To avoid buyer’s remorse, be sure to contact Diane Butler at drdbroker@gmail or call 626-641-0346.
Finally, “fiscal cliff” debate is over! For months now, it’s been impossible to turn on the TV or radio without getting an earful of breathless and mostly unwanted information. Even though most of us now regard Congress as on a par with cockroaches, what happens there does have an impact on our lives. All the more reason for members of Congress to act like grownups, but that’s another topic…
Rushed through at the last minute, the “fiscal cliff” legislation contains a number of important provisions and none more important than those that relate to real estate. Here are a few of the most salient.
Given these provisos, it’s clear that real estate remains in a privileged position as far as federal taxes go. Not only do homeowners get a tax deduction for the interest in their mortgage payments, which is unheard of in other developed countries, such as Australia and Canada, but we can deduct mortgage insurance premiums which are only applied if the equity in the home is less than 20%. By extending this tax deduction, Congress is implicitly encouraging home ownership among those who do not have the traditional 20% down payment. Is this a good thing? Considering the recent mortgage meltdown, maybe not. It does help lenders and real estate professionals, though.
Homeowners also get to purchase equipment for their homes and then deduct some of the cost–just so long as it saves energy and fits the criteria. Naturally, no one can argue that energy-saving is bad, but here the government supports homeowners and no one else.
Additionally, estate taxes on the first $5 or $10 million, depending, amount to nothing. This also supports homeowners since a large proportion of most estates of this size is made up of real estate holdings, both principal residence and investment properties. Again, the tax code is supporting home ownership and investment in property.
Last, but not least, the tax code encourages home ownership by not taxing any capital gain up to $250,000 or $500,000 respectively. This means that home owners can sell their homes frequently, pocket the gain or purchase a more expensive home, without worrying at all about taxes. This has been part of the tax code several decades, though the amounts have increased, and does encourage home ownership. In fact, it encourages or at least does not discourage serial home ownership. Of course, this benefits those who change jobs and must change jobs, but it also benefits lenders and real estate professionals.
Extending the tax relief to those who short sale their homes is in a different category. So long as underwater homeowners face no tax penalties for short selling their homes, they will usually prefer it to the foreclosure alternative. At the same time, short sales are a much faster way of dealing with an inability or unwillingness to pay the mortgage in underwater homes. Short sales help to clear the vast inventory of underwater property which has been clogging the system for the past few years making it difficult for the real estate industry to recover.
It’s no secret that half the county’s credit has been trashed during the Great Recession. Due to short sales, foreclosures, bankruptcies, job loss and assorted maladies, a significant chunk of the population can no longer qualify for a mortgage loan. Add, too, the new, much more stringent, underwriting guidelines adopted by lenders in the wake of their irresponsible behavior during the “bubble” years and that creates a huge problem for many, many would-be home buyers and investors.
What to do? One thing buyers can do is search out seller-financed properties, though often such sellers, too, will check out the credit report and be unhappy with the result. Another, lesser-known, option is to assume an existing loan, saving thousands of dollars in closing costs to boot. Now, this, too, has its own problems since most fixed-rate loans of the past 10 or so years have a “non-assumable” clause. This means that if the property title is transferred, the new owner cannot take over the old mortgage. Most loans have a “due-on-sale clause”, meaning the lender can call in the entire amount of the loan in the event of a title transfer. Even the “assumable” loans usually require that the buyer qualify.
Is there a work-around? Thankfully, in some cases, but certainly not all, it may be possible to assume a non-assumable loan. Here are some of the scenarios where that may just work.
You know the picture–rose-covered cottage, while picket fence, yard for frolicking dog and kids. Is this still what we want? More and more polls and surveys are saying-No, we’d rather rent. Does that mean for now or permanently? This is the question for which not only the public, but every segment of the real estate industry craves an answer.
Notice how this one is a double-edged sword, of course, just like many of the reasons for owning a home. Raising flowers or vegetables is a lot of back-breaking work. You have to try it to find out how satisfying it is. Training a dog takes time and attention. Caring for animals costs money and takes time. Most of us find the rewards are worth it kind of like raising kids. Often, the work involved in owning a home is as back-breaking as gardening. You have to want it. Apparently, we still do as 7 out of 10 renters say they are looking forward to buying a house someday.