Self Employed? The Mortgage Rule you Need to Know

On January 26, 2014   /   Real Estate News  
Tags:
mortgage documents

By: Credit.com

When applying for a mortgage, lenders will classify you as a wage earner employee or self-employed. Furthermore, if you also own a business or a percentage of a business, you might be considered self-employed even though you are a W-2 wage earner. If this is you, here’s what you’ll need to know to complete a mortgage application.

To start with, here are the income classifications for lending:

  • Employee: Individual is a W-2 wage earner and receives a paycheck. Taxes are withheld from the paycheck.
  • Self-employed: This includes everything else — a sole proprietorship, any business entity where income is derived or lost (including all affiliated corporations), and income derived from real estate or dividend income.

Where the Two Worlds Intersect

Bona fide employees who also have an ownership interest in the company can actually be considered self-employed. For example, if you’re a W-2 wage earner employee and you also have more than a 25 percent ownership interest in the company that employs you, this would earmark you as ‘self-employed for the purposes of completing a mortgage application. If you happen to be a W-2 wage earner, but you have a percentage of ownership in another business, you would be considered both an employee and self-employed.

Business Ownership and Getting a Home Loan

Your federal income tax returns are required for the purposes of documenting your ability to repay when securing a new mortgage. On your tax returns, as a sole proprietor you file a Schedule C, and this income carries over to Schedule A. Most sole proprietors don’t have separate business entities, so corporate returns are not required as it is 100 percent ownership. However, things are different when you have an ownership interest in a company.

  1. Schedule E identifies whether there is additional business income and/or that you are an owner in an additional business.
  2. If an additional business is present on the return, the mortgage lender will require a K-1 to determine the percentage of ownership.

Mortgage Tip: If you own 24 percent of a business, you are not considered self-employed for the purposes of the loan application, and the lender will not need to obtain the corporate income tax returns. However, if you own 25 percent or more of a business — whether it’s your current employer or another business entity, as identified on the K-1 — then, yes, you’ll need to provide additional income tax returns for the entity in addition to your personal tax returns for obtaining the mortgage.

Why All Income Examination Matters

An ability-to-repay analysis is required on all mortgage loans. Simply providing W-2s, pay stubs and personal tax returns is not enough if you have more than a 25 percent business ownership interest in another company. If you’re receiving additional income from another business, and that income is tied to your personal tax returns necessary for securing that mortgage, it becomes necessary for the lender to have the additional tax returns because they support your reported income and subsequent ability to repay. Lenders are required to average your income in most cases during the past 24 months (including the business income) and that averaged income or loss will be used on the application in accordance with obtaining the new mortgage.

A financial word to the wise for the self-employed: You don’t need to provide the additional tax returns if you are a small minority share owner in a company.

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What Comes After You’ve Bought a Home

On January 5, 2014   /   Real Estate News  
Tags: , , , , , ,
moving in your home

By: Realtor.com

You’ve done it. You’ve looked at properties, made an offer, obtained financing and gone to closing. The home is yours. Is there any more to the home buying process? Whether you’re a first-time buyer or a repeat buyer, you’ll want to take several more steps.

Those papers you received at settlement are extremely valuable, so hold on to them! In the short-term they can help establish tax deductions for the year in which the property was purchased. In the future such papers will be important for tax purposes when the property is sold, and in some cases, for calculating estate taxes.

Also at closing, determine the status of the utilities required by the home, items such as water, sewage, gas, electric and oil service. You want utility bills to be paid in full by owners as of closing, and you also want services transferred to your name for billing. Usually such transfers can be done without turning off utilities. REALTORS® can provide contact numbers and related information.

About two weeks after closing, contact your local property records office and confirm that your deed has been officially recorded. Such records are public notices that show your interest in the property.

Moving In

It is generally understood that sellers will leave homes “broom clean” when moving out. This expression does not mean “vacuumed” or “spotless.” Broom clean makes sense because it means the house is ready to be painted and cleaned.

Your Home, Your Money

For most owners a home is the largest single asset they hold, so it makes sense to protect that asset.

Many owners make a photo or video record of the home and their possessions for insurance purposes and then keep the records in a safety deposit box. Your insurance provider can recommend what to photograph and how to secure it.

You want to maintain fire, theft and liability insurance. As the value of your property increases such coverage should also rise. Again, speak with your insurance professional for details.

Lastly, enjoy your home. Owning real estate involves contracts, loans, and taxes, but ultimately what’s most important is that home ownership should be a wonderful experience. Enjoy!

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As home prices and interest rates rise, more home sales are cash deals

On December 22, 2013   /   Interest Rates, Real Estate News  
Tags: ,

Paul Hagey Staff Writer: Inman News

The proportion of all-cash home sales has doubled since May, making up 42 percent of all deals done in November, RealtyTrac reports — the largest proportion of cash sales since the data aggregator began tracking the stat nearly three years ago.

RealtyTrac had previously reported that cash deals made up 45 percent of sales registered in August, but the firm has since revised that tally down, citing a revision it made to methodology.

tableRegardless, the data — and the raw numbers behind it — does not indicate a greater raw number of investors, RealtyTrac Vice President Daren Blomquist told Inman News. What it shows is that rising home prices and rising mortgage rates have diminished the pool of buyers using a loan to buy a home.

The number of homes purchased with a mortgage fell 40 percent from October to November, to 135,154 — the lowest monthly total of financed home sales in the three years RealtyTrac’s been keeping the data. The raw number of all-cash deals in November was also down 31.2 percent from October, to 98,030.

The number of homes purchased with a loan has dropped steadily each month since May, when rates began to ratchet up. Mortgaged home sales totaled 360,227 in May, shrinking in June (338,650), July (317,002), August (288,094), September (250,026), October (225,076) and November (135,154).

Yesterday, the National Association of Realtors reported that all-cash deals made up 32 percent of existing-home sales, up from 31 percent in October. However, that number is likely not as accurate as it could be because of methodology issues that are being addressed, NAR spokesman Walt Maloney told Inman News in August.

RealtyTrac’s tally show a much lower percentage of cash deals than a Goldman Sachs Group report earlier this year that showed more than half of all the transactions in the 18 months between January 2012 and June 2013 were completed with nothing but cash.

The RealtyTrac report also revealed that institutional investors snatched up 7.7 percent of all the residential homes sold in November.

The methodology change that led to the revision of RealtyTrac’s previously reported all-cash sales data produces a more accurate portrayal of what’s actually happening on the ground with such deals, Blomquist told Inman News.

The firm calculates the percentage of all-cash deals in a month by comparing the records of home sales from deeds filed at county courts throughout the U.S. to loan data it has in the same areas. After discovering that it actually did not have loan data in a few locations where it mistakenly thought it had the data, RealtyTrac revised the methodology, Blomquist said.

For example, in addition to August’s downward revision, in October, RealtyTrac had all-cash deals making up 49 percent of September’s transaction total, which now stands at 37 percent.

 

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Ways to Make a Cross-Country Move Feel Like Moving Across Town

On December 15, 2013   /   Moving, Real Estate News  
Tags: , , ,

Realtor.com: Ann Miller

A new job. A bad romance. Because it’s there. . . . . The reasons for moving across the country vary as much as the people who do it. Whatever your reason, there’s usually a lot of stuff that needs to make the journey with you. Moving long distance can be logistically daunting, not to mention expensive.

We’ve rounded up some tips to help you haul your goods from Point A to Point B.

Ditch as Much as Possible

Will those Ikea shelves survive the journey? Do you really need clothes you haven’t worn in three years? A long move can be a good reason to finally clear out all the clutter you’ve accumulated. Be picky, more than you would for a local move. Plus, what works in your current home may not fit or look right in your new place. If you have the time and patience, hold a garage sale to sell all the items you don’t need, or post them on Craigslist. Save the cash you earn for buying new furnishings for your new place.

Inventory What’s Left

Staying organized wards off so many potential headaches. You’ll have a better idea of how many boxes to get, what size you’ll need (for moving yourself, or for hiring movers), and you’ll be able to easily pinpoint anything missing when you unpack at your destination.

Set Your Budget

Some estimates suggest a modest cross-country move will cost around $8,000. Movers might offer a discount during the off-season, October through April — it’s worth asking. There are other ways to cut costs. You can pack yourself, hire movers just for the heavy lifting, or go fully DIY with generous friends and pizza. If you’re moving for a new job, your employer might help cover the costs. If not, some of those costs may be tax-deductible.

Research Alternatives

It might be worthwhile to ship goods via airline or Greyhound. Those baggage fees you loathe when going on vacation can seem pretty reasonable when compared to the cost of hauling boxes by land. One woman shipped seven boxes on Southwest Airlines, including shuttles to and from the airport, for $310 — almost $300 cheaper than the U.S. Postal Service. Greyhound Package Xpress will carry larger pieces on buses for lower fees, but beware — while some customers rave about the service, there are stories of lost goods never reclaimed.

Pack Tightly

Movers and shippers charge by box, not weight. So it behooves you to put as many items as possible in one container. You’ll still need to be careful with your valuables, of course.

Have Fun

Try to build in some extra time and pick a route that includes a few places you’ve always wanted to see, or revisit. If you’re driving, state and national parks are good options for scenery and the chance to stretch your legs. If you’re flying, see if you can snag a long layover and treat yourself to some time in a new city.

Give It Time

You took your inventory, set your budget, packed your goods, and planned a route. But pets, children, the weather, road work if you’re driving, or flight delays if you’re flying, are just a few of the things that could hamper your plans. The longer the distance and the more parts to your move, the more opportunity for delays. Build in plenty of extra time, and some extra cash, so bumps along the way don’t derail you.

Bonus

If everything goes smoothly, you’ll have extra time to relax and unpack at your destination, and maybe pamper yourself a little. You deserve it — long-distance moves are tough.

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How to Market Your Home for Maximum Exposure

On November 10, 2013   /   Lake Martin Real Estate, Real Estate News  
Tags: , ,

By: Michele Lerner at Realtor.com

Once you’ve made the commitment to sell your home, chosen a Realtor to represent you, and established a list price, it’s time to work with your Realtor to market your property so it sells as quickly as possible. Your Realtor should share a marketing plan with you, but the more you know about the process of selling your home the easier it is to support your Realtor’s efforts.

Pre- Market Tips

The day your home goes on the market it should be in prime condition and priced right to attract the most potential buyers. While your Realtor can help you determine an appropriate price and can offer suggestions to make your home more appealing, your job is to put in the work to get your home pristine clean and to remove clutter and personalization. Buyers want to see a home where they can visualize themselves living. If buyers see an overstuffed closet, they’ll assume the home lacks storage space; and if your kitchen counters are cluttered, they’ll think the space is too small.

Provide your Realtor with tips about what you love best about your home and community that can be incorporated into your marketing materials.

Your Realtor can advise you on what you need to repair before putting your home on the market. You can also visit other homes that are for sale, or even local model homes for ideas on ways to present your home to potential buyers.

What to Expect From Your Realtor

Many Realtors have experience staging homes, or they can bring in a stager to rearrange your place. In addition, your Realtor should market your home in multiple ways:

  • Research the market to identify potential buyers to target for direct mail,
  • Reach out to other real estate brokers and agents who work with buyers in your price range,
  • Take excellent photos or hire a professional photographer to showcase your home online with attractive pictures,
  • List your home on the local MLS (Multiple Listing Service) and make sure it receives maximum exposure on multiple websites,
  • Take a video of your home or produce a virtual tour with numerous photos so your home can be viewed in-depth by buyers looking online.

Once buyers begin visiting your home or contacting your Realtor, your agent should respond as quickly as possible to keep the momentum going. Every visitor to your home or their agent should be contacted by your Realtor to get feedback on your home and to gauge their interest.

What Your Realtor Should Expect From You

While your Realtor does the heavy lifting when it comes to marketing, as a seller you need to support your Realtor in several ways:

  • Keep your home as clean, neat and odor-free as possible while your home is on the market. This may mean that you have to give up cooking your favorite liver-and-onions dish and that you have to bribe your kids to make their beds and take out the trash every day.
  • Make your home as available as possible to buyers, no matter how inconvenient it is for you and your family. Your home won’t sell if no one can see it.
  • Leave the house when buyers are there, since studies show that buyers will linger and look more carefully when the homeowners aren’t there.
  • Lock up your pets or take them away when buyers are visiting, especially during an open house when multiple visitors are expected.
  • Provide information to buyers about community amenities or neighborhood sports leagues so they can appreciate your home’s location.

If you and your Realtor develop a team approach to selling, you’ll benefit from a quicker and more pleasant real estate transaction.

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