Seller Concessions, FHA & CalHFA:
A 100% Financing Message to First Time Home Buyers
A couple of years ago you could get declined for a discover card but you could qualify for a home loan. Think for a moment about the logic because I am not exaggerating. There were hundreds of thousands of people that got into loans that they were not qualified to handle, thus developing the onslaught of foreclosures and Short Sales that have come to pass. The rules of the game have changed and the difference now is that people will have to qualify and in some cases over qualify for financing. Lenders and consumers both have taken massive losses and new policy and laws have been set into motion to make sure that we never end up in a similar situation
There are numerous reasons to learn more about 100% financing besides that fact that about 90% of it completely disappeared. For instance, you could be a first time home buyer or know someone who is looking, that could benefit from this knowledge. You could be a realtor who needs to be kept up to date with the few remaining 100% programs so you can let your clientele know about them or, you could be a mortgage lender who wants to learn more about available products so you can serve your clients in a more effective manner.
What ever your situation, I want to share some extremely valuable information that could keep you and the people you know, from wasting a ton of time and loosing a large amount of money.
100% financing in California is available through government sponsored programs. The two most common programs are called CalHFA and FHA. This article will dominantly focus on the CalHFA and FHA because they apply to the largest demographic. There are also other programs for educators and employees who work for a school district and receive salaries and if you are a U.S. Vet then the VA is a great option as well.
(For information about VA or PERS please go to the Mortgage News Network at http://mortgagenewsnetwork.blogspot.com/ )
For First Time Home Buyers, CalHFA offers down payment assistance programs which provide a helping hand of 3% of the sales price. This has to be paid back when you sell or refinance your home and is extremely beneficial because if there is a lack of funds to close, the 3% helps to absorb the closing costs and you don’t have to pay those absorbed out of pocket expenses. There are different down payment assistance programs and the parameters differ upon which of them you qualify for.
Seller concessions are also important because they will absorb other closing costs as well. Seller concessions are common (especially in a buyers market) and CalHFA allows seller concessions designed as follows:
- 3% of you are borrowing 90% of the property value or more.
- 6% if you are borrowing 90% of the property value or less
Add the Seller Concession to the Down Payment Assistance and you are looking at some major help to get into your home.
FHA allows 6% Seller Concession and there are similar down payment assistance programs available (similar to that of CalHFA).
Neither CalHFA nor FHA loans are subject to the California declining market decrease of 5% because CalHFA is its own entity (separate from mainstream housing lending) and FHA loans are federally insured.
I highly suggest that if you are a First Time Home Buyer then you look at these opportunities and get a professional to pre-approve you, NOT pre-qualify you. The difference is a pre-qualification is a verbal go ahead and means nothing to a lender. A pre-Approval is a green light to go and get a house because under the approved information that you have submitted, you will be able to proceed into negotiations. A pre-approval is also a green light for an appraiser, a realtor, as well as buyers and sellers.
Experienced real estate agents who know that they are doing will have you get
pre-approved before they take you out to look at homes. This gives you a clear picture of how much money you can spend and it gives your realtor a chance to do some research on the available inventory of homes so they can show you exactly what fits your needs.
For future information, there are many discussion boards, blogs, news sites, magazines and other sources of information. My intent is to educate you so that you know that there are still opportunities out there and they are available to those who are willing to qualify for them.
For future and archived articles go to: Mortgage News Network http://mortgagenewsnetwork.blogspot.com/
~Joe Littell
Wednesday, February 20, 2008
Congress Extends MI Tax Deductibility Law!!!
Congress extends MI tax deductibility law!
Congress has just extended the MI tax deductibility law. Once the President signs the bill, borrower-paid MI premiums will be tax-deductible through the year 2010. Because it’s still new, the law has raised many questions.
Below are answers to commonly asked questions regarding the new law. We will continue to post updated information as regulators sort out the details. Borrowers should consult their tax advisors regarding MI tax deductibility. See disclaimer note below.
FAQs
Does the bill apply to MGIC mortgage insurance?
Yes, borrower-paid MI provided by MGIC qualifies for the deduction. This includes our Monthly, One-Time MI and Split Premium plans. There are varied opinions on the deductibility of lender-paid MI as the IRS has not yet clarified the deductibility. It is recommended that borrowers consult their tax advisors regarding the amount that is deductible.
What types of mortgage loans qualify for the MI tax deduction?
Loans used for “acquisition indebtedness” — that is, money borrowed to buy, build or substantially improve a residence — are eligible, as long as the debt is secured by the same residence.
This includes purchase loans and refinance loans, up to the original acquisition indebtedness. (Money borrowed against the equity in a home or when refinancing a home for any reason other than to buy, build or substantially improve a residence is called “equity indebtedness.”)
When refinancing a piggyback loan originally used to acquire a property, is the original loan amount considered the sum of the two mortgages or only the primary mortgage amount without the second lien included?
The original acquisition indebtedness is considered to be sum of the two mortgages.
Is deductibility applicable for all loan types?
There is no differentiation among loan types.
What types of properties are eligible for tax deductibility?
The deduction applies to “qualified residences,” as defined in the Internal Revenue Code. Generally, that includes the borrower’s primary residence and up to one other residence selected by the borrower for purposes of the deduction for qualified residence interest. As with mortgage interest, borrowers can deduct mortgage insurance premiums paid on both their primary residence and one other qualified residence each year. Investor loans are not eligible.
Who qualifies for this itemized deduction?
Households with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums. The deduction is reduced by 10% for each additional $1,000 of adjusted gross household income, phasing out after $109,000. (Details below.)
Married individuals filing separate returns who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500. (Details below.)
The deduction is not restricted to first-time homebuyers.
Is adjusted gross income calculated before or after deductions?
Adjusted gross income is calculated before itemized deductions, including the MI deduction.
How does the MI tax deduction work?
Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as mortgage interest.
Are borrower-paid, single premiums, which are paid up front in a lump sum, eligible for the deduction?
Yes, borrower-paid, single-premiums are eligible for the deduction under the new law. Borrowers should consult with a professional tax advisor to determine the amount of the MI premium eligible for the tax deduction.
If the single premium is financed, are both the mortgage insurance premium and the interest tax-deductible?
We believe that if the loan is for acquisition indebtedness, both the interest attributable to the entire loan balance as well as the allocated portion of the mortgage insurance premium are tax-deductible.
How would a premium refund issued during the tax year affect eligibility and the amount of the MI deduction?
Borrowers are only permitted to deduct that portion of their MI premium attributable to a tax year. If the MI is dropped, and a refund is paid, the amount refunded would reduce the amount of MI premium that could be attributable to that tax year and be deducted.
Note: MGIC cannot provide tax advice. Taxpayers should consult their tax advisor to ascertain if they are eligible to take this deduction. The answers to these questions are based on an interpretation of the language of the statute, the Joint Committee on Taxation’s Technical Explanation of the statutory language, and present law. The Internal Revenue Service (“IRS”) will issue guidance interpreting the new provision, and could reach different conclusions for some of the issues raised.
Congress has just extended the MI tax deductibility law. Once the President signs the bill, borrower-paid MI premiums will be tax-deductible through the year 2010. Because it’s still new, the law has raised many questions.
Below are answers to commonly asked questions regarding the new law. We will continue to post updated information as regulators sort out the details. Borrowers should consult their tax advisors regarding MI tax deductibility. See disclaimer note below.
FAQs
Does the bill apply to MGIC mortgage insurance?
Yes, borrower-paid MI provided by MGIC qualifies for the deduction. This includes our Monthly, One-Time MI and Split Premium plans. There are varied opinions on the deductibility of lender-paid MI as the IRS has not yet clarified the deductibility. It is recommended that borrowers consult their tax advisors regarding the amount that is deductible.
What types of mortgage loans qualify for the MI tax deduction?
Loans used for “acquisition indebtedness” — that is, money borrowed to buy, build or substantially improve a residence — are eligible, as long as the debt is secured by the same residence.
This includes purchase loans and refinance loans, up to the original acquisition indebtedness. (Money borrowed against the equity in a home or when refinancing a home for any reason other than to buy, build or substantially improve a residence is called “equity indebtedness.”)
When refinancing a piggyback loan originally used to acquire a property, is the original loan amount considered the sum of the two mortgages or only the primary mortgage amount without the second lien included?
The original acquisition indebtedness is considered to be sum of the two mortgages.
Is deductibility applicable for all loan types?
There is no differentiation among loan types.
What types of properties are eligible for tax deductibility?
The deduction applies to “qualified residences,” as defined in the Internal Revenue Code. Generally, that includes the borrower’s primary residence and up to one other residence selected by the borrower for purposes of the deduction for qualified residence interest. As with mortgage interest, borrowers can deduct mortgage insurance premiums paid on both their primary residence and one other qualified residence each year. Investor loans are not eligible.
Who qualifies for this itemized deduction?
Households with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums. The deduction is reduced by 10% for each additional $1,000 of adjusted gross household income, phasing out after $109,000. (Details below.)
Married individuals filing separate returns who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500. (Details below.)
The deduction is not restricted to first-time homebuyers.
Is adjusted gross income calculated before or after deductions?
Adjusted gross income is calculated before itemized deductions, including the MI deduction.
How does the MI tax deduction work?
Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as mortgage interest.
Are borrower-paid, single premiums, which are paid up front in a lump sum, eligible for the deduction?
Yes, borrower-paid, single-premiums are eligible for the deduction under the new law. Borrowers should consult with a professional tax advisor to determine the amount of the MI premium eligible for the tax deduction.
If the single premium is financed, are both the mortgage insurance premium and the interest tax-deductible?
We believe that if the loan is for acquisition indebtedness, both the interest attributable to the entire loan balance as well as the allocated portion of the mortgage insurance premium are tax-deductible.
How would a premium refund issued during the tax year affect eligibility and the amount of the MI deduction?
Borrowers are only permitted to deduct that portion of their MI premium attributable to a tax year. If the MI is dropped, and a refund is paid, the amount refunded would reduce the amount of MI premium that could be attributable to that tax year and be deducted.
Note: MGIC cannot provide tax advice. Taxpayers should consult their tax advisor to ascertain if they are eligible to take this deduction. The answers to these questions are based on an interpretation of the language of the statute, the Joint Committee on Taxation’s Technical Explanation of the statutory language, and present law. The Internal Revenue Service (“IRS”) will issue guidance interpreting the new provision, and could reach different conclusions for some of the issues raised.
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