qualification and compensation of loan originators. Most notably, without this rulemaking, the Dodd-Frank Act would prohibit payment of upfront points and fees for most mortgages even where a consumer prefers a loan with a lower interest rate and some upfront costs. The CFPB is seeking public comment on a proposal that would:
The public will have 60 days, until October 16, 2012, to review and provide comments on the proposed rules. The CFPB will review and analyze the comments before issuing final rules in January 2013.
An overview of the proposal is available at: http://files.consumerfinance.gov/f/201208_cfpb_detailed_summary_of_proposed_loan_originator_rules.pdf
The proposed rules are available at: http://files.consumerfinance.gov/f/201208_cfpb_tila_mlo_compensation_proposed_rule.pdf
The SBREFA Panel report on the outreach with small servicers is available at: http://files.consumerfinance.gov/f/201208_cfpb_LO_comp_SBREFA.pdf
Rules Would Help Consumers Understand Mortgage Costs and Comparison Shop
- Require Lenders to Make a No-Point, No-Fee Loan Option Available: It is often difficult for consumers to compare loans that have different combinations of points, fees, and interest rates. Under the proposed rule, creditors would have to make available to consumers a loan without discount points or origination points or fees, unless the consumers are unlikely to qualify for such a loan. These options would enable a consumer buying or refinancing a home to better compare competing offers from different creditors, better able to compare loan offers from a particular creditor, and decide whether they would receive an adequate reduction in monthly loan payments in exchange for the choice of making upfront payments.
- Require an Interest-Rate Reduction When Consumers Elect to Pay Upfront Points or Fees: Consumers can pay points, which are expressed as a percentage of the loan amount, and fees to covers costs associated with origination or prepaid interest charges. While these points and fees come in many different names and combinations, they all should function similarly to reduce the interest rate and thus a consumer's monthly loan payments. The CFPB is seeking comment on proposals to require that any upfront payment, whether it is a point or a fee, must be "bona fide," which means that consumers must receive at least a certain minimum reduction of the interest rate in return for paying the point or fee.
In addition to regulating upfront points and fees, the CFPB is proposing changes to existing rules governing mortgage loan originators' qualifications and compensation. Mortgage loan originators, who take mortgage loan applications from consumers seeking to buy a home or refinance a mortgage, include mortgage brokers and loan officers. The rules the CFPB is proposing would:
- Set Qualification and Screening Standards: Under state law and the federal Secure and Fair Enforcement for Mortgage Licensing Act, loan originators currently have to meet different sets of standards, depending on whether they work for a bank, thrift, mortgage brokerage, or nonprofit organization. The CFPB is proposing rules to implement Dodd-Frank Act requirements that all loan originators be qualified. The proposal would help level the playing field for different types of loan originators so consumers could be confident that originators are ethical and knowledgeable. The proposed rule includes:
- Character and Fitness Requirements: All loan originators would be subject to the same standards for character, fitness, and financial responsibility;
- Criminal Background Checks: Loan originators would be screened for felony convictions; and
- Training Requirements: Loan originators would be required to undertake training to ensure they have the knowledge necessary for the types of loans they originate.
- Prohibit Payment of Steering Incentives to Mortgage Loan Originators: In 2010, the Federal Reserve Board issued a rule that was designed to curtail the practice of loan originators directing consumers into higher priced loans based not on the consumer's interest, but on the possibility that the loan originator could earn more money. The Dodd-Frank Act included a similar provision banning the practice of varying loan originator compensation based on interest rates or other loan terms. The CFPB's rule would implement the Dodd-Frank Act provision and clarify certain issues in the existing rule that have created industry confusion.
- Place Restrictions on Arbitration Clauses and Financing of Credit Insurance: The proposal implements Dodd-Frank Act provisions that, for both mortgage and home equity loans, prohibit including mandatory arbitration clauses in loan documents and increasing loan amounts to cover credit insurance premiums.
The proposed rules are available at: http://files.consumerfinance.gov/f/201208_cfpb_tila_mlo_compensation_proposed_rule.pdf
Wednesday, September 19, 2012
Who is left to refinance?
Plenty of folks, per the number crunchers at CoreLogic. Putting aside the question of, "What will a world of 3.5% 30-yr borrowers look like in five years?" there are still oodles of homeowners with rates in the 5% and 6% range who could benefit. "Roughly 69% of American homeowners with mortgages at the end of the second quarter had rates of 5% or higher and about 33% of them had rates above 6%, according to detailed mortgage data provided to The Times by Santa Ana research firm CoreLogic."
-Terry O'Donnell
I know there are many people who have tried but various problems keep them from refinancing. If I haven't talked to you about it shoot me an email or call at (615) 777-4663 and we can discuss it.
Plenty of folks, per the number crunchers at CoreLogic. Putting aside the question of, "What will a world of 3.5% 30-yr borrowers look like in five years?" there are still oodles of homeowners with rates in the 5% and 6% range who could benefit. "Roughly 69% of American homeowners with mortgages at the end of the second quarter had rates of 5% or higher and about 33% of them had rates above 6%, according to detailed mortgage data provided to The Times by Santa Ana research firm CoreLogic."
-Terry O'Donnell
I know there are many people who have tried but various problems keep them from refinancing. If I haven't talked to you about it shoot me an email or call at (615) 777-4663 and we can discuss it.
Wednesday, September 12, 2012
Fee Increase to Impact Home Loans
The Federal Housing Finance Agency (FHFA) has again increased the guarantee fee they charge to lenders delivering loans to Fannie Mae and Freddie Mac. This is important to know, as this increase has a rippling effect that will impact the cost of mortgage financing.
Here's what's happening and what it means to home loan rates:
What exactly is this "g-fee"? The guarantee fee or "g-fee" is an amount charged by mortgage-backed securities (MBS) providers, like Freddie Mac and Fannie Mae, to help protect against credit-related losses in the overall mortgage portfolio. In other words, it acts a lot like insurance and helps lower the overall risk...which means home loans can be offered at terrific interest rates to borrowers that have good – but not perfect – credit.
What exactly is the impact of the rate increase? The increase will impact loans with different amortizations in different ways. For example, for a $200,000 home loan, the increased g-fee (assuming a .125% increase in rate) would equate to $250 more per year in interest, or $7,500 more over 30 years. Someone buying or refinancing a home can certainly choose to buy down the cost with cash up front – but most folks will not do this.
Why is the guarantee fee being increased? FHFA has increased the guarantee fee to collect more revenue to enhance the safety and soundness of the Government Sponsored Enterprises (GSEs), and perhaps indirectly encourage private firms to participate in the mortgage market.
Who will this impact? The change will impact all new borrowers using Fannie Mae and Freddie Mac loans.
When will it start? Officially, the increase to guarantee fees will begin on December 1, 2012. However, Fannie Mae will also be making adjustments to pricing for those loans that are committed on or after November 1, 2012. It’s important to note that the increase is already being seen in rate sheets right now, since home loans being originated now will likely not be closed, pooled and securitized until December and therefore will need the increased g-fee priced in earlier.
The bottom line is that the g-fees will be going up...and this will impact homebuyers looking to obtain a home loan through Fannie Mae and Freddie Mac.
~Mortgage Market guide
P.S. I am told that most if not all companies have already reflected this is this in their pricing. And as you know the rates are still amazing. But bottom line it is another case where big government is getting paid by you and you probably didn’t even realize it.
Wednesday, September 5, 2012
Learning To Use Credit Wisely
While we were driving back to Nashville, we listened to the “Dave Ramsey show”, which I haven’t done in a while. I think he does a tremendous amount of good, except if you follow him completely you will wind up without a credit score. He teaches folks to live without credit and I believe people should learn to manage credit.
He does that because there are a lot of people who will never manage it. They fall victim. So credit may be similar to addiction to alcohol, gambling or tobacco. You just learn to use it, not abuse it.
He also talked about all the good people trying to talk to the major mortgage servicing companies about missed payments, late payments, short sale approvals and the like. He used their names which I will avoid. He points out that the person receiving the calls hates their job and for the most part doesn’t want to be there. That is probably why they aren’t there the next time you call. They found a better job and moved on, leaving you to talk to someone who could care less. He just says to keep trying, but lower your expectations. And if they tell you you have to be late or skip payments, don’t listen. You just hurt yourself more in the long run.
If you want someone to talk to, to find out if you have options, please give me a call at 615-777-4663 or send me an email at george.margrave@migonline.com, I am here to help in any way I can.
He does that because there are a lot of people who will never manage it. They fall victim. So credit may be similar to addiction to alcohol, gambling or tobacco. You just learn to use it, not abuse it.
He also talked about all the good people trying to talk to the major mortgage servicing companies about missed payments, late payments, short sale approvals and the like. He used their names which I will avoid. He points out that the person receiving the calls hates their job and for the most part doesn’t want to be there. That is probably why they aren’t there the next time you call. They found a better job and moved on, leaving you to talk to someone who could care less. He just says to keep trying, but lower your expectations. And if they tell you you have to be late or skip payments, don’t listen. You just hurt yourself more in the long run.
If you want someone to talk to, to find out if you have options, please give me a call at 615-777-4663 or send me an email at george.margrave@migonline.com, I am here to help in any way I can.
Wednesday, August 29, 2012
Meet Our Newest Team Member
This week I am pleased to announce that I have added a new member to my team. You may know him from past times at MIG. He is David Baker. It will be his job to do everything that will make our clients continue to believe that no one can give better service than the George Margrave team at MIG. He comes in with experience with a lot of the things he needs to know. The rest he will pick up quickly. Welcome him when you get a chance. You can reach us at 615-777-4663.
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