Buyers, get your paperwork in order

Thanks to Trulia for the list of the ten types of paperwork people need to buy a house.

Home buyers and – sellers alike – often bristle with anticipatory irritation at the mere thought of all the paperwork they expect they’ll have to come up with to do their transaction, above and beyond the basic loan application, contract, disclosures and closing docs. And these worries start way in advance; it’s as though, before they even start visiting open houses, buyers begin to visualize – and dread – spending hours upon hours in the dank catacombs of the Vatican (à la Da Vinci Code) combing through ancient files, seeking some rare and precious artifact documenting their childhood dental history or genealogy.

In some respects, this vision of the experience of obtaining a home loan might not be far off – there are oodles of hoops through which to jump and, occasionally, the loan underwriter requests something sort of bizarre. But more commonly, there’s a pretty finite universe of documents you’ll really need to scrounge up to get your home bought – or sold. Here they are:

1. ID (e.g., driver’s license, state-issued ID, passport).  Who must produce it?  Buyers and sellers.  Why?  Uh, hello!?!  Lender wants to know that you are who you say you are, buyers, and the title insurance company wants to make sure, sellers, that you actually have the right to sell the home.  Funny enough, this commonly goes unrequested until you get to the closing table, when the notary requests to see it before signing, but some mortgage brokers and even some real estate brokers and agents may ask to see it earlier on.
2. Paycheck Stubs.  Who must produce it?  Any buyer financing their purchase with a mortgage.  Sellers, usually only in the case of a short sale.  Why? Buyers’ purchase price ranges are determined, in part, by their income. And short sellers have to prove an economic hardship.
3. Two months’ bank account statements. Who must produce it?  Buyers getting financing; sellers selling short. Why? Buyers’ lenders now require proof of regular income and proof that the down payment money is your own.  Short sellers?  It’s all about the hardship.
4. Two years’ W-2 forms or tax returns. Who must produce it?  Mortgage-seeking buyers and short selling sellers. Why? Banks want to see a stable, long-term income. They also limit you to claiming as income the amount on which you pay taxes (attn: all business owners!). And in short sales, again, they want documentation of every single facet of your finances.
5. Updated everything. Who must produce it? Buyer/mortgage applicants. Why? Because things change, and because the time period between the first loan application and closing can be many months – even years! – on today’s market. During the time between contract and closing it’s not at all unusual for underwriters to demand buyers produce updated mortgage statements, checks stubs, and such – and its quite common for them to call your office the day before closing to request a last minute verification of employment!
6. Quitclaim deed. Who must produce it?  Married buyers purchasing homes they plan to own as separate property.  Married sellers selling homes that they own separately, or joint owners selling their interests separately.  Why? With the Quitclaim Deed, the other spouse or owner signs any and all interests they even might have had in the property over the the selling owner, making it possible for the title insurer to guarantee clear, undisputed title is being transferred in the sale.
7. Divorce decree.  Who must produce it? Buyers and sellers who need to document their solo status or the property-splitting terms of their divorce. Why? Again, to ensure that the seller has the right to sell.  Recently single buyers might need to prove that they shouldn’t be held to account for their ex’s separate debts or credit report dings.
8. Gift letters.  Who must produce it? Buyers using gift money toward their down payment.  Why? The bank wants to be sure the gift came from a relative, and is their own money to give.  They also want the relative to confirm in writing that it’s a gift, not a loan – a loan would need to be factored into your debt load.
9. Compliance certificates. Who must produce it? Usually sellers, but sometimes buyers, by contract. Why? Some local governments require various condition requirements be met before the property is transferred, like some cities which require a sewer line be video scoped and repaired, cities which require a checklist of items be met before a certificate of occupancy be issued (usually relevant to brand new and really old homes, the latter of which are often subject to lead paint concerns) and energy conservation ordinances which require low-flow toilets and shower heads to be installed. Ask your real estate pro for advice about which, if any, such ordinances apply in your area.
10. Mortgage statements. Who must produce it?  Any seller with a mortgage. Why? the escrow holder or title company will need to use them to order payoff demands from any mortgage holder who has to get paid before the property’s title can be transferred.

Tax Preparation Tips for Homeowners

 TAX PREPARATION TIPS FOR HOMEOWNERS 

Thanks, Trulia for these tips which first appeared on WalletPop.com on 2.28.2011.

At tax time, it’s critical to know what you’re entitled to, so you can claim it. So, here are five essential need-to-knows about home-related income tax tips to help you get the most tax-reducing bang out of your home-owning buck – and to avoid hefty home ownership-related tax traps.

1. You Have to Itemize Your Return to Claim Your Deductions

During the recent debate on Capitol Hill about whether the mortgage interest deduction should be eliminated (it won’t be, not anytime soon), it came out that nearly 40% of homeowners lose out on their major tax advantages every year when they fail to itemize their income taxes. If you own a home and otherwise have a fairly simple return, it might be tempting just to take the standard deduction – and if your mortgage, property taxes and income are low enough, the standard deduction might outweigh your homeowners’ deductions. But you’ll never know if you’re losing out on the tax advantages of itemizing unless you try; before you grab a pen and start filling in that 1040-EZ grab those forms from your mortgage company and answer the questions on tax software like TurboTax, which will automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill – or the highest tax refund – for you.

2. Plan Ahead and Be Strategic When Taking a Home Office Deduction

According to the Small Business Administration, the average home office deduction is $3,686 – multiply that by your tax bracket – 15%, 20%, 30% or whatever it is, and that’s what you’ll save on your taxes by writing off your home office. Know, though, that the space you designate as your home office cannot be exempted from capital gains tax when you sell your home later. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all – not including any space in your home you’ve claimed as your tax-advantaged office. If you foresee selling your home for much more than you bought it in the future, near or far, discuss this with your tax preparer to see if the few hundred bucks you save is worth the capital gains complication later.

3. Tax Relief for Loan Modifications, Short Sales and Foreclosures Is Only Around Through 2012

While the long-term housing outlook is beginning to look up, 2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.

Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan mod, short sale or foreclosure on most primary residences through 2012. But right now, banks are taking many months, or even years, to work out mortgages in all of these ways; the average foreclosure in New York state right now occurs only after 22 months of missed mortgage payments. If you foresee any of these outcomes in your future, don’t put things off. Do what you can to get to closure on your distressed home and loan, ASAP, while you won’t have income taxes to add as the insult on top of your significant housing injury.

4. Project the Income Tax Consequences of a Refinance or Property Tax Appeal

Homeowners everywhere are working on applying for a lower property tax bill on the basis of the last few years’ decline in their home’s value. Those who have equity have flocked en masse to refinance their 7% home loans into the 4% to 5% rates of the last few months. These strategies offer some of the heftiest household savings out there for the corresponding investment in time and money they take. But here’s a caveat for savvy homeowners who slash these costs: remember that property taxes and mortgage interest, the very costs you’re minimizing, are also the basis for the major tax benefits of being a homeowner. So plan ahead for your income tax deductions to go down along with your taxes and interest.

5. Don’t Forget Those Closing CostsIf you bought or refinanced your home in 2010, you may be so focused on your mortgage interest and property tax deductions that you forget all about your closing costs. Any origination fees or discount points that were paid to your mortgage lender at closing are tax deductible on your 2010 return, get this – even if the seller paid your closing costs. If you can’t figure out exactly what you paid, look for your HUD-1 settlement statement, that legal sized paper full of line item credits and debits that you should have received from your escrow provider or title attorney at, or just after, closing. Can’t find it? Drop your real estate agent or mortgage broker an email; they can usually get a copy to you quickly.

2011 Starts off Well

Compliments of our Hampton Roads Real Estate Information Network (REIN), here’s the scoop!

New Year Starts Off On High Note The first month of the New Year ended with real estate market measures showing strength.  The number of residential under contract sales, residential settled sales, and newly listed residential sales all showed improvement on a year-over-year basis.  Here’s the Press Release.

The REALTORS® Code of Ethics

Did you know that REALTORS^® are held to a higher standard of practice than real estate agents?   Did you even know there was a difference between the two?  Well, there’s a big difference!

REALTORS^® are card-carrying members of the National Association of REALTORS^® and with that membership comes an obligation to serve our clients and the public in the highest professional manner.  That code of conduct to which we REALTORS^® subscribe is called the Code of Ethics.  It imposes duties above and in addition to those imposed by law or regulation and they apply only to real estate professionals who choose to become Realtors®.

Heaven forbid that you, as a buyer or seller, ever have an issue with your real estate representative.  But if you do, and the real estate professional (or their broker) you are dealing with is not a Realtor®, your only recourse may be the state real estate licensing authority or the courts.

I invite you to take a look at our Code of Ethics and let me know what you think.  Would you prefer to work with a real estate agent or a Realtor®.

Market Upswing?

I’m beginning to see a general increase in market activity. How about specific neighborhoods?

Help for Homeowners Who Want to Avoid Foreclosures

On February 18, 2009, President Obama announced his Homeowner Affordability and Stability Plan.  The plan has two components to it–one offers homeowners who qualify a plan that would refinance mortgages that are greater than the current market value of their home or condo into a more affordable monthly payment thereby reducing the possibility of a future foreclosure.

The second component offers homeowners a way to modify their existing mortgages into a housing payment that would enable the borrower to stay in their home/condo and avoid possible mortgage default and/or foreclosure.

Beware of Foreclosure Rescue Scams–Help is Free! Let me preface by saying there are many scams out there that prey on troubled homeowners. There are people who purport to be experts in loan modifications and ask homeowners to pay for their services when you can obtain all the information and help you need for free.

This is one reason why I prefer to pass along the real source of information, so that you, the consumer, can determine after reviewing the eligibility requirements of each of these government sponsored programs whether you are a candidate for either one.

The following web site explains in detail each of the programs–the Home Affordable Refinancing and Home Affordable Modification–eligibility requirements and the information you will need to gather before you contact your mortgage/loan servicer.

Go to:  http://www.makinghomeaffordable.gov/

If you would like to read the detailed report released by the U.S. Department of the Treasury on March 4, 2009:

See: http://www.ustreas.gov/press/releases/reports/housing_fact_sheet.pdf

Note from Charnell: Thanks to Robin Fenchel, a CA real estate agent, http://IrvineRealEstateBlogger.com, for permitting me to include this blog.

Are Bank-Owned Homes (REOs) the Real Deal for First-Time Home Buyers?

The buzz in home purchases/sales revolves around distressed properties these days–namely, REO’s or bank-owned homes. If there is one story that peaks a buyer’s interest, it is the REO home market. The reason is simple enough: the buyer believes that REO’s equal great deal or steal. But are bank-owned homes the real deal? Let’s take a closer look:

If you happen to be a first-time homebuyer or a novice in terms of the home buying process, an REO (Real Estate Owned) home or bank foreclosure requires seeking the assistance of a knowledgeable real estate professional.  At first blush, the pricing may look enticingly attractive.

In her article entitled “Foreclosure Sales And Pretend Pricing,” Kris Berg of The San Diego Home Blog writes that the “pretend pricing method or (PPM) is an entirely different and oft-mysterious approach to the whole conundrum of determining what the market value really is for a home.  Once a lender has foreclosed on a home, the PPM comes into play.”

Foreclosures are often priced 20-30% below a “regular sale”–that is a home that actually has equity in it and is not over encumbered or “under water”, so to speak. That said are REO homes real deals or not? Most home foreclosures are priced way under the market just to create hype. Welcome to the wild west side of the home pricing market. These properties will garner multiple offers with the final sales price often thousands of dollars above the original asking price.  Not only does this breed disappointment, disillusionment and frustration among buyers who are looking to own and occupy the property, but these homes typically will sell to the highest bidder who also has a large cash down payment.

As a first-time home buyer, you should factor in whether you will have the time and money to fix up a bank-owned property. These properties more often than not have deferred maintenance issues, missing appliances, fixtures, or have been trashed by disgruntled owners or renters. Remember that bank-owned properties are sold in “as is” condition. The bank need not provide the buyer with many of the disclosures that are normally completed by a seller in the normal course of a home purchase/sale.  The buyer is on his or her own to pay for inspections to ensure that the home’s condition is reviewed and verified by licensed and bonded home inspection companies.

It is also prudent to check out the neighborhood thoroughly; how many homes/condos have “for sale” signs.  Too many homes up for sale may be an indication that there could be further erosion of prices in the community.  Since prices have declined in many of the newly built communities, most of these homes or condos will have fallen back to or below the original prices offered by the builders. Look in neighborhoods that have limited supplies of housing inventory. Also check out the neighborhood’s schools for their ratings. Even if you do not have children or are not be planning to start a family, there is a correlation between high school ratings and housing values. Neighborhoods that are known for their excellent schools will have less price erosion and will see prices stabilize sooner than school districts that are poorly rated.

Remember the old axiom, “Let the Buyer Beware.”  Sellers have an obligation to disclose defects, history, and the condition of the property, while with bank owned properties, they do not have any responsibility at all to the buyer except to try to recapture as much of the assets or limit the loss for their investor. Therefore, when searching for a home use caution, utilize due diligence, and do not be rushed into a quick decision or your home purchase may become tomorrow’s REO property.

Note from Charnell: Thanks to Robin Fenchel, a CA real estate agent, http://IrvineRealEstateBlogger.com, for permitting me to include this blog.

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