Because I work with many first time buyers, FHA financing is something I see a lot. If you've been listening to the housing news, you've probably heard about some lending changes that were announced by the Federal Housing Administration (FHA). While many of the news reports were confusing, the truth is pretty clear...and isn't as bad as some people may have heard.
Overall the measures announced by the FHA are intended to help the organization better manage its risks and strengthen its capital reserves, while still providing home loans to the nation.
The good news, as FHA Commissioner David Stevens stated recently, is that "by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery" and "remain the largest source of home purchase financing for underserved communities."
What's Changing?
If you or someone you know is considering an FHA loan, some of these changes may affect you. Here's a clear, concise rundown of the major changes and what they mean:
1. Increased mortgage insurance. The mortgage insurance premium (referred to as private mortgage insurance by many people) will be increased from 1.75% to 2.25%. This change will add some cost to purchasing a home, but will not overburden consumers since the mortgage insurance is paid over the life of the loan, rather than upfront at closing. This change will become effective on April 5, 2010.
2. New down payment and credit score requirements. According to the new policy, homebuyers who have a credit score of at least 580 may still be able to purchase a home with 3.5% down, but those with credit scores of less than 580 will be required to put down at least 10%. This change is designed to help the FHA balance its risk, while still providing affordable down payments for consumers with a history of good credit and responsibility.
3. Reduced seller concession. Basically, this change means that the person selling the home will now only be able to offer the homebuyer 3% to help defray closing costs, as opposed to 6% under the previous policy.
In addition to these changes, the new policies contain a series of new measures aimed at increasing lender enforcement.
The bottom line is that the changes will impact some homebuyers more than others. But in the end, the FHA is still committed to providing affordable home loans.
Also, I am including a link from the FHA website which will easily allow you to navigate and gets all your questions answered:
http://www.fha.com/important_facts.cfm
Wednesday, March 31, 2010
Thursday, February 25, 2010
Short Sale Answers:
Top 10 most frequently asked short sale questions.
What does Short Sale mean?
A short sale simply means the amount of the existing mortgage is greater than the sales price of the home. A short sale would result. The mortgagee would accept the lesser amount and avoid the foreclosure proceedings. The balance of the loan would be forgiven by the lender.
Why do lenders allow a short sale?
Simple. The seller is out of the home the cannot afford and the lender avoids the costly foreclosure proceedings.
If I have equity in my home, will my lender allow a short sale?
Depending on the amount of equity, lenders may choose the traditional means of foreclosure. This may allow the lender to recapture some of the expense of the proceedings. Though on the other had, the home may be encumbered by other liens, and the inventory of homes may detour the lender from wanting to take title.
Can I still profit on a short sale?
No - Though the seller may have used the equity on a previous refinance or equity line, the current loan balance will be higher than the selling price of the home. A seller may not receive proceeds from a short sale.
How much time do I have to start a short sale?
In a Pre-foreclosure "Time is of the essence". Timelines starts from the date the notice to the borrower is filed. Each state has individual foreclosure laws and regulations. In some states a foreclosure can proceed as quickly as 35 days. Do not delay. In most cases you have no more than 60 days from the date of the notice, to contact lender to effectuate a lender approved short sale.
Is there an application process to start a short sale?
Yes - In basic terms you are applying for a short sale in much the same way you applied for your mortgage.
The individual short sale process will depend on the lender. Be prepared to submit a hardship letter detailing the circumstances behind the short sale; Current financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement.
Additional, they may require a monthly budget assessment. Lastly, a signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender.
How will a short sale affect my credit rating?
Current estimate is -50 points. Each individual lender to decide what to report. Often it will note loan as "paid" on their credit report, while in the footnote it may reference "settled for less than amount owed". though it is a mark on the credit report, it is more favorable that "foreclosed" which is currently about -250 points.
I have filed for bankruptcy, can I still do a short sale?
Most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. A short sale by nature is a collection activity which is prohibited in a bankruptcy.
Will I need an appraisal for a short sale?
This is not on your list of things to do. Lenders vary on whether they will use a full appraisal or real estate BPO brokers price opinion to be submitted in the short sale package. All lenders will require a formal assessment of value of the home. Some will use more that one type of appraisal.
What are the tax implications in the short of real estate?
This is a biggie. Consult a tax accountant as each case varies. Generally, taxes are reported as a loss to the lender and a gain to the buyer. If the lender forgives 20K on your mortgage, you would receive a form 1099C in that amount as income, and responsible for paying the tax.
The mortgage forgiveness act of 2007 allows forgiveness of up to 2 million on the principal residence.
This is purchase monies only. Meaning the mortgage you took out to purchase your home. Sellers need to understand that if you then took a HELOC (home equity line of credit) for other reasons (debt consolidation, college, home remodel etc) this money IS NOT purchase monies. Many lenders will require you to sign documents (promisory note) that you understand you are responsible for the deficiency / short fall.
Understanding the process is imperative to sellers and buyers alike. As a certified short sale and foreclosure resource I have the knowledge and expertise to help navigate and negotiate on your behalf.
What does Short Sale mean?
A short sale simply means the amount of the existing mortgage is greater than the sales price of the home. A short sale would result. The mortgagee would accept the lesser amount and avoid the foreclosure proceedings. The balance of the loan would be forgiven by the lender.
Why do lenders allow a short sale?
Simple. The seller is out of the home the cannot afford and the lender avoids the costly foreclosure proceedings.
If I have equity in my home, will my lender allow a short sale?
Depending on the amount of equity, lenders may choose the traditional means of foreclosure. This may allow the lender to recapture some of the expense of the proceedings. Though on the other had, the home may be encumbered by other liens, and the inventory of homes may detour the lender from wanting to take title.
Can I still profit on a short sale?
No - Though the seller may have used the equity on a previous refinance or equity line, the current loan balance will be higher than the selling price of the home. A seller may not receive proceeds from a short sale.
How much time do I have to start a short sale?
In a Pre-foreclosure "Time is of the essence". Timelines starts from the date the notice to the borrower is filed. Each state has individual foreclosure laws and regulations. In some states a foreclosure can proceed as quickly as 35 days. Do not delay. In most cases you have no more than 60 days from the date of the notice, to contact lender to effectuate a lender approved short sale.
Is there an application process to start a short sale?
Yes - In basic terms you are applying for a short sale in much the same way you applied for your mortgage.
The individual short sale process will depend on the lender. Be prepared to submit a hardship letter detailing the circumstances behind the short sale; Current financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement.
Additional, they may require a monthly budget assessment. Lastly, a signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender.
How will a short sale affect my credit rating?
Current estimate is -50 points. Each individual lender to decide what to report. Often it will note loan as "paid" on their credit report, while in the footnote it may reference "settled for less than amount owed". though it is a mark on the credit report, it is more favorable that "foreclosed" which is currently about -250 points.
I have filed for bankruptcy, can I still do a short sale?
Most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. A short sale by nature is a collection activity which is prohibited in a bankruptcy.
Will I need an appraisal for a short sale?
This is not on your list of things to do. Lenders vary on whether they will use a full appraisal or real estate BPO brokers price opinion to be submitted in the short sale package. All lenders will require a formal assessment of value of the home. Some will use more that one type of appraisal.
What are the tax implications in the short of real estate?
This is a biggie. Consult a tax accountant as each case varies. Generally, taxes are reported as a loss to the lender and a gain to the buyer. If the lender forgives 20K on your mortgage, you would receive a form 1099C in that amount as income, and responsible for paying the tax.
The mortgage forgiveness act of 2007 allows forgiveness of up to 2 million on the principal residence.
This is purchase monies only. Meaning the mortgage you took out to purchase your home. Sellers need to understand that if you then took a HELOC (home equity line of credit) for other reasons (debt consolidation, college, home remodel etc) this money IS NOT purchase monies. Many lenders will require you to sign documents (promisory note) that you understand you are responsible for the deficiency / short fall.
Understanding the process is imperative to sellers and buyers alike. As a certified short sale and foreclosure resource I have the knowledge and expertise to help navigate and negotiate on your behalf.
Monday, February 15, 2010
8 REO Tips for Buying Foreclosures
Lots of savvy home buyers want to hit the jackpot and buy that REO foreclosed home, many of which are often under-priced. When banks price REOs under the comparable sales, multiple offers are often the response. This means you could be up against stiff competition for that bank-owned home.
It's not unusual for some REO homes in Sacramento to receive 15 or 20 offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called "Highest and Final" offer. Sometimes the bank simply accepts the best offer at inception.
If you're wondering how you can make your offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:
1) Get the Property History
Ask your buyer's agent to find out the bank's purchase price on the Trustee's Deed or Sheriff's Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.
Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.
2) Determine Comparable Sales
In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.
Look at the last three months of comparable sales, a mini CMA, for that neighborhood to determine how much this REO is worth. Try to use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.
Look at the pending sales. Ask your agent to call the listing agents of those pending sales to try to find out the accepted offer price. Some will share that information and some will not.
Look at the active listings. Those are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers actually tour.
3) Analyze Listing Agent's REO Solds
Most REO agents work for one or two banks. Some listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings.
Ask your buyer's agent to look up the listing agent in MLS.
Run a search using that listing agent's name to find the last three to six months of that agent's listings.
Pull the history of those listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then you may need to offer 6% over list price, and vice versa.
4) Ask About Number of Offers
If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.
If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval Letter
It goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.
Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments.
6) Don't Ask for Repairs / Inspections
Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection, renegotiate after your offer has been accepted.
7) Shorten the Inspection Period
If other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.
8) Offer to Split Fees
Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.
Many banks negotiate discount fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a bit more. But it's still a good idea to let the bank choose title if you want your offer accepted.
Consider the Appraisal Consequences
If you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing.
Written By: Elizabeth Weintraub
It's not unusual for some REO homes in Sacramento to receive 15 or 20 offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called "Highest and Final" offer. Sometimes the bank simply accepts the best offer at inception.
If you're wondering how you can make your offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:
1) Get the Property History
Ask your buyer's agent to find out the bank's purchase price on the Trustee's Deed or Sheriff's Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.
Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.
2) Determine Comparable Sales
In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.
Look at the last three months of comparable sales, a mini CMA, for that neighborhood to determine how much this REO is worth. Try to use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.
Look at the pending sales. Ask your agent to call the listing agents of those pending sales to try to find out the accepted offer price. Some will share that information and some will not.
Look at the active listings. Those are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers actually tour.
3) Analyze Listing Agent's REO Solds
Most REO agents work for one or two banks. Some listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings.
Ask your buyer's agent to look up the listing agent in MLS.
Run a search using that listing agent's name to find the last three to six months of that agent's listings.
Pull the history of those listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then you may need to offer 6% over list price, and vice versa.
4) Ask About Number of Offers
If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.
If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval Letter
It goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.
Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments.
6) Don't Ask for Repairs / Inspections
Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection, renegotiate after your offer has been accepted.
7) Shorten the Inspection Period
If other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.
8) Offer to Split Fees
Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.
Many banks negotiate discount fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a bit more. But it's still a good idea to let the bank choose title if you want your offer accepted.
Consider the Appraisal Consequences
If you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing.
Written By: Elizabeth Weintraub
Monday, February 1, 2010
2010 Predictions for the Inland Empire
Finally, there might be some good news for struggling homeowners. Thousands of mortgage loans that were supposed to reset at a higher rate this spring won’t be changing, putting off the grim threat of Inland Empire foreclosures or bankruptcy for many Americans by as much as a year. Unfortunately, the reprieve will only be a temporary one.
A year ago, real estate forecasters were warning that spring 2009 would be the start of a whole new wave of foreclosures. Across the country option adjustable-rate mortgages (ARMs), an especially scary loan type often compared to a ticking time bomb, were set to detonate at an accelerating pace.
But something happened that few could have predicted. Interest rates dropped to historically low levels and the wave of resets could now be delayed until well into 2010. As a result, many borrowers—who have the option of making payments so low that they don’t even cover the interest, which is then added to the original loan balance—now have some breathing room.
Third of Loans Deeply Delinquent
Credit Suisse (CS) estimates (click here to see the chart) that the resets will begin to accelerate next spring, rising from about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. The current level is about $1 billion. About $500 billion of option ARM loans are outstanding, according to the bank. “Things have gotten pushed out,” says Chandrajit Bhattacharya, director in U.S. Mortgage Strategy for Credit Suisse. “Right now it looks like the big increase is probably going to be somewhere toward the middle of next year.”
Option ARMs typically reset after five years, at which point the monthly bill increases 65% or more. About 37.5% of option ARMs originated in 2005 are still outstanding, 63% of the 2006 vintage are outstanding, and 82% of the 2007 loans remain, according to Barclays Capital (BCS). And about a third of the outstanding loans in these years are deeply delinquent.
In a given month, between 4% and 5% of borrowers who are current on their option ARMs taken out in 2006 and 2007 default in the following month, says Sandeep Bordia, Barclays’ head of residential credit strategy, who also expects resets to be delayed until next year. “These things have been performing horrendously,” Bordia said. “I don’t know how much of it will last into the recast.”
Moving Out of Option ARMs
But real estate analysts were predicting that many option ARMs would reset sooner as loan balances hit specified principal caps, typically 110% to 125% of the original principal. The decline in interest rates means that it would take much longer to hit the principal cap and many borrowers will instead face a reset only at the five-year mark.
The Mortgage Bankers Assn. is also estimating that the lower interest rates will delay the resets. But the group also expects that lenders will help borrowers move out of the option ARM products before they reset. Many of the investors who can’t easily qualify for modifications and the borrowers beyond help have already lost their homes, says Michael Fratantoni, vice-president of single family research and policy development for the Mortgage Bankers Assn.
And the homeowners who are holding option ARMs when the wave of resets hits won’t face as big a shock because interest rates have fallen, adds Fratantoni. “Interest rates have come down to the point where the resets that are going to occur are going to be a bit of a non-event,” he says. “Very few borrowers will experience the recast.” But Nicholas Chavarela, managing attorney for Orange (Calif.)-based America’s Law Group, which represents borrowers negotiating modifications, says banks remain reluctant to reduce principal for underwater borrowers.
Cutting Debt-to-Income Ratios
The Obama Administration’s loan modification plan, which only applies to owner-occupied homes, is a step in the right direction, Chavarela said. But lenders won’t do what’s needed unless they’re forced to, he said.
Under the plan, taxpayers and participating lenders would share the cost of cutting borrowers’ debt-to-income ratio to 31%. Loans terms could be extended to 40 years and interest rates dropped to as low as 2%. But option ARM borrowers would likely have to pay more each month, even with a modification, because they’d suddenly be required to pay both interest and principal. “The Obama plan needs to be built upon,” Chavarela said.
But even if they can refinance many borrowers can’t afford the higher payments. Philip Tirone, president of the Mortgage Equity Group in Los Angeles, said he reached out to borrowers with option ARMs, offering to help them refinance into a fixed-rate mortgage with a low interest rate. “For them, it’s all about the payments,” Tirone said.
Time to Work with Lenders
Keith Gumbinger, vice-president of HSH.com, a publisher of loan information in Pompton Plains, N.J., said the lower interest rates have helped to diminish the option ARM problem. But it remains unclear how many option ARMs are left to reset and how many borrowers will be able to get out of the loans before it’s too late. Moreover, by the time they do reset it is unclear whether the economy will be better off. If home values and unemployment continue to weaken, it will become even harder to refinance. But the delay in resets gives some motivated borrowers time to work with lenders and negotiate a solution.
“I don’t think this is going to be the tsunami that was forecasted a few years ago,” Gumbinger said. “But it’s probably bigger than a ripple in a pond.”
If you are looking for a fresh start and want to get out of your Inland Empire home no matter the situation, email Amber4RealEstate@gmail.com or call 951-505-1195. The team at Prudential have had a ton of success negotiating short sales with banks and getting people upside down on their mortgage a fresh start.
A year ago, real estate forecasters were warning that spring 2009 would be the start of a whole new wave of foreclosures. Across the country option adjustable-rate mortgages (ARMs), an especially scary loan type often compared to a ticking time bomb, were set to detonate at an accelerating pace.
But something happened that few could have predicted. Interest rates dropped to historically low levels and the wave of resets could now be delayed until well into 2010. As a result, many borrowers—who have the option of making payments so low that they don’t even cover the interest, which is then added to the original loan balance—now have some breathing room.
Third of Loans Deeply Delinquent
Credit Suisse (CS) estimates (click here to see the chart) that the resets will begin to accelerate next spring, rising from about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. The current level is about $1 billion. About $500 billion of option ARM loans are outstanding, according to the bank. “Things have gotten pushed out,” says Chandrajit Bhattacharya, director in U.S. Mortgage Strategy for Credit Suisse. “Right now it looks like the big increase is probably going to be somewhere toward the middle of next year.”
Option ARMs typically reset after five years, at which point the monthly bill increases 65% or more. About 37.5% of option ARMs originated in 2005 are still outstanding, 63% of the 2006 vintage are outstanding, and 82% of the 2007 loans remain, according to Barclays Capital (BCS). And about a third of the outstanding loans in these years are deeply delinquent.
In a given month, between 4% and 5% of borrowers who are current on their option ARMs taken out in 2006 and 2007 default in the following month, says Sandeep Bordia, Barclays’ head of residential credit strategy, who also expects resets to be delayed until next year. “These things have been performing horrendously,” Bordia said. “I don’t know how much of it will last into the recast.”
Moving Out of Option ARMs
But real estate analysts were predicting that many option ARMs would reset sooner as loan balances hit specified principal caps, typically 110% to 125% of the original principal. The decline in interest rates means that it would take much longer to hit the principal cap and many borrowers will instead face a reset only at the five-year mark.
The Mortgage Bankers Assn. is also estimating that the lower interest rates will delay the resets. But the group also expects that lenders will help borrowers move out of the option ARM products before they reset. Many of the investors who can’t easily qualify for modifications and the borrowers beyond help have already lost their homes, says Michael Fratantoni, vice-president of single family research and policy development for the Mortgage Bankers Assn.
And the homeowners who are holding option ARMs when the wave of resets hits won’t face as big a shock because interest rates have fallen, adds Fratantoni. “Interest rates have come down to the point where the resets that are going to occur are going to be a bit of a non-event,” he says. “Very few borrowers will experience the recast.” But Nicholas Chavarela, managing attorney for Orange (Calif.)-based America’s Law Group, which represents borrowers negotiating modifications, says banks remain reluctant to reduce principal for underwater borrowers.
Cutting Debt-to-Income Ratios
The Obama Administration’s loan modification plan, which only applies to owner-occupied homes, is a step in the right direction, Chavarela said. But lenders won’t do what’s needed unless they’re forced to, he said.
Under the plan, taxpayers and participating lenders would share the cost of cutting borrowers’ debt-to-income ratio to 31%. Loans terms could be extended to 40 years and interest rates dropped to as low as 2%. But option ARM borrowers would likely have to pay more each month, even with a modification, because they’d suddenly be required to pay both interest and principal. “The Obama plan needs to be built upon,” Chavarela said.
But even if they can refinance many borrowers can’t afford the higher payments. Philip Tirone, president of the Mortgage Equity Group in Los Angeles, said he reached out to borrowers with option ARMs, offering to help them refinance into a fixed-rate mortgage with a low interest rate. “For them, it’s all about the payments,” Tirone said.
Time to Work with Lenders
Keith Gumbinger, vice-president of HSH.com, a publisher of loan information in Pompton Plains, N.J., said the lower interest rates have helped to diminish the option ARM problem. But it remains unclear how many option ARMs are left to reset and how many borrowers will be able to get out of the loans before it’s too late. Moreover, by the time they do reset it is unclear whether the economy will be better off. If home values and unemployment continue to weaken, it will become even harder to refinance. But the delay in resets gives some motivated borrowers time to work with lenders and negotiate a solution.
“I don’t think this is going to be the tsunami that was forecasted a few years ago,” Gumbinger said. “But it’s probably bigger than a ripple in a pond.”
If you are looking for a fresh start and want to get out of your Inland Empire home no matter the situation, email Amber4RealEstate@gmail.com or call 951-505-1195. The team at Prudential have had a ton of success negotiating short sales with banks and getting people upside down on their mortgage a fresh start.
Saturday, January 2, 2010
Loan Modification VS. Short Sale
What is the difference between a loan modification and a short sale?
First of all, let me clarify the definition of a loan modification: A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford. There are many questions you may have specifically, so please see the link: http://www.hud.gov/offices/hsg/sfh/nsc/faqlm.cfm. A loan modification is used if you are behind on your mortgage and have been impacted by a financial hardship, it will save your home from entering foreclosure. The mortgage loan is restructed so that it becomes affordable and can fit within your budget. Obama presented this as part of his Homeowner Affordability and Stability Plan, in which he dedicated $75 billion. The plan states that the mortgage payments would stay below 38% of the borrowers gross income, and the government would pick up the rest of the tab. This lower payment comes from the mortgage interest rate going as low as 2%, the loan term being extended (up to 40 years), or having a loan principal at no interest. The loan servicer will be paid $1,000 for each modification and will get an additional $1,000 a year for up to three years. In order to qualify for a loan modification, the borrow must sign an affidavit of financial hardship and verify their income with documents. Loan mods used to be reserved for borrowers whose mortgages became deliquent because of job losses, divorce proceedings, or illness, but today they are also open to those individuals who are suffering in the aftermath of adjustable rate mortgages skyrocketing and placing the monthy payment beyond the means of the borrower. It is vital to begin the process as soon as possible when the damage to the budget and financial backup of the homeowner is still containd. The sooner a fixed rate can be negotiated, the better the odds of receiving a most benefical rate. Legal assistance during the process of applying for a loan mod is essential in the attempt to make the lender sit up and listen and provide the best possible solution for any homeowner before it's too late. In all, a loan modification should help save your budget, your home and your good credit.
Now that I have addressed loan modifications, I will give you an overview of a short sale. Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short sale. It used to be that lenders wouldn't even consider a short sale if your payments are current, but that has changed. Banks grant short sales for two reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth. A few examples of a hardship are: unemployment, reduced income, divorce, medical emergency, job transfer, bankruptcy, death. The seller will need to prepare a financial package for submission to the short sale bank. Each bank has it's own guidelines but the basic procedure is similar from bank to bank. The seller's package will most likely consist of: letter of authorization (allowing your agent to speak to the bank), HUD-1 (preliminary net sheet), completed financial statement, sellers hardship letter, 2 years of tax returns, 2 years of W-2's, recent payroll stubs, last 2 months of bank statements, comparative market analysis.
A short sale will affect your credit negatively, though not as badly as a foreclosure. Stil the lenders interpret a short sale as a customer did not pay as agreed, but the good news is a short sale will allow the consumer to obtain an institutional loan for a new home in two years. (As compared to a foreclosure, which will remain on a consumer's credit report in the public records section for 10 years). As far as FICO scores go, they are affected by: 1. serious deliquency 2. derogatory public record or 3. collection filed. A homeowners default is technically, "in collection." With a short sell, sellers will take a hit of 100 to 300 points, depending on overall condition of credit. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380, although it may stay closer to 580 depending on the specific situation and how far behind you are on mortgage payments to determine exactly how it will affect your credit.
First of all, let me clarify the definition of a loan modification: A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford. There are many questions you may have specifically, so please see the link: http://www.hud.gov/offices/hsg/sfh/nsc/faqlm.cfm. A loan modification is used if you are behind on your mortgage and have been impacted by a financial hardship, it will save your home from entering foreclosure. The mortgage loan is restructed so that it becomes affordable and can fit within your budget. Obama presented this as part of his Homeowner Affordability and Stability Plan, in which he dedicated $75 billion. The plan states that the mortgage payments would stay below 38% of the borrowers gross income, and the government would pick up the rest of the tab. This lower payment comes from the mortgage interest rate going as low as 2%, the loan term being extended (up to 40 years), or having a loan principal at no interest. The loan servicer will be paid $1,000 for each modification and will get an additional $1,000 a year for up to three years. In order to qualify for a loan modification, the borrow must sign an affidavit of financial hardship and verify their income with documents. Loan mods used to be reserved for borrowers whose mortgages became deliquent because of job losses, divorce proceedings, or illness, but today they are also open to those individuals who are suffering in the aftermath of adjustable rate mortgages skyrocketing and placing the monthy payment beyond the means of the borrower. It is vital to begin the process as soon as possible when the damage to the budget and financial backup of the homeowner is still containd. The sooner a fixed rate can be negotiated, the better the odds of receiving a most benefical rate. Legal assistance during the process of applying for a loan mod is essential in the attempt to make the lender sit up and listen and provide the best possible solution for any homeowner before it's too late. In all, a loan modification should help save your budget, your home and your good credit.
Now that I have addressed loan modifications, I will give you an overview of a short sale. Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short sale. It used to be that lenders wouldn't even consider a short sale if your payments are current, but that has changed. Banks grant short sales for two reasons: the seller has a hardship, and the seller owes more on the mortgage than the home is worth. A few examples of a hardship are: unemployment, reduced income, divorce, medical emergency, job transfer, bankruptcy, death. The seller will need to prepare a financial package for submission to the short sale bank. Each bank has it's own guidelines but the basic procedure is similar from bank to bank. The seller's package will most likely consist of: letter of authorization (allowing your agent to speak to the bank), HUD-1 (preliminary net sheet), completed financial statement, sellers hardship letter, 2 years of tax returns, 2 years of W-2's, recent payroll stubs, last 2 months of bank statements, comparative market analysis.
A short sale will affect your credit negatively, though not as badly as a foreclosure. Stil the lenders interpret a short sale as a customer did not pay as agreed, but the good news is a short sale will allow the consumer to obtain an institutional loan for a new home in two years. (As compared to a foreclosure, which will remain on a consumer's credit report in the public records section for 10 years). As far as FICO scores go, they are affected by: 1. serious deliquency 2. derogatory public record or 3. collection filed. A homeowners default is technically, "in collection." With a short sell, sellers will take a hit of 100 to 300 points, depending on overall condition of credit. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380, although it may stay closer to 580 depending on the specific situation and how far behind you are on mortgage payments to determine exactly how it will affect your credit.
Monday, December 14, 2009
Is home ownership right for you?
The answer depends on your financial situation, your future plans, and what you hope to do for yourself and your family by buying and owning a home.
Let's start with your financial situation. Ask yourself the following questions:
- Do you have a steady, reliable source of income and a steady employment history for at least three years?
- Do you have a good credit history and understand how to manage your credit?
- Is your total debt manageable? Can you pay all your bills on time and still afford to take on the costs associated with homeownership?
- Can you save money for a down payment and closing costs or you have access to other sources of funds, such as an employment bonus, tax refund, or a gift from a relative?
- Do you have adequate savings to weather an unexpected loss of income or an emergency?
Next consider your future plans. Can you balance the costs of owning and maintaining a home (like repairs and maintenance) against other major expenses, such as buying a car, taking a vacation, saving for college or raising a family?
After looking at your financial situation and the costs of owning a home, consider how much you can afford to spend buying a house as well as the risks and rewards of becoming a homeowner.
1. Why Own?
While homeownership comes with many responsibilities that you need to be aware of, most financial advisers say there are also many advantages.
You'll have a place that is yours!
Homeownership provides shelter and security for you and your family. You can pass your home down to your children, and their children, creating security for generations to come.
You may have some tax benefits with homeownership.
Homeownership can reduce the federal income taxes you pay. You can deduct the interest on your home mortgage and property taxes you pay on your home on the tax returns you file each year. These tax savings may offset a portion of the cost of owning your home. While tax savings can reduce the cost of homeownership over time, you still need to make sure you can afford the monthly mortgage payments.
Your monthly payments will remain stable if you choose a fixed-rate mortgage!
If you choose a mortgage with a fixed-interest rate (one that stays the same for the life of the loan, say 30 years), you'll pay the same mortgage payment each month for the entire 30 years of the loan (but remember if your taxes go up, your escrow will go up – increasing your monthly payment).
You'll contribute to your nest egg!
Owning a home can be a way to build long-term financial security and independence.
But remember with all the benefits of homeownership comes responsibilities too – a mortgage, upkeep of a home and repair bills just to name a few.
2. How Much Can You Afford to Spend on a Home?
To get a very rough estimate of what you can afford to spend, multiply your annual gross income by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is a very rough estimate – the actual numbers will vary based on different factors like current interest rates and your debt and credit history. Other factors to keep in mind are your current bills and overall debt, your current lifestyle and future plans. But the most important factor in determining how much you can afford is taking an honest look at what you can spend comfortably for your monthly housing costs.
Mortgage lenders typically use two ratios to more accurately determine how much you can afford to spend on your mortgage.
Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment (principal, interest, taxes and insurance) be less than 28-31% of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
Debt-to-Income Ratio
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
Talk to a mortgage lender or housing counselor who can help you better understand the guidelines or requirements. Before you talk to one, organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspection costs, moving, and other related expenses.
You should also take into account any future plans such as a wedding, college education or birth of a child that will impact your budget and how much you can spend on a home. It is important to be realistic – you don’t want to buy your dream home only to realize afterwards that it is more than you can comfortably afford.
Remember that the mortgage is not the only expense of homeownership. Other expenses include:-homeowner's insurance
-interest and taxes (which may be factored into your monthly mortgage payment)
-maintenance costs
-utilities
-water and garbage services
-unexpected repairs
-When deciding what you can afford, be sure to look at the big picture and not just the price of the home.
Don't make the mistake of trying to buy more house than you can afford. Thinking that you can get by for a couple of years until your salary catches up with your monthly mortgage payment is setting yourself up for trouble. Instead, buy what you can comfortably afford today – not 5 years from now.
Don't be discouraged!
If what you can afford is less than the average single-family home in your area, look at townhouses, condos, and cooperatives – they're often less expensive.
It's better to start small than to find yourself with a mortgage you cannot afford!
3. What Are the Risks?
Overall, homeownership is a good investment for most people, but there are risks. If you understand the benefits and risks of homeownership, you can make the best decision about when to buy a home.
So what are the risks of homeownership?
Monthly housing expenses can increase.
Your monthly mortgage payment may be larger than your rent. While these higher monthly payments may be offset by a tax benefit at the end of the year, you will still need to make sure you can afford the monthly mortgage payments. Talk to a tax professional to understand your particular situation. Also, think carefully about introductory rates or low initial rates that allow you to buy a home you would not otherwise qualify for. When the rate increases you may find it difficult to make the monthly mortgage payment.
You become your own landlord.
If an appliance breaks, you will have to pay for its repair or replacement. You are also responsible for the maintenance and upkeep of your home and your property. Maintenance and upkeep affect your home's value so it is important that you have the budget to fix things in order to protect your investment.
You may need to sell your house due to life circumstances.
Depending on the local real estate market, you might not be able to sell your home quickly. You may also face additional expenses, such as hiring a real estate professional. Be sure you have adequate savings as a buffer before you buy a home in case you find yourself in this situation and cannot sell your home quickly.
Property values can depreciate.
You can lose value in your home for a number of reasons, such as a recession, the condition of your home not being kept up, or a drop in a neighborhood's home values. If your home loses value and you have to sell it for less than you owe, you will be required to repay the full amount you borrowed. Regardless of your home's value you still have the obligation to pay the mortgage even if the home is worth less than you paid for it.
Downsizing quickly may be difficult.
If you need to sell your home, it may take some time and you'll still be responsible for the mortgage until it is sold.
Homeownership is still a great way to create equity for the future while providing stability and security for you and your family. But it is important to look at the benefits and risks and weigh them carefully before deciding if now is the time to become a homeowner.
If you are already having credit or financial difficulties, take the time to work through those issues before starting the home buying process. You will be in a much better position to be a responsible homeowner and you will enjoy the benefits of homeownership much more!
4. Myths About Homeownership
How lenders assess mortgage applications has changed a lot since 2007. What was acceptable a few years ago may not be so today. The following are some common homeownership myths:
Myth: It’s a bad time to buy a house.
Fact: Mortgage rates for fixed-rate mortgages are at historical lows, creating stable payments and long-term savings for today's homebuyers and house prices have fallen at a record pace. Additionally, there is some financial relief for first-time homebuyers through the recently enacted Housing and Economic Recovery Act of 2008 and foreclosures have increased to record levels, leaving lots of housing supply on the market with unequalled demand. The combination of these factors generally equals greater affordability, and makes now a good time for many to consider homeownership.
Myth: Buying a house is just too risky; I'll end up in foreclosure.
Fact:The recent news on foreclosures is understandably frightening. Certainly if you lose your job, go through a divorce, or suffer an illness, you could have real trouble paying your mortgage, or rent for that matter. In recent years, we've even seen an increase in excessive obligation–just too many bills–as a reason for delinquency. While you can't always solve for the unexpected twists and turns of life, good budgeting and responsible credit practices can decrease the likelihood of a foreclosure. Also if you have trouble paying the mortgage, contact your lender immediately!
Myth: You can't buy a home in the U.S. if you're not a citizen.
Fact:If you're a permanent or non-permanent resident alien, you can purchase a home in the U.S. In order to qualify for a loan you typically need to be a permanent resident alien with a valid USCIS card or, a "Green Card" and Social Security number. If you are a temporary resident alien with a valid work permit and Social Security number and have been in the United States continuously for the last 2 years, with steady employment and good credit history you may also qualify for a loan.
Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage.
Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.
Myth: Lenders share your personal financial information with other companies.
Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared. If you are unsure how your information will be used, don't be afraid to ask – it's your right to know.
Myth: If you're late on your monthly mortgage payments, you'll lose your house.
Fact: If you have a financial hardship, like the death of your spouse or a medical emergency, and fall behind, it's possible to keep your home and get back on track if you contact your lender early (the organization to whom you make your monthly mortgage payments, sometimes also referred to as your mortgage servicer).
If you experience a change in your financial situation and think that you will fall behind or have fallen behind on your mortgage payment, call your lender immediately.
Despite popular belief, lenders do not want to foreclose on homes. They want to keep you as a customer for life. In fact, lenders typically lose money in the foreclosure process, so they are always looking for ways to help you make ends meet.
Myth: You can't get a mortgage if you've changed jobs several times in the last few years.
Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income and good credit.
Let's start with your financial situation. Ask yourself the following questions:
- Do you have a steady, reliable source of income and a steady employment history for at least three years?
- Do you have a good credit history and understand how to manage your credit?
- Is your total debt manageable? Can you pay all your bills on time and still afford to take on the costs associated with homeownership?
- Can you save money for a down payment and closing costs or you have access to other sources of funds, such as an employment bonus, tax refund, or a gift from a relative?
- Do you have adequate savings to weather an unexpected loss of income or an emergency?
Next consider your future plans. Can you balance the costs of owning and maintaining a home (like repairs and maintenance) against other major expenses, such as buying a car, taking a vacation, saving for college or raising a family?
After looking at your financial situation and the costs of owning a home, consider how much you can afford to spend buying a house as well as the risks and rewards of becoming a homeowner.
1. Why Own?
While homeownership comes with many responsibilities that you need to be aware of, most financial advisers say there are also many advantages.
You'll have a place that is yours!
Homeownership provides shelter and security for you and your family. You can pass your home down to your children, and their children, creating security for generations to come.
You may have some tax benefits with homeownership.
Homeownership can reduce the federal income taxes you pay. You can deduct the interest on your home mortgage and property taxes you pay on your home on the tax returns you file each year. These tax savings may offset a portion of the cost of owning your home. While tax savings can reduce the cost of homeownership over time, you still need to make sure you can afford the monthly mortgage payments.
Your monthly payments will remain stable if you choose a fixed-rate mortgage!
If you choose a mortgage with a fixed-interest rate (one that stays the same for the life of the loan, say 30 years), you'll pay the same mortgage payment each month for the entire 30 years of the loan (but remember if your taxes go up, your escrow will go up – increasing your monthly payment).
You'll contribute to your nest egg!
Owning a home can be a way to build long-term financial security and independence.
But remember with all the benefits of homeownership comes responsibilities too – a mortgage, upkeep of a home and repair bills just to name a few.
2. How Much Can You Afford to Spend on a Home?
To get a very rough estimate of what you can afford to spend, multiply your annual gross income by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is a very rough estimate – the actual numbers will vary based on different factors like current interest rates and your debt and credit history. Other factors to keep in mind are your current bills and overall debt, your current lifestyle and future plans. But the most important factor in determining how much you can afford is taking an honest look at what you can spend comfortably for your monthly housing costs.
Mortgage lenders typically use two ratios to more accurately determine how much you can afford to spend on your mortgage.
Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment (principal, interest, taxes and insurance) be less than 28-31% of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
Debt-to-Income Ratio
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
Talk to a mortgage lender or housing counselor who can help you better understand the guidelines or requirements. Before you talk to one, organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspection costs, moving, and other related expenses.
You should also take into account any future plans such as a wedding, college education or birth of a child that will impact your budget and how much you can spend on a home. It is important to be realistic – you don’t want to buy your dream home only to realize afterwards that it is more than you can comfortably afford.
Remember that the mortgage is not the only expense of homeownership. Other expenses include:-homeowner's insurance
-interest and taxes (which may be factored into your monthly mortgage payment)
-maintenance costs
-utilities
-water and garbage services
-unexpected repairs
-When deciding what you can afford, be sure to look at the big picture and not just the price of the home.
Don't make the mistake of trying to buy more house than you can afford. Thinking that you can get by for a couple of years until your salary catches up with your monthly mortgage payment is setting yourself up for trouble. Instead, buy what you can comfortably afford today – not 5 years from now.
Don't be discouraged!
If what you can afford is less than the average single-family home in your area, look at townhouses, condos, and cooperatives – they're often less expensive.
It's better to start small than to find yourself with a mortgage you cannot afford!
3. What Are the Risks?
Overall, homeownership is a good investment for most people, but there are risks. If you understand the benefits and risks of homeownership, you can make the best decision about when to buy a home.
So what are the risks of homeownership?
Monthly housing expenses can increase.
Your monthly mortgage payment may be larger than your rent. While these higher monthly payments may be offset by a tax benefit at the end of the year, you will still need to make sure you can afford the monthly mortgage payments. Talk to a tax professional to understand your particular situation. Also, think carefully about introductory rates or low initial rates that allow you to buy a home you would not otherwise qualify for. When the rate increases you may find it difficult to make the monthly mortgage payment.
You become your own landlord.
If an appliance breaks, you will have to pay for its repair or replacement. You are also responsible for the maintenance and upkeep of your home and your property. Maintenance and upkeep affect your home's value so it is important that you have the budget to fix things in order to protect your investment.
You may need to sell your house due to life circumstances.
Depending on the local real estate market, you might not be able to sell your home quickly. You may also face additional expenses, such as hiring a real estate professional. Be sure you have adequate savings as a buffer before you buy a home in case you find yourself in this situation and cannot sell your home quickly.
Property values can depreciate.
You can lose value in your home for a number of reasons, such as a recession, the condition of your home not being kept up, or a drop in a neighborhood's home values. If your home loses value and you have to sell it for less than you owe, you will be required to repay the full amount you borrowed. Regardless of your home's value you still have the obligation to pay the mortgage even if the home is worth less than you paid for it.
Downsizing quickly may be difficult.
If you need to sell your home, it may take some time and you'll still be responsible for the mortgage until it is sold.
Homeownership is still a great way to create equity for the future while providing stability and security for you and your family. But it is important to look at the benefits and risks and weigh them carefully before deciding if now is the time to become a homeowner.
If you are already having credit or financial difficulties, take the time to work through those issues before starting the home buying process. You will be in a much better position to be a responsible homeowner and you will enjoy the benefits of homeownership much more!
4. Myths About Homeownership
How lenders assess mortgage applications has changed a lot since 2007. What was acceptable a few years ago may not be so today. The following are some common homeownership myths:
Myth: It’s a bad time to buy a house.
Fact: Mortgage rates for fixed-rate mortgages are at historical lows, creating stable payments and long-term savings for today's homebuyers and house prices have fallen at a record pace. Additionally, there is some financial relief for first-time homebuyers through the recently enacted Housing and Economic Recovery Act of 2008 and foreclosures have increased to record levels, leaving lots of housing supply on the market with unequalled demand. The combination of these factors generally equals greater affordability, and makes now a good time for many to consider homeownership.
Myth: Buying a house is just too risky; I'll end up in foreclosure.
Fact:The recent news on foreclosures is understandably frightening. Certainly if you lose your job, go through a divorce, or suffer an illness, you could have real trouble paying your mortgage, or rent for that matter. In recent years, we've even seen an increase in excessive obligation–just too many bills–as a reason for delinquency. While you can't always solve for the unexpected twists and turns of life, good budgeting and responsible credit practices can decrease the likelihood of a foreclosure. Also if you have trouble paying the mortgage, contact your lender immediately!
Myth: You can't buy a home in the U.S. if you're not a citizen.
Fact:If you're a permanent or non-permanent resident alien, you can purchase a home in the U.S. In order to qualify for a loan you typically need to be a permanent resident alien with a valid USCIS card or, a "Green Card" and Social Security number. If you are a temporary resident alien with a valid work permit and Social Security number and have been in the United States continuously for the last 2 years, with steady employment and good credit history you may also qualify for a loan.
Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage.
Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.
Myth: Lenders share your personal financial information with other companies.
Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared. If you are unsure how your information will be used, don't be afraid to ask – it's your right to know.
Myth: If you're late on your monthly mortgage payments, you'll lose your house.
Fact: If you have a financial hardship, like the death of your spouse or a medical emergency, and fall behind, it's possible to keep your home and get back on track if you contact your lender early (the organization to whom you make your monthly mortgage payments, sometimes also referred to as your mortgage servicer).
If you experience a change in your financial situation and think that you will fall behind or have fallen behind on your mortgage payment, call your lender immediately.
Despite popular belief, lenders do not want to foreclose on homes. They want to keep you as a customer for life. In fact, lenders typically lose money in the foreclosure process, so they are always looking for ways to help you make ends meet.
Myth: You can't get a mortgage if you've changed jobs several times in the last few years.
Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income and good credit.
Saturday, November 21, 2009
Property Tax
I am now posting questions that I am asked in case others have related inquiries. Below I have listed frequently asked questions related to property taxes. If you are curious about a different subject, please feel free to post any questions to my blog, or you can call, text or email.
Is there a centralized location to obtain property tax information?
The county offices of the Assessor, Auditor-Controller and Treasurer-Tax Collector created a website to assist the public with general information concerning property taxes. Visit at: http://www.riversidetaxinfo.com/riverside_faq.asp
How can I obtain a copy of the tax rate book?
Copies are available for $35.00. Please click here for a link to the form to be filled out and mailed in with your check payable to:
Riverside County Auditor-Controller’s Office
P.O. Box 1326
Riverside, CA 92502
How are property taxes calculated?
Property taxes are calculated by multiplying the assessed value by the tax rate. For property held primarily as the residence of the taxpayer, a value of 7,000 for a homeowner’s exemption may be deducted from the assessed value to arrive at the net amount subject to property taxes. To obtain the homeowners exemption click here for more information.
What does a Tax Rate consist of?
In California, the property tax rate is set at 1%. This rate is constant as guaranteed under Proposition 13 passed in 1978. What this means is that a $1 tax is imposed for every $100 of assessed value of the property. In addition, under the provisions of Proposition 13, any taxes levied by any governmental agency on top of the 1% must be approved by 66 2/3% of the voters. However, in the case of the school bonds, only 55% majority is required as provided for under Proposition 39. Therefore, any rate you will see in your tax bill added to the 1%, represents a debt or debts approved by the voters.
Can my property taxes change from year to year?
Yes. Proposition 13 allows for an increase of up to 2% of property value each year. (Revenue and Taxation code 51) Also, the tax rate in your area can increase as new bonds are added or decrease as existing bonds are paid off. Special Assessments can also cause an increase or decrease as they are added or deleted.
What is a supplemental tax bill?
State law requires that the Assessor reappraise property value immediately upon a change of ownership or completion of new construction. The Assessor's Office must issue a supplemental assessment that reflects the difference between the new and prior assessed values. The difference in values is multiplied by the rate applicable to the date of the event and then prorated based on the number of months remaining in the fiscal year, ending June 30th. If you purchased the property for less than the amount assessed on the tax roll and the current taxes are paid, you will receive a supplemental tax refund.
Will I get a supplemental tax (bill) every year?
No. It is a one-time adjustment. It only occurs when there is a change of ownership or when a new construction project is completed. In a few instances, destruction of property due to acts of nature could lead to a negative adjustment that may result in a supplemental refund
What are special assessments?
Special assessments are additional charges attached to a tax bill levied by cities, special districts, and other governmental entities. Special assessments are not part of the tax rates. These assessments may include but are not limited to the following: garbage collection, weed abatements, sewer charges, maintenance fees, Mello-Roos, etc. The calculation of these charges is the responsibility of the agency that levies them. These special assessments are individually identified on your tax bill. For questions regarding these special assessments, please call the telephone number of the agency that levied it. The phone number is indicated on your tax bill corresponding to the assessment in question.
What is Mello-Roos?
The Mello-Roos Act of 1982 provides a flexible alternative method for local governments to finance public facilities. This legislation allows cities, counties, and special districts to designate specific areas as “Community Facilities Districts” (CFD) and, with the approval of two-thirds of the qualified voters, allows these districts to issue bonds and collect special taxes to finance such projects. The CFD may finance projects with a specific benefit to the district, such as streets, water, sewer, and drainage facilities, as well as projects of a more general nature, such as parks, schools and libraries.
How long will Mello-Roos fees last?
Generally, the bonds are paid over a period of 10 to 20 years. To get an exact time period for your assessment, you will need to contact the agency shown on your tax bill.
How long does it take to obtain a refund?
The Property Tax Division of the Auditor-Controller's Office (ACO) issues refunds as a result of value corrections, assessment appeals and special assessment reductions. Once these corrections are made to the tax roll, the refund is sent to the Tax Collector’s Office (TC), where a “claim for refund” is prepared and mailed to the taxpayer. When the claim form is returned, the TC will release the refund back to the Auditor-Controller to process a refund warrant. As a matter of policy, the refund warrant is processed within 10 working days.
Contact the Auditor-Controller’s Office:
We are located at:
4080 Lemon St. 11th Floor
Riverside, CA 92501
Telephone: (951) 955-3800
Fax: (951) 955-3802
For the following issues, please contact the agency identified on your tax bill.
- What is the balance of my Mello-Roos?
- Who shall I ask about Mello-Roos? School bond?
- How long do I have to pay my voter approved bond?
- How do I clear or pay my delinquent garbage bill?
- I have a well to supply me with water. Do I still have to pay the
assessment for water on my tax bill?
Is there a centralized location to obtain property tax information?
The county offices of the Assessor, Auditor-Controller and Treasurer-Tax Collector created a website to assist the public with general information concerning property taxes. Visit at: http://www.riversidetaxinfo.com/riverside_faq.asp
How can I obtain a copy of the tax rate book?
Copies are available for $35.00. Please click here for a link to the form to be filled out and mailed in with your check payable to:
Riverside County Auditor-Controller’s Office
P.O. Box 1326
Riverside, CA 92502
How are property taxes calculated?
Property taxes are calculated by multiplying the assessed value by the tax rate. For property held primarily as the residence of the taxpayer, a value of 7,000 for a homeowner’s exemption may be deducted from the assessed value to arrive at the net amount subject to property taxes. To obtain the homeowners exemption click here for more information.
What does a Tax Rate consist of?
In California, the property tax rate is set at 1%. This rate is constant as guaranteed under Proposition 13 passed in 1978. What this means is that a $1 tax is imposed for every $100 of assessed value of the property. In addition, under the provisions of Proposition 13, any taxes levied by any governmental agency on top of the 1% must be approved by 66 2/3% of the voters. However, in the case of the school bonds, only 55% majority is required as provided for under Proposition 39. Therefore, any rate you will see in your tax bill added to the 1%, represents a debt or debts approved by the voters.
Can my property taxes change from year to year?
Yes. Proposition 13 allows for an increase of up to 2% of property value each year. (Revenue and Taxation code 51) Also, the tax rate in your area can increase as new bonds are added or decrease as existing bonds are paid off. Special Assessments can also cause an increase or decrease as they are added or deleted.
What is a supplemental tax bill?
State law requires that the Assessor reappraise property value immediately upon a change of ownership or completion of new construction. The Assessor's Office must issue a supplemental assessment that reflects the difference between the new and prior assessed values. The difference in values is multiplied by the rate applicable to the date of the event and then prorated based on the number of months remaining in the fiscal year, ending June 30th. If you purchased the property for less than the amount assessed on the tax roll and the current taxes are paid, you will receive a supplemental tax refund.
Will I get a supplemental tax (bill) every year?
No. It is a one-time adjustment. It only occurs when there is a change of ownership or when a new construction project is completed. In a few instances, destruction of property due to acts of nature could lead to a negative adjustment that may result in a supplemental refund
What are special assessments?
Special assessments are additional charges attached to a tax bill levied by cities, special districts, and other governmental entities. Special assessments are not part of the tax rates. These assessments may include but are not limited to the following: garbage collection, weed abatements, sewer charges, maintenance fees, Mello-Roos, etc. The calculation of these charges is the responsibility of the agency that levies them. These special assessments are individually identified on your tax bill. For questions regarding these special assessments, please call the telephone number of the agency that levied it. The phone number is indicated on your tax bill corresponding to the assessment in question.
What is Mello-Roos?
The Mello-Roos Act of 1982 provides a flexible alternative method for local governments to finance public facilities. This legislation allows cities, counties, and special districts to designate specific areas as “Community Facilities Districts” (CFD) and, with the approval of two-thirds of the qualified voters, allows these districts to issue bonds and collect special taxes to finance such projects. The CFD may finance projects with a specific benefit to the district, such as streets, water, sewer, and drainage facilities, as well as projects of a more general nature, such as parks, schools and libraries.
How long will Mello-Roos fees last?
Generally, the bonds are paid over a period of 10 to 20 years. To get an exact time period for your assessment, you will need to contact the agency shown on your tax bill.
How long does it take to obtain a refund?
The Property Tax Division of the Auditor-Controller's Office (ACO) issues refunds as a result of value corrections, assessment appeals and special assessment reductions. Once these corrections are made to the tax roll, the refund is sent to the Tax Collector’s Office (TC), where a “claim for refund” is prepared and mailed to the taxpayer. When the claim form is returned, the TC will release the refund back to the Auditor-Controller to process a refund warrant. As a matter of policy, the refund warrant is processed within 10 working days.
Contact the Auditor-Controller’s Office:
We are located at:
4080 Lemon St. 11th Floor
Riverside, CA 92501
Telephone: (951) 955-3800
Fax: (951) 955-3802
For the following issues, please contact the agency identified on your tax bill.
- What is the balance of my Mello-Roos?
- Who shall I ask about Mello-Roos? School bond?
- How long do I have to pay my voter approved bond?
- How do I clear or pay my delinquent garbage bill?
- I have a well to supply me with water. Do I still have to pay the
assessment for water on my tax bill?
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