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The first-time homebuyer tax credit no longer exists – at least, not in its original form. The tax credit was part of a stimulus package designed to jump-start the US housing market in 2008. In 2008, f…
Answer by: @marycass
The first-time homebuyer tax credit no longer exists – at least, not in its original form. The tax credit was part of a stimulus package designed to jump-start the US housing market in 2008. In…
Answer by: @marycass
In general, transferring a mortgage is difficult.If you have an assumable mortgage, the new borrower would be able to pay a flat fee to assume the existing mortgage and all debt. Most government-backed loans, such as VA or FHA loans, are usually assumable. However, most other loans will not be assumable.
Transferring a loan is advantageous for the buyer, but not for the lender. A buyer could assume an older loan with much lower interest rates than the market currently offers. The buyer also usually avoids paying the closing costs usually associated with taking out a new loan on a property. Both of these are good reasons why many buyers want to assume old loans, but why many lenders are opposed to it.
For this reason, many loans include a “due on sale” clause. This means that if ownership of the property is transferred for any reason, the entire balance of the loan will be due immediately. You would need to repay the original mortgage in full, and the new buyer would then have to take out a new mortgage on the property.
However, it is possible to transfer a mortgage to an immediate family member without activating the due-on-sale clause. If you wish to transfer a non-assumable loan, your first step should be to contact your current lender. If the new trustee’s income and credit levels are equal to or better than yours, your lender will probably be inclined to help you transfer the mortgage. You may be able to transfer your interest in the property through a quitclaim deed, where you relinquish all ownership of the property to someone else.
Your lender may also agree to add another name to the mortgage. In this case, someone else would be able to legally make payments on the mortgage. However, your name will still be on the mortgage, and you will still be held responsible if for any reason payments cease on the loan.
If there is no legal way to transfer your mortgage to a family member, it may be tempting to set up an unofficial work-around, where another person pays the mortgage while your name is still on the loan. Be careful, as this is illegal under the terms of most mortgage contracts! In addition, you will still be the one held financially responsible should the family member cease making payments.
Under the terms of a reverse mortgage, the loan must be repaid when the property is no longer the recipient’s primary residence. What happens to the reverse mortgage will depend on whether or not you stay in the house. If you turn the property over to the lender during bankruptcy, they will use it to recover as much of the loan (and any previously existing mortgage debt) as possible. Reverse mortgages are non-recourse loans, which means the lender does not have the right to go after your other assets for repayment other than what was pledged on the loan (in this case, the home).
Before filing for bankruptcy, take stock of how much equity you currently own in your home, as it will have been lowered by the reverse mortgage payments. Under Chapter 7 bankruptcy laws, you can exempt a certain portion of the equity in your home. If the equity in your home is lower than your state’s exemption value, you will be able to stay in the property. However, the reverse mortgage will remain in place, must still be paid off down the line when you do cease living in the property.
Keep in mind that if you do file bankruptcy, you will not be able to access any further reverse mortgage payments during the proceedings. If you are reliant on these payments, this is something to consider seriously before filing.
A mortgage company does not automatically have the right to garnish your wages in a foreclosure, but it is possible.
In a mortgage, the only collateral pledged to the loan is the real estate. Before anything else happens, the mortgage company will take and sell the house, and use that profit to recoup as much of the loan as possible. If the sale of the property doesn’t fully cover what you owe, some states give mortgage companies the opportunity to recoup their losses. These states are called recourse states, and although the means by which they may seek repayment varies from state to state, they almost all include garnishing up to 25% of your wages.
Before it can garnish any wages, however, a company must first sue successfully for deficiency judgment. No action is allowed until a judge awards the mortgage company the right to collect on their debt. Fortunately, not all companies will pursue judgment because of the costs associated with the lawsuit.
However, wage garnishment does happen. And in some non-recourse states, it may only be the first mortgage where the lender is not allowed to pursue judgment. If you have a second or third mortgage, that lender may still be able to sue for the right to garnish wages.
Although unlikely, wage garnishment is a possibility for homeowners facing foreclosure. Check your state laws and regulations, as well as the terms of your mortgage agreement, to see where you stand.
Refinancing a second mortgage tends to be more difficult than a regular refinance. This is primarily because a second mortgage carries more risk for the lender - if for any reason the house is sold or foreclosed, the second lender only gets what’s left over after paying off the first mortgage. As a result, the market for second mortgage lenders is smaller than for first mortgages, and offers fewer options.
But if your credit is good, your income is stable, and your payments have been consistent, you should be able to find refinance options for a second mortgage. As with any mortgage, make sure to shop around to compare interest rates. You should also talk to your current lender, who may be able to offer you refinancing options. This will allow you to save on fees and certain closing costs that are incurred with a refinance. Your current lender may not offer you the best rate, however, so make sure to compare your options!
If the interest rates on your first mortgage are also significantly higher than current rates, it might be in your interest to refinance your first and second mortgage into one lump payment. If you own a significant portion of the equity in your home, you might also consider using a line of credit (HELOC) with a low interest rate to pay off the second mortgage, rather than refinancing.
A 5-year ARM (also referred to as a 5/1 ARM) is a certain kind of ARM. An ARM, which stands for adjustable-rate mortgage, is a type of mortgage where the interest rate fluctuates with a given index (such as the LIBOR or CD indices). This differs from a fixed-rate mortgage, where the interest rate stays constant over the life of a mortgage.
Most ARMs offer an introductory period with a fixed interest rate. After the introduction rate expires, the interest rate will be reset after a certain period of time. A 5/1 ARM means that the loan will have a fixed interest rate for the first 5 years of payments. After that, the interest rate will be reset once a year. Similar ARMs include a 3/1 or a 7/1 ARM, which would have a fixed rate of interest for the first 3 or 7 years and reset annually thereafter.
You may notice that the introductory rate for ARMs is lower than the interest rates on most fixed rate mortgages. This is because there is more risk involved in an ARM. If the index has risen after the introductory period is up, your interest rate will rise as well (and may continue rising over the life of the loan).
Because of the uncertainty involved with an ARM, most buyers will look for a fixed-rate mortgage, unless they only plan to live in the property for a few years. In this case, an ARM can actually be advantageous for the buyer, who can take advantage of the low interest rate for the first several years and resell or refinance before the rate changes.
Other numbers to consider when looking at an ARM: the margin, which is the amount added to the index to calculate your interest rate, and payment caps, to protect against rising rates (some loans offer one, some do not).
It’s a smart to want to take advantage of a credit card rewards program in this way, but since the housing bubble burst it has become nearly impossible to pay mortgage payments with a credit card. Several card companies used to offer this to members – American Express, for example, had the option for a one-time fee of $395. However, even when the option was available, the transaction fees usually ate into a significant portion of most card's rewards.
Today, although some individual lenders have a contract with a credit card company that allows borrowers to make payments with a credit card, most do not. This is for two reasons. One, the credit card company will charge the lender a transaction fee. (To counteract this fee, lenders who do accept credit card payments often charge a convenience fee). Two, it is risky for a lender to accept credit card payments. Even if a buyer has a history of good credit, they are still essentially paying off a loan with a line of credit.
One way to get around this restriction by making payments through a third-party service, such as PayPal or ChargeSmart. You make payments from your credit card to the online service, the online service pays the lender, and you still get the rewards. However, online transaction services usually take a small percentage of the payment as a processing fee (PayPal’s is 3%). For most cards, this cancels out any benefits of the reward program.
Other options include paying from cash advances or credit card checks, but these do not earn rewards under the terms of most programs. In addition, putting a large monthly payment on your credit card will increase your balance significantly, which can negatively affect your credit score – even if you pay it off in full every time.
Unfortunately, transfer taxes are not tax deductible. Transfer taxes are fees imposed to legally transfer a real estate title, and they vary by state. Often, the seller will pay the tax; however, the tax is not deductible for either the buyer or the seller. (One exception: while transfer taxes cannot be deducted on the sale of personal property, they can be deducted as a work expense if the property is used as a rental home or a real-estate investment).
Transfer taxes can save you money on tax returns down the line, however. Transfer taxes become part of the cost basis of the property, which is used to calculate the final gain on sale if the property is sold. Raising the cost basis of the home decreases the total gain on sale, which decreases the total taxes you pay on the gain.
For example: let’s say you bought a house for $250k, and sold the same property for $520k. Your gain on sale is $270k. If you are filing alone, you must pay taxes on any gains over $250k ($500k for married couples filing jointly). This means you would pay taxes on the remaining $20,000. However, if you spent $8,000 in transfer taxes, these are added to the house’s original property value. This brings your taxable gain down to $12,000.
Other costs that can be added to your cost basis include fees such as title insurance, and improvements that increase the property's value, such as building additions, paving driveways, or installing new plumbing.
VA loans operate similarly to private mortgages. The interest rate you qualify for will depend on the same factors (income, debt, and credit score), and most private mortgage lenders offer VA loans. However, because the government guarantees a portion of the loan, the lender is able to offer a few advantages for qualified buyers. To qualify for a VA loan, you must be a current or former service member, National Guard or Reserve member with an honorable discharge. The loan is also available to spouses of veterans who died on duty or as a result of military service.
Advantages to a VA loan
VA loans generally offer long terms and competitive interest rates. VA loans also limit debt-to-income ratio at 41%, which is higher than most conventional mortgages. This means borrowers with more debt may still qualify for lower interest rates. VA loans also do not require a down payment (usually 10-20% of the value of the house). Because the loan is government backed, the buyer is not required to pay private mortgage insurance - usually required with low down payments. Furthermore, VA loans limit the amount of closing costs a buyer pays.
In addition to upfront savings, VA loans offer several advantages in the long run. The government offers qualified VA loan borrowers a loan modification program, if at any point the borrower has difficulties making repayments. VA loans also make it easier to refinance to a lower rate within the program. They also offer the buyer the right to pay the loan balance early without penalty. And finally, VA loans are assumable, which means they can be transferred directly from seller to buyer (as long as both are VA qualified). If interest rates have risen since the seller took out the original mortgage, you will benefit from assuming the mortgage with lower interest rates.
One disadvantage to VA loans is that most charge a funding fee, which is typically around 2% of the loan. In addition, because VA loans are sold in a secondary market, most loans are limited to $417k. If you were looking to purchase a home above this limit, you would have to seek a conventional mortgage.
The Bottom Line
As always, remember to shop around and compare offers from several different lenders. It is not a bad idea to include some conventional mortgages in your comparisons as well - although VA loans offer many advantages, you may still find a better deal elsewhere. For qualified borrowers, a VA loan is a very good option, but not the only option.
If done carefully, a refinance can help you avoid a foreclosure. To lower your monthly payments to a more affordable level, you would need either a mortgage with a longer term, or a mortgage with a lower interest rate. In this position, there are a few steps that you should take to optimize your search.
The terms of a refinanced mortgage depend on the same factors as any other type of mortgage - your credit score, income, and any existing debt. The earlier you can act, the more options will be available. You will likely qualify for much lower rates before your credit score has taken a hit, and if you can still demonstrate the ability to make monthly payments.
Start With Your Current Lender
Your lender may agree to suspend payments for a “forbearance” period until you can begin making payments again, if your financial problems are short-term. If not, they may be able to offer you refinancing options - for example, if your interest rate is significantly higher than current market rates, the lender may be willing to renegotiate. The benefit of working with your current lender is that you usually can avoid certain fees at closing costs that were included with the first mortgage – title search, property appraisal, etc. It also may be in your lender’s interest to negotiate, especially if it means they will continue to receive payments.
Although refinancing your mortgage can be one way to avoid a foreclosure, it is not the only way. Depending on your circumstances, you may qualify for loan assistance programs – if still employed, for example, you may be eligible for the federal Home Affordable Modification Program. Federally-backed loans like VA loans and FHA loans offer their own programs. As a last resort, you might consider filing for Chapter 13 bankruptcy. This would require you to restructure certain debts and make monthly payments, but would allow you to stay in the property.
In a worst-case scenario, yes. A HELOC (home equity line of credit) is essentially a loan that functions as a line of credit. The line is secured by the equity in the home. Because the home is the primary collateral for the loan, the lender has every right to foreclose on the home if payments cease.
However, many lenders will not force foreclose on a HELOC. This is because most HELOCs are actually second mortgages. In the case of foreclosure, the proceeds from the sale will go to the first mortgage in line – the original mortgage. The second mortgage (in this case, the HELOC) will only be repaid after the first mortgage has been paid back in full. Often, this means that the HELOC lender will see little to no money out of a foreclosure settlement.
Because they are so unlikely to receive much repayment from a foreclosure, your HELOC lender may be open to setting up a structured repayment plan. This is the best-case scenario, and you should contact your lender as soon as possible before you have to stop making payments. However, some lenders may try to purchase the original mortgage to force a foreclosure on both loans.
You should also be aware that most HELOC loans are recourse loans, which means that the lender has the right to seek repayment on the loan beyond the collateral that was secured on the loan. A lender must first win a deficiency judgment against you. This is a costly procedure that, again, not all lenders will elect to pursue. But if successful, the lender could be allowed to garnish your wages or take other action in the future.