Category Archives: Home

What Is A VA Loan?

The VA Loan became known in 1944 through the original Servicemen’s Readjustment Act also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. The GI Bill contributed more than any other program in history to the welfare of veterans and their families, and to the growth of the nation’s economy.With more than 25.5 million veterans and service personnel eligible for VA financing, this loan is attractive and has many advantages. Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain criteria and there are specific rules concerning the eligibility of surviving spouses.

VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

How do I figure the tax on the sale of my home?

Answer:

It depends on several factors, including whether the home is your principal residence or takes some other form (such as a vacation home or investment property). If you owned and used the home as your principal residence for a total of two out of the five years before the sale (the two years do not have to be consecutive), you may be able to exclude from federal income tax up to $250,000 (up to $500,000 if you’re married and file a joint return) of the capital gain on the sale of your home. You can use this exclusion only once every two years, and this exclusion does not apply to vacation homes and pure investment properties.

For example, Mr. and Mrs. Jones bought a home 20 years ago for $80,000. They have used it as their principal home ever since. This year, they sell the house for $765,000, realizing a capital gain of $613,000 ($765,000 selling price minus a $42,000 broker’s fee, minus the original $80,000 purchase price, minus $30,000 worth of capital improvements they’ve made over the years). The Joneses, who file jointly and are in the 28 percent marginal tax bracket, can exclude $500,000 of capital gain realized on the sale of their home. Thus, their tax on the sale is only $16,950 ($613,000 gain minus the $500,000 exemption multiplied by the 15 percent long-term capital gains tax rate).

What if you fail to meet the two-out-of-five-years requirement? Or what if you used the capital gain exclusion within the past two years with respect to a different principal residence? You may still qualify for a partial exemption, assuming that your home sale was due to a change in place of employment, health reasons, or certain other unforeseen circumstances.

You should also be aware that special rules might apply in the following cases:

  • If you sell vacant land adjacent to your principal residence
  • If your principal residence is owned by a trust
  • If your principal residence contained a home office or was otherwise used partially for business purposes
  • If you rented part of your principal residence to tenants
  • If you owned your principal residence jointly with an unmarried taxpayer

Note: Members of the uniformed services and foreign service personnel may elect to suspend the running of the 2-out-of-5-year requirement during any period of qualified official extended duty up to a maximum of 10 years.

Consult a tax professional for more details.

Need more information? Send me an email!

Ellen

Am I Covered?

Here’s a great article about Homeowners’ Insurance by Mary Snider, CLU, CPCU, State Farm® agent:

Some of you may be asking yourself, “Does my insurance coverage fit my needs?” “Do I have enough coverage to replace my home in the event of a serious loss?” “What affects my premium?”

These questions create a need for you to regularly review your Homeowners Insurance and to consider other questions such as: “Have you recently remodeled or improved your home?” “Has the rate of inflation risen since your last appraisal?” “What influences the building construction costs in your area?”

As you consider these issues, it is important to understand that real estate values measure the market value or selling price for a home. For insurance purposes, it is important to estimate the current replacement cost which is the amount needed to hire a contractor to repair the damage or to rebuild the home to its pre-loss condition. Dwelling replacement costs used by insurance companies do not include the value of the land. Market conditions in your area may impact the amount it will cost to rebuild your home if you experience a loss.

Building contractors or professional replacement cost appraisers are a good source for obtaining an estimated replacement cost for your home. Estimates from these sources should reflect your home’s specific features and details. If you are unable to obtain a detailed estimate from these sources, I can help provide an estimate.

Once you know the estimated cost to replace your home, you can decide how much insurance coverage fits your needs. You should also consider other policy endorsements such as back up of sewer and drain coverage, or additional coverage for personal articles with high values such as jewelry, fine arts, and collectibles.

You may want to consider higher personal liability coverage or the need for Flood Insurance which is provided by a separate policy. In addition to the amount of coverage you decide to purchase, your premium is impacted by optional endorsements you select, your claim history, the amount of your deductible, company longevity and multiple policy discounts such as home/auto.

Finally, remember to periodically review your insurance coverage with your agent. That will ensure you have the coverage you need.

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If you have any questions, feel free to email me!

Ellen

Buying a Home! (Part 3)

Making the Offer

Once you find a house, you’ll want to make an offer. Most home sale offers and counteroffers are made through your realPhoto by Deb Duncan
estate agent. All terms and conditions of the offer, no matter how minute, should be put in writing to avoid future problems. Typically, your real estate agent will prepare an offer to purchase for you to sign. You’ll also include an earnest money deposit which shows the sellers that you are serious about buying their home. If the seller accepts the offer to purchase, he or she will sign the contract, which will then become a binding agreement between you and the seller. For this reason, it’s a good idea to work with a real estate agent that you can trust.

Check out our list of Referral Partners at my web site, Mortgage Link, to find realtors we recommend and trust.

Other Details

Once the seller has accepted your offer, you, your real estate agent, and I will get busy completing procedures and documents necessary to finalize the purchase. These include finalizing the mortgage loan, appraising the house, surveying the property, and getting homeowner’s insurance. Typically, you would have made your offer contingent upon the satisfactory completion of a home inspection, so now’s the time to get this done as well.

The Closing

The closing meeting, also known as a title closing or settlement, can take an hour to two hours to complete–but when it’s over, the house is yours! To make sure the closing goes smoothly, some or all of the following people should be present: the seller, the closing agent (a real estate attorney or the representative of a title company), and both your real estate agent and the seller’s. At the closing, you’ll be required to sign the following paperwork:

  • Promissory note: This spells out the amount and repayment terms of your mortgage loan.
  • Mortgage: This gives the lender a lien against the property.
  • Truth-in-lending disclosure: This tells you exactly how much you will pay over the life of your mortgage, including the total amount of interest you’ll pay.
  • HUD-1 settlement statement: This details the cash flows among the buyer, seller, lender, and other parties to the transaction. It also lists the amounts of all closing costs and who is responsible for paying these.

In addition, you’ll need to provide proof that you have insured the property. You’ll also be required to pay certain costs and fees associated with obtaining the mortgage and closing the real estate transaction. On average, these costs total between 4 and 5 percent of your mortgage amount in the Metro DC Area, so be sure to bring along your checkbook and driver’s license.

Thinking about buying a home or do you just want to know how much your current home is worth? Email me to request a CMA Report today.

Ellen

Today’s Vocabulary Lesson (and the last one!)

Title: Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.

Title Insurance Policy: A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.

Title Search: A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.

Transfer Tax: In some areas city, county or state taxes imposed when property passes from one person to another.

Truth-In-Lending: Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.

That’s it, that’s all I have. You are now one step closer to being a savvy mortgagor! For more mortgage information, go to my web site at Mortgage Link!

Ellen

Buying a Home! (Part 2)

Should You Use a Real Estate Agent?

A knowledgeable real estate agent or buyer’s broker can guide you through the process of buying a home and make the process much easier. This assistance can be especially helpful to a first-time home buyer. In particular, an agent or broker can:

  • Help you determine your housing needs
  • Show you properties and neighborhoods in your price range
  • Suggest sources and techniques for financing
  • Prepare and present an offer to purchase
  • Act as an intermediary in negotiations
  • Recommend professionals whose services you may need (e.g., title professionals, inspectors)
  • Provide insight into neighborhoods and market activity
  • Disclose positive and negative aspects of properties you’re considering

Keep in mind that if you enlist the services of an agent or broker, you’ll want to find out how he or she is being compensated (i.e., flat fee or commission based on a percentage of the sale price). Many states require the agent or broker to disclose this information to you up front and in writing.

Photo by Deb Duncan

Choosing the Right Home

Before you begin looking at houses, decide in advance the features that you want your home to have. Knowing what you want ahead of time will make the search for your dream home much easier. Here are some things to consider:

  • Price of home and potential for appreciation
  • Location or neighborhood
  • Quality of construction, age, and condition of the property
  • Style of home and lot size
  • Number of bedrooms and bathrooms
  • Quality of local schools
  • Crime level of the area
  • Property taxes
  • Proximity to shopping, schools, and work

Drop me a note for some expert advice on what to look for in a home and what you should avoid like the plague!

Ellen

Today’s Vocabulary Lesson

Second Mortgage: A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first.

Secondary Mortgage Market: The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.

Survey: A map prepared by an engineer or surveyor charting a particular piece of real estate.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Buying a Home! (Part 1)

(This is the first installment of another series of tips and advice on buying your own home.)

There’s no doubt about it–owning a home is an exciting prospect. After all, you’ve always dreamed of having a place that you could truly call your own. Buying a home, however, can be stressful, especially when you’re buying one for the first time. Fortunately, knowing what to expect can make it a lot easier.

How Much Can You Afford?

According to a general rule of thumb, you can afford a house that costs two and a half times your annual salary. But determining how much you can afford to spend on a house is not quite so simple. Since most people finance their homePhoto by Deb Duncan purchases, buying a house usually means getting a mortgage. The amount you can comfortably afford is often tied to figuring out how large a mortgage you can afford. To figure this out, you’ll need to take into account your gross monthly income, housing expenses, any long-term debt, and monthly expenses.

Mortgate Pre-Qualification vs. Pre-Approval

Pre-qualifying gives you the estimate of how much you can borrow and in many cases can be done over the phone. Pre-qualification does not guarantee that you have a loan, but it can give you a rough idea of where you stand.

If you’re really serious about buying, however, you’ll probably want to get pre-approved for a loan. Pre-approval is when we verify your income, your assets and perform a credit check. This process lets you know exactly how much you can borrow. This involves completing an application, revealing your financial information, and working together to decide how much money you want to spend on a monthly basis.

It’s important to note that the mortgage you qualify for or are approved for is not always what you can actually afford. Before signing any loan paperwork, take an honest look at your lifestyle, standard of living, and spending habits to make sure that your mortgage payment won’t be beyond your means. This is one of the many reasons why we take the time with you to work on customizing your mortgage to fit your needs and monthly budget.

To find out how you can pre-qualify or get pre-approved for a loan, just e-mail me and I’ll help you get started.

Ellen

Today’s Vocabulary Lesson

Qualifying Ratios: Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).

Real Estate Settlement Statement: Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.

Realtor: A real estate broker or sales associate affiliated with the National Association of Realtors.

Recording Fee: The charges made by the register of deeds to record the legal documents.

Refinancing: Repaying a debt with the proceeds of a new loan, using the same property as collateral.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

PITI: An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.

Plat: A map of a piece of land showing boundary lines, streets, actual measurements and easements.

Point: A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.

Prepayment Penalty: A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.

Pre-Approval: A commitment by a lender to extend credit provided that specific conditions are met.

Pre-Qualification: A preliminary assessment of a buyer’s ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.

Prime Rate: The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.

Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

PMI (Private Mortgage Insurance): Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen