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Mortgage Relief - Short Sales and Taxes
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Avoid Overpaying for Your Next Mortgage Loan
Never heard of Yield Spread Premium? You're not alone; the majority of homeowners in the United States pay this unnecessary markup of their mortgage interest rate and never even know it. Here are several tips to help you avoid paying Yield Spread Premium and other costly mistakes when taking out your next mortgage loan.
What is Yield Spread Premium?
Yield Spread Premium is th... Read mortgage refinance article
Reverse Mortgage
Reverse Mortgage
After (40) years of bump, thump, bang and wang I ran into the Reverse Mortgage. What a great opportunity for us to cash in on some incredible growth over the last several years in the real estate market. While values bounce around up and down the overall trend has risen over the years. As a younger person I was busy raising a family and now its time for us. Finding such... Read mortgage refinance article
Mortgage Relief - Short Sales and Taxes
As the real estate market has changed in the last year, many homeowners are starting to have problems meeting their mortgage. Short sales are touted as a solution, but you must consider taxes before doing it.
Lenders have been criticized for the last few years for creating loan programs that set borrowers up for trouble. These programs came in many forms, but interest only, zero down and various hybrid loans were the chief programs criticized. Specifically, critics charged that these loans would lead to disaster when housing prices eventually corrected and interest rates rose from their historic lows. Well, it appears as though the criticism was correct.
We are just starting to see a trend where many homeowners are staring a mortgage nightmare in the face. What is the nightmare? They are upside down on their homes and cannot afford the mortgage payments. Many people have borrowed beyond the equity in their home. If they haven't, they may have taken on a debt that they cannot afford to service, to wit, make the month payments. At the outset of the loan, they had no problem with the payments. As the initial teaser rate periods have ended and interest rates have risen, they are feeling the pinch. Frankly, this trend is going to grow over 2007, which should be a banner year for loan defaults.
One solution for the above scenario is to pursue a short sale. A short sale occurs when a lender agrees to let you sell the home for less than you owe. Realizing you are headed for foreclosure, the lender basically takes its licks and walks away from the situation. Various companies suggest this is an easy solution, but you need to understand most lenders will not be receptive to this strategy. Instead, they will offer to modify the terms of your loan or forebear payments for a few months. Still, what if they agree to a short sale?
Short sales sound like the perfect solution for most borrowers in over their heads. There is, however, a potential nasty trap out there - taxes. In certain situations, the IRS will view your release from the mortgage debt as a taxable event and expect you to pay income taxes on the amount in question. Contrary to the commercials you see and hear, this is not an automatic occurrence. Instead, there is a particular formula you can use.
To figure out if you are going to have to pay income taxes from a short sale, you need to focus on the tax basis and the amount you owe at the short sale. The tax basis is simply your purchase price plus any capital expenses such as home improvements. Assume you buy a home for $500,000 and put $100,000 into it in improvements. Assume you refinance a few times and owe $500,000. Your tax basis is $600,000, which is more than you owe. In such a scenario, you will not have to pay income tax on the short sale relief. For most people, however, this is not the case.
Assume you purchased a home in 2002 for $300,000 and it appreciated to $500,000. Along the way, you refinanced a couple of times and sucked cash out. You now have a mortgage for $450,000 and are in trouble with the payments. The lender agrees to a short sale and you sell the home. You now have a large tax problem. Your tax basis is $300,000, but you owed $450,000 on it at the time of the sale. In the view of the IRS, the $150,000 debt relief is a form of income to you. You now must report and pay income taxes on $150,000 even though you didn't put a red penny in your pocket. Talk about a nightmare!
If you are having problems meeting your mortgage obligations, it is important that you do not panic. Talk with your lender about your options. If a short sale looks like the solution, make sure you sit down with an accountant before selling. While defaulting on a mortgage is unfortunate, creating a tax nightmare is definitely worse.
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Real Estate Profits - Buying A Fixer Upper
It's no secret about the great profits to be reaped from buying homes in bad condition and fixing them up for resale. This may seem easy but its a time consuming, risky venture.
First you need to be able to distinguish a house as a potential profit, or a losing investment. Cosmetic repairs are usually inexpensive and pay back double their cost. However the expense of correcting any major structural problems might no raise the market value of the home, and you could end up in the negative on your investment.
The first thing you want to evaluate is the floor plan. A great layout with disastrous decor is the perfect combination for a fixer upper. These types of homes are turned around with minimal investment.
Check out all the major components of the home very thoroughly. Hire yourself an experienced architect if you plan a major renovation that includes moving walls. Always hire a professional inspector to check out any home before you make an offer.
The most important factor to the success of a fixer upper home is location. You need to buy in the best neighborhood you can afford, and make sure you don't over invest for your area. Successful renovators use the lease option as a way to finance a fix up project. The buyer gives the seller a small amount of cash to use towards a predetermined purchase price and then leases the property from the seller. During this time the buyer fixes up the property. When all work is complete, the buyer exercises the option, completes the purchase, and sells the property to another buyer for profit.
A home with a large structural pest control problem may be a good fixer upper, but its important to have a professional evaluate ahead of time what sot of work is necessary.
The curb appeal of a home is important for the resale. The first thing potential buyers see is the font of your home and yard. So plan on redoing the landscaping and front area of the home. When renovating always stick to neutral color schemes. Also, spend a little extra on less expensive home fixtures such as light fixtures, door knobs, cabinet knobs, and plumbing fixtures. Quality and detail build you a great reputation which is great if you plan to sell more properties in the neighborhood.
The best time for people to buy a fixer upper home is when the prices of homes are steadily climbing. There's substantially less risk involved if you're buying a fixer upper, and planning on living in it while you fix it up.
Keep in mind to look out for environmentally hazardous materials on the property. Hire a professional to come and double check before you even make an offer.
Any first time renovations should really make sure they are temperamentally table enough to handle a job like this. Renovation projects need to be closely supervised to keep them on budget. Renovators must pay attention to details, an ability to organize, and deal with any roadblocks calmly and efficiently.
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Mortgage Relief - Short Sales and Taxes
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