President Obama recently signed the new stimulus package which among other things improves the previous $7500 tax credit from the IRS for FTHB,s. Following are some of the benefits of this provision:
It is important to note that this money will be available AFTER you purchase your property. However, if you can get a gift from a relative or even a loan from your 401K you can pay it back after you get your refund.
You claim your credit with your tax return of 2008 or 2009. If you have already filed your 2008 return, you can always do an ammendment to claim it this year. The information contained herein is considered accurate but not guaranteed. It is intended to educate the consumer and should not be relied upon to make a purchase decision. Consult a tax professional for advice before making any purchase decision.
One of the nice features of an FHA loan is the capability of utilizing a relative to qualify. Now you may wonder, What’s so special about that? Well, what is special is that the relative DOES NOT have to live in the property. The relative then becomes a non occupying co-borrower. On a typical conventional loan, a co-borrower is allowed but it has to live in the property.
There are some factors to consider when utilizing a non occupying co-borrower:
Though not everyone has a relative willing or able to help with a property purchase, for those that do this is a great opportunity to purchase their home without having enough income.
People in Florida approved a measure last year that increased homestead exemption from $25K to $50K. This sounded like a great opportunity to decrease property taxes. And it is. But not for everybody. As it turns out if you have lived in your property for at least three years or more chances are that the extra $25K in homestead exemption will not make a difference and in fact your overall tax bill my go up. It did with me.
Before analyzing how this phenomena happened, it is important to understand how property taxes are calculated. The counties determine your taxes by first determining what the assessed value of your property is. When you first buy your property this value is typically 85% of the purchase price. As you live in your property for years, this value cannot go up by more than 3%/yr by law. The market value on the other hand is supposed to represent what your home is worth on the market. However, once you have lived in your property for 2 years or more this value is outdated. This value is usually below the real market value but in reality it is not a factor used to calculate your taxes. Once the assessed value is determined the homestead exemption(if you qualify) of $50K is subtracted from this value and the new value is used as the base for your taxes. This new value is multiplied by the millage rate to calculate your total tax bill. Millage rate is the tax rate pre-determined by your property appraiser for each of the departments that will receive a slice of the pie. One mil equals $1 for every $1,000 of taxable property value. If your millage rate is 20.49, then you are paying $20.49 in taxes for every $1,000 of taxable property value. Let's say your assessed value is $200K. When we subtract the $50K homestead exemption it yields an assessed value of $150K. If your millage rate is 20.49 your taxes will be $3073.50 for that year. The millage rate varies from county to county but it is specified on your tax bill or you can find it in your property appraiser's website.
I live in Palm Beach County. Upon careful examination of my latest tax bill it is worth to point out the following observations:
These four factors offset the extra $600 or so in savings that I would have achieved with the extra $25K in homestead exemption. As mentioned at the beginning there are some people that did benefit from this homestead exemption increase but chances are that if you have lived in your property for several years you saw little or no savings from this extra $25K homestead exemption, and in fact your tax bill may have gone up.
Whether you are getting a Conventional, FHA, or USDA loan, chances are you will have to pay Private Mortgage Insurance(PMI). For a full explanation on what is PMI, how it is calculated and how to eliminate it go to our What is PMI page.
PMI is now fully tax deductible through 2010 thanks to a new law passed earlier this year. The mortgage must have originated after 12/31/06. The full deduction is limited to homeowners making $100,000/yr or less. If you make more than $100K you can still get a partial deduction. Consult your tax advisor for details.
There are some good deals out there on properties due to foreclosure, short sale, or simply the owner could not keep up the property. Let’s say you found a good deal but needs repairs.
When an appraisal is done on that property, the appraiser will write the noted deficiencies in the appraisal. A conventional lender as well as a regular FHA 203(b) loan, will require that the repairs be done before closing. This is the preferred way of handling the situation if you have enough reserves to cover the expenses, or if you negotiated that the seller will cover the cost of the repairs, before the closing. Typically no major structural repairs such as moving walls, roof replacement, or room additions are considered in this category. The ideal situation is to have the property habitable before the loan closes.
When the repairs are considered major and neither the buyer nor seller has the funds to cover the repairs, that’s when an FHA 203K streamline rehabilitation loan is appropriate. An FHA 203K streamline is a loan that provides the financing as part of the same mortgage loan to cover the cost of repairs up to a maximum of $35K. There is no minimum. It is underwritten once, based on the value of the property “as is” as well as the value of the property after repairs are completed. Both values would need to be on the appraisal. An approved contractor will be necessary to perform the work. However, the borrower may be able to do the work himself provided it meets the licensing, bond and insurance guidelines required by HUD and the particular county.
Examples of these repairs could be but are not limited to:
Work not allowed:
Again, if the property needs some repairs the ideal situation if possible is to complete the repairs upfront either through the borrower or the seller paying for the repairs and then closing on a regular FHA 203(b) loan. When that is not feasible a 203K FHA streamline loan is a great alternative to procure the funds to make the house habitable in the first place. There are many other requirements for a 203K loan. Call us for additional details.
A great majority of properties in Florida have lost value during the past few years due in part to the glut of available properties for sale and not enough qualifying borrowers available. One of the hardest hit properties are the condos in South Florida, particularly in the tri-county areas of Palm Beach, Broward and Dade counties. As a result there are many bargains that can be snatched at in the 100’s and even well below $100K. Although the properties may be widely available, the financing is not as easy as it once was.
Conventional lenders for the most part don’t want to lend on condos and when they do, they require hefty down payments of 20% or more, and that’s for owner occupying properties. If the condo is an investment, be prepared to pay upwards of 5 points in discount points plus closing costs. Therefore, other than paying cash for it the most practical way to obtain financing is through and FHA loan. Whether you are a realtor representing a buyer for a condo, or just a private individual interested in purchasing one, it would be to your advantage to consider the following facts before deciding to make an offer or obtain financing on a condo:
What can you do then? Here is what we recommend:
Taking the above steps and doing your home work ahead of time will avoid a lot of frustration, as well as time and money wasted down the road.
Since we are in Florida which is a state prone to hurricane losses, we pay much higher insurance rates than most other states. However, we have been spared of major hurricanes during the past three years. Therefore, the rates have started to come down as more companies have started to underwrite in Florida again.
If you are still paying high rates you may want to consider the following steps to decrease your insurance rates:
For more information go to www.mysafefloridahome.com.
If you need basic information first please view the What is a credit score? page. There are several steps you can take to improve your credit scores. They can be done by you, if you have the time and knowledge, or by a credit repair agency(more on this below). If you are going to do it yourself here are a few steps:
Credit Repair Companies
There are many companies who claim they will repair your credit and therefore improve your scores within a certain period of time. You can usually do the same thing yourself, if you have the time and knowledge. If you don’t, they can be a great advantage. What they will do is challenge some of the negative items that are on your credit report. Your creditors have a limited time to respond and provide proof that the information is correct. If they don’t, then the information has to be removed. But just like everything else, do your homework before you hire them. Search online for complaints, ask them if they can provide references(may be unlikely due to privacy reasons, but ask anyway), ask friends or co-workers, check the Better Business Bureau or the state attorney’s office. Most of them charge you a hefty fee upfront. Try to find one that charges the fees after they remove the negative items. Discuss thoroughly with them your credit report and understand upfront what they can and can’t do so you set your expectations. You will need a minimum of 3-6 month to see improvements and possibly up to a year to see great improvement. As of the writing of this report we need a minimum of 580 to do a loan with FHA. However, check with us because that’s changing constantly. Check our trusted partners page and look for credit repair companies.
When you fill out a credit application we run a credit report for the underwriter. Each lender and each loan program have different guidelines they must follow. You should not anything that will have an adverse impact during the loan process. Adhering to the following guidelines during the loan process will give you the best opportunity for success.