How to buy a foreclosed home

Foreclosed homes are properties that have been seized by the bank after a mortgage borrower has defaulted on their loan contract by not making the agreed payments. By law, the lender can take the home back through a foreclosure legal action, in which they can then evict the defaulted borrower from the home and then resell the property.

This is the simple definition of a foreclosed home, and these properties are often offered at a lower price than a typical owner sold home on the market. These foreclosed properties can be a big homebuyer magnet because of this very reason. (more…)

The Top 6 Loan Modification Scams

The real estate crisis that began in 2007 brought with it a whole new industry of loan modification and foreclosure rescue scams that have become a major problem for both homeowners and law enforcement across the country.

The loan modification scam stories are all quite similar.

A person or group of people start a company with the intentions of  stealing money from unsuspecting consumers such as struggling homeowners who are looking for professional help to save their homes from foreclosure. These companies than make false promises to these homeowners that they cannot keep in order to obtain a large upfront fee usually to the tune of a few thousand dollars. In the end, these companies end up taking the money and not performing the promised work they said they would handle for the homeowner who ends up losing their money and often their home in the process.

These scams are often successful because these stressed out homeowners they defraud are often desperate to save their homes. This makes them the perfect target for white-collar crooks who capitalize on their vulnerability by creating elaborate scams so they can easily steal money from these people.

The best way to avoid these scams is for people to simply educate themselves on what to look out for. In this article I will list the most common type of frauds that homeowners encounter when seeking professional help for a loan modification. (more…)

Can my HOA foreclose on my home?

Many homeowners and other property owners pay their dues to their local homeowners association (HOA). An HOA can be defined as a legal entity that manages and maintains a neighborhood. Although the members of the community (the property owners) fund the entity, they still must follow the rules put into place. These are generally known as the Declaration of Covenants, Conditions, and Restrictions (CC&Rs).

As an entity that exists as a rule enforcer and as a fee collector, HOAs hold the power to foreclose on you if you do not pay your dues.

Property owners who live in a jurisdiction of an HOA probably know the rules of their community, but if you do not, it is essential that you study up on the powers that rule over you. If you default on HOA fees, the association can place a lien on your home which can lead to them foreclosing on you. (more…)

Deficiency Judgments 101

Delinquent borrowers living in non-judicial states have the luxury of not having to worry about their lender or servicer coming after them following a short sale or foreclosure. Someone living in a judicial state however faces the consequence of a deficiency judgment if they are going through a short sale or foreclosure.

The Logic of deficiency judgments

A deficiency judgment can be defined as the amount acquired through a delinquency sale (foreclosure auction or short sale) subtracted by a fair market estimation of the property (an appraisal). The sales are either conducted at a foreclosure auction, short sale, or through the lender itself. For example, a home that was recently appraised at $400,000, but that only sells for $300,000. The difference of $100,000 would be the deficiency judgment that the lender or servicer may sue the borrower if it is allowed under state law. (more…)

How to avoid private mortgage insurance (PMI)

Private mortgage insurance (PMI) is an extra mortgage cost that is used to cover the risk to a lender, and that is paid by a borrower in monthly premiums tied into their mortgage payments. It is not for the benefit of the borrower. This extra insurance is for the purpose of helping the lender recover losses in case the borrower defaults on their loan.

This type of insurance is usually required by lenders when a mortgage loan amount is above 80% loan to value (LTV) and the borrower has less than a 20% cash stake in the property. A loan amount above 80% is considered a lot more risky to lenders, and in order to cover this risk, they require insurance which will pay them in case the borrower defaults on the loan. (more…)

Mortgage Interest Tax Deduction Facts

The mortgage interest tax deduction (interest deduction) is a benefit that may sway anyone to become a homeowner rather than a renter. This advantage is backed by the common notion that most monthly mortgage payments are interest only. Although the interest deduction is only good if you itemize on your tax return, as the largest personal tax deduction that is available to taxpayers, mortgages are large enough to contribute some value to your overall return. According to a Forbes article, average middle-class homeowners were able to save an average of about $615 over the 2012 tax season thanks to interest deductions.

If you are currently stuck with a higher interest rate from years ago and are unable to refinance, you may be able to potentially save a lot of money by itemizing on your taxes. With a $250,000 30-year fixed rate mortgage with an interest of about 6.5%, you could be able to deduct thousand of dollars a year on your tax return from the inception of your loan. Although the interest payments decrease over time, reporting this information when it comes to tax-time will ultimately help you save more.

Mortgage interest deductions are not for all borrowers and come with a variety of rules. One such rule is that some borrowers can use the deduction on all of their interest, while others cannot. The ability to use all of your interest on your tax return depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.

If you are not sure, borrowers who meet at least one of these three qualifications can deduct all of their interest:

– Home loans that were taken out on or before October 13, 1987.

– Loans that were taken out after October 13, 1987 that were used as home acquisition debt to buy build or improve a home. These loans must have a principle of under $1,000,000 ($500,000 or less if married filing separately).

– Home equity loans or lines of credit that total $100,000 or less (($50,000 or less if married filing separately) that were taken out after October 13, 1987 to buy, build, or improve your home. These loans must also not have totaled no more than the fair market value of your home reduced by (1) and (2).

If your mortgage interest expense for the year does not fit into these 3 categories, there is going to be some limits to how you can use the deduction on your tax return. When it comes time to file your taxes, you will have to submit certain information to the IRS regarding your loan. That information can be seen at this IRS link.

Types of interest that can be deducted on your taxes

Secured debt

A loan that counts as a secured debt can be defined as one that involved the signing of a deed of trust, a land contract or simple mortgage documents. Secured debt is a homeownership contract that verifies that you will pay off the debt, confirms that if you default on the debt that your home will act as the security for the missed payments, and protects the lender and borrower with local and state laws.

Borrowers have the right to file their qualified home as a secured or non-secured home when filing on their initial taxes. This being said, no one can just flip flop if they just feel like it. Switching a qualified home back to a secure debt during tax time indeed requires the consent of the IRS. Some borrowers may benefit tax wise to declare their mortgage as not secured, if they can benefit more from declaring the interest as a business expense. Consulting a tax professional during circumstances like this one is a must.

Qualified Homes

Under tax laws, first and second homes can be declared under the interest deduction sections of tax returns. Because a large chunk of, “mortgage,” borrowers are indeed homeowners, this allows a good portion of individuals to get as much back as they can on their taxes. First and second homes can be classified through various properties such as houses, condominiums, cooperatives, mobile homes, trailer homes, and boats.

Another thing to keep in mind is that interest for mortgages that was used for additional deductible purposes such as businesses, and investments may also be used. Mortgage funds used for personal interests other than renovations cannot be used as an interest deduction.

Specific house types and limitations that can qualify for interest deductions include:

1. Main homes

Keep in mind that only one home or the house where you live your ordinary life can be used under this category at a time.

2. Second homes

Second homes can be properties owned by you but not treated as a main home otherwise known as a primary residence. Second homes do not have to be rented out to count as a tax deduction, but if you have a second home that you rent out for only part of the year, you must use the property for your own use during 14 or more days or 10% of the year to make it qualified. If you do not use it for that long during part of the year, this rental property cannot be classified as a second home. Instead you will have to file it as a residential rental property.

3. More than one second home

Only one second home can be recorded as a qualified deduction for the year. The properties’ status can be changed if:

– The property you want to use as the deduction was just purchased.
– Your main home now qualifies as a second home.
– Your existing second home was sold during the year and you wish to maintain a second home deduction.

4. Home that has divided uses

Depending on if you use part of your home as something such as a home office, you must differentiate your primary residence from the part you are using for something else. You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. This calculation may affect the amount of your home acquisition debt and your home equity debt limit.

5. Partial rental

A property can be divided between a primary residence and a rental property if:

– The tenant uses the rental section for primary living.
– The rental section is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities.
– You do not sublease by renting the same or different parts of the home to over two tenants at any time during the year.

6. Home construction

Properties enduring construction for the use of a primary residence can be considered a qualified deduction for a 2 year period.

7. Destroyed homes

If destroyed by a natural disaster such as a fire, tornado, earthquake or hurricane, interest paid on the mortgage of a main or second home can still be subject to deduction if:

– The home is rebuilt
– You sell the land on which the home is located.

Mortgages that may not be deductible

Specific liens

Liens attached to the property without consent of the borrower such as a mechanic’s lien or a judgment lien do not qualify as interest that can be written off on tax returns. This idea is backed by the fact that such debt is not secured by the home.

Wraparound mortgages

A wraparound mortgage can be defined as, “A type of loan that enables a borrower who is paying off an existing mortgage to obtain more financing from a second lender or seller. The new lender (typically a bank or the seller of the real property) assumes the payment of the existing mortgage and provides the borrower with a new, larger loan, usually at a higher interest rate.”

This specialized debt can only be considered secured if mandated under state law. The reasoning behind this has to do with the circumstances of such a loan. Such an example would be where a seller doesn’t record the new mortgage if the state law dictates that they do not have to. The inconsistency of rules is the warrant for the mortgage not counting as secured debt.

The less you borrow, the more likely you are going to be able to reap the benefits of the interest deduction. This is because borrowers with a loan over $1 million are going to have a harder time getting anything back from the IRS.

VA Deductions and Benefits

As a mortgage assistance website, we at LoanSafe pride ourselves in getting information out to various types of borrowers. VA loan borrowers are another demographic who can benefit from mortgage interest deductions. VA purchasers can claim deductions on mortgage interest, discount points and origination fees.

1. Closing benefits

Veterans and service members can take advantage of numerous advantages including the ability to write off 100% of interest paid during the tax year. Discount points and origination fees can especially be advantageous due to the fact that the 4% of the mortgage paid in closing costs can be paid off by the seller if the borrower is a decent negotiator. These free fees can be written off by the VA borrower, even if the seller makes 100% of the payments.

2. VA cash-out refinance interest deduction

Performing this type of refinance typically aids borrowers to pay off the principle on debts like credit cards and first mortgages. This not only helps to reduce the principles, but to gain the interest reduction on their tax returns as well. A significant gain from using these loans however is getting the interest payments on some credit cards that rank in 20% in interest payments lowered; As well as lower the interest payments on already low mortgage rates which run around 3.5% these days.

3. Living in a home tax free

By being married and living in the home for 2 years, a couple can sell a home for up to $500,000 and avoid the taxes. This process can be done over and over again without any repercussions. Singles can equally sell a home for up to $250,000 with an identical tax break.

A requirement for this sale type is that the property must have been a primary residence. This tax deduction is a huge financial benefit for VA loan borrowers.

For more information on tax write-offs that service members can tax advantage of, be sure to contact a tax specialist.

Some common tips to remember about interest write-offs are:

– Keeping track of the interest that you pay can be easy due to the constant statements that are available these days through the computer and traditional letters.

– Try and stay up-to-date with mortgage laws. Tax write-offs and other factors that deal with the borrowers market are currently hot topics in the political realm. Staying on top of law changes may save you financially in the long run.

– Using mortgage calculators to make these calculations can be helpful. LoanSafe for example has a variety of loan calculators including one that helps to determine the savings between a fixed or interest only loan. Our calculators can be found on our homepage.

Plenty of other situations where mortgage borrowers can and can’t use their interest as a deduction on their tax filings can be found from the IRS at this link.

How a divided government will affect housing and the economy

While the National Association of Realtors (NAR) this past week analyzed why the housing market might be protected from a potential political gridlock in upcoming months, the housing market was one of the key issues in a report that elaborated on key issues that Congress may not be able to fully reform anytime soon.

The message that Congress may not be able to compromise on the housing market was discussed in the report that NAR received from news anchor and political commentator Chris Matthews. Mathews spoke at last week’s Insights and Perspectives with Chris Matthews session at the Realtor® Party Convention & Trade Expo.

As the talk show host of MSNBC’s Hardball with Chris Matthews, Matthews offered his opinion to NAR that Congress is far too partisan to agree on anything. The partisan-like views currently existing will certainly influence the outcome of the 2016 presidential race, but right now we need two sides to agree on what is best for the housing market.

A simple Google search can define a partisan as, “prejudiced in favor of a particular cause.” We certainly see this today where one side is in favor of some government control of the housing market to keep it stabilized, while the other side is for a strictly privatized market.

Matthews take on partisanship is that it is going to continue for quite some time, well beyond the 2016 election. Matthews backing for this hypothesis is due to the idea that we live in a strictly two party system that is not afraid of being defeated by a moderate candidate. Because of this, “They run their campaign under the promise of being well-engrained within their party,” said Matthews.

The talk show host however agrees with the premise that effective politics needs compromise. According to his views, respect and the ability to settle differences of common goals is a factor that is going to positively settle key issues such as the housing recovery. Despite his own beliefs, he also concurs that partisanship is the way of the future. With something as sensitive as the entire mortgage market that involves a nationwide structure of both residential and commercial real estate, it is apparent that division in the issue could create a political gridlock.

With 2 years left until the next major election, it will be very interesting to watch what happens as Matthew states. Although from LoanSafe’s perspective, it is not necessarily fun to watch the housing market crumble. Recent news has shown that areas in the market are actually recovering rather than crumbling.

Earlier this month, 33 national organizations and 163 state and local organizations sent a letter to 6 senators who are on the Senate Banking Committee to get cracking on better organizing Housing Finance Reform and the Taxpayer Protection Act of 2014. This reform calls for the expansion of the National Housing Trust Fund, the nation’s only standing federal fund to build affordable multifamily housing.

Several Pilot Programs such as Blue Print for Access, and an expansion of a green multifamily energy saving program through Fannie Mae and HUD seek to improve housing conditions for everyone. Many housing advocates like FHFA Director Mel Watt are promoting the expansion of mortgage credit so middle class borrowers can continue to buy homes. At the same time, it is recognized that certain rules such as those that limit buyers to only the ones who can qualify to pay back should exist.

While there are opportunities and reforms like these being created on the top levels, there are organizations and individuals on the opposite side trying to extend a continuation of business practices that were known to have been contributed to the starting of the housing crisis.

We at LoanSafe recently analyzed the other report that NAR released earlier this week regarding housing reform and politics. In that piece David Plouffe, a former adviser for the Obama Administration stressed that he predicts that there will be no majorities in the U.S. Senate or House for the next six years. He claims that this imbalance might create a tipping point where they all, “come to the middle and cooperate because that’s what the electorate wants.”

Based on Matthews interpretation, what is currently happening with partisan parties is creating even more division than majority parties.

Home Equity Loan Questions

Home equity loans are a type of mortgage loan which differ from a first mortgage, otherwise known as a first lien that allows a borrower to purchase a property. These loans originate from a property owner’s equity and although first and second mortgages differ quite a bit, they still use many of the same terms. Some terms that you see with a home equity loan that you may also see with a first mortgage, but may differ in some meaning may come across as: (more…)

Advantages of Mortgages with Shorter Terms

Around this same time period last year, mortgage rates were at all-time lows. Even the 30-year fixed -rate mortgage (FRM) was averaging 3.50%. With mortgage rates currently dwindling in the mid 4% range, many homeowners might be thinking about refinancing to a shorter-term mortgage. While some people see the rise in monthly payments as a drawback, mortgages with shorter terms do have some advantages. (more…)

How Mortgage Shopping Mistakes Can Cost You More

With mortgage loans being one of the most expensive things anyone will finance in a lifetime, borrowers are bound to make nervous mistakes along the way. Some of these mistakes are worse to make than others, but in the end you may end up paying thousands of dollars in unnecessary costs over the life of the loan. Here are five common mistakes first-time or repeat buyers make:

1. Not Shopping Around

Avoiding making comparisons when shopping for a home or mortgage is a common but devastating mistake. Going with the recommendation of a real estate agent, realtor, a neighbor or another credit source can be a helpful way to start, however in the end your own research is going to be the best source of information.

Getting at least 3 to 4 quotes from reputable mortgage lenders is a crucial step in the home buying process.

2. Getting a Loan That Doesn’t Suit Your Needs

These needs should cover all short and long-term housing goals. If not done right, mortgage shopping can be just like buying a service that was identical to another, but ended up charging more in the end. There are so many components to look at when deciding on a 30-year or 15 year fixed mortgage (FRM) compared to an adjustable-rate mortgage (ARM). Comparing federal loans with private loans, or even jumbo loans can be a long process too.

Even if you know you do not want to gamble with a jumbo loan, every borrower will be attracted to certain aspects of either a federal or private loan. FHA loans for example come with lower interest rates and minimal down payments, which is why lenders make up for it with the mortgage insurance premium. A new rule recently enacted even made it possible for borrowers to be tied to mortgage insurance for the entire life of the loan.

Going back to a FRM vs. an ARM, it all might depend on how long you plan to remain in the home. Interest rates on an ARM may be lower at first, but they are always subject to increase following the initial payment period.

3. Ignoring Everything but the Interest Rate

Mortgage interest rates are important factors to consider when mortgage shopping, however are not the only variable to consider. Even if you found the lender that offers the best interest rate you can find, all of that hard work you put into searching will be for nothing if their service is lousy. Besides the notion that the fees with them might be higher, a lousy business model may keep you from closing on time. In an ever expanding market where competition is the norm, most sellers are selling to the highest bidder these days. If you miss any deadlines because of the lagging of a bad lender or even agent, you may lose the house of your dreams and your entire mortgage application process may be trashed.

4. Self-Misinterpretation

Not all mistakes are made by the lender. Borrowers, especially first time homebuyers can be notorious for making misstatements and misinterpretations. Some misinterpretations can be counted as fraud, but others just come with a large fee to pay if caught. Some common lines to avoid are:

  • Fudging the numbers when it comes to your credit
  • Misleading on your monthly income
  • Acting like you don’t even know what type of property you are looking into
  • Pretending you’re not going to rent out the property when you actually are

5. Pretending Your Credit Does Not Exist

Treating your credit as an insignificant part of the process will only land you in hot water. In reality, a borrower’s credit rating is probably the largest factor in determining things such as the mortgage rate. Some borrowers may not know important facts, such as that a handful of points added to their FICO scores can save them THOUSANDS. A $300,000 loan with Fannie Mae for example with a borrowing score of 699 can make you save less. If you can pump the score up to 700, your charge drops to 1% which will end up being $2,100 less.

How to Pay Off Your Mortgage Balance Faster

Many borrowers may never come across the idea of whether or not they’ll ever pay off their mortgage in full while remaining in their home, because the practice has become less common. According to a Harvard’s Joint Center for Housing Studies survey, 63% Americans ages 55 to 64 still have mortgages. Regardless, actually owning your own home is still part of the growing American Dream, and there are ways to do it. (more…)

Important Details When Looking Over Your Mortgage Contract

Although for many, skimming over a contract and signing it is the norm, however this may not be how you want to handle things when it comes to your mortgage contract. Never be embarrassed for reading your loan contract and questioning any terms and/or fees, even if you have to spend an hour doing so in front of your lending representative. Even if you don’t have the necessary skills or knowledge in regards to mortgage terms, there’s always help available to understand a credit card, mortgage or other type of loan agreement. This is why it’s crucial to work with a reputable and trusted mortgage loan originator. (more…)

Five Tips for Refinancing an Investment Property

As past real estate market conditions have caused homeownership rates to decline, the need for a rental property has surged over the last several years, boosting the demand for investment properties. Refinancing investment properties can be an attractive option due to the factors; such as long-term ownership, higher property values, reduced loan balances through amortization and increased rental rates. It’s important to note 5 crucial variables that make lending standards for investment properties different from those of a primary residence. (more…)