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Lenders Pulling 2nd Credit Report on Buyers

by Connie Erickson
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Under Fannie Mae's new Loan Quality Initiative (LQI) that went into effect on June 1, 2010, lenders are pulling a second credit report on the buyer right before closing to verify that the buyer's credit status has not changed and that all debts were disclosed. In other words, the buyer is not officially approved for the mortgage until the second credit report is approved. The lender may also re-verify job status and check other sources to make sure there are no undisclosed debts.

Other lenders also have been known to pull second credit reports right before the closing, but the Fannie Mae LQI will likely cause many more lenders to conduct last-minute verifications.

What this means for buyers is that they are well advised to not make any major purchases or apply for new credit until after closing. For instance, applying for a new credit card may lower a buyer's credit score. Under the LQI, the lender could delay the closing, increase the interest rate or the down payment, or even cancel the closing, depending upon the actual change.

"It seems everywhere is requiring credit checks nowadays. Credit inquiries, although not a serious hit, still can reduce a credit score. I was setting up my utilities before closing, and each one of them requested a social security number and credit check to get utilities set-up. I refused to have them check my credit, and instead paid the cash deposit for setting up a new account. I get the deposit back in 4-6 months, and it prevented any dings to my credit before closing." -Scott MacCallum (recent home buyer)

Incredibly Low Interest Rates

by Connie Erickson
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Jodi Kaye, a lender in Door County says she has money available at 3.99% for a 15 year and 4.55% on a 30 year loan.



If that rate increases 1%, you will pay 10% more for the property you buy. The time to buy is NOW, call me or email me to discuss.

Real Estate Provisions in 2010 Tax Relief Bill

by Connie Erickson

The following information was recently published in an article by the National Association of REALTORS:

Congress has passed and President Obama has signed legislation (HR 4853) that extends the Bush-era tax rates and a host of other expired and expiring provisions. The legislation is not "paid for," so there are no revenue raisers taken from real estate or other industry groups. The package provides temporary extensions of its numerous provisions. Some are retroactive, as well, so that the rules that had been in place previously will operate as if they had never expired.

Only the provisions that affect real estate investment and operations are included in this summary. The bill itself is vast, even though there are few expansions or cutbacks of previous or current law.

Capital Gains: The tax rate will remain 15% for assets sold or disposed of during 2011 and 2012. Depreciation recapture tax rates remain 25%. No new limitations are created for Section 1031 like-kind exchanges. The 15% rate is retained for dividends received during those years. Small investors with incomes in either the 10% or 15% brackets will have a capital gains and dividend tax rate of 0%.

Estate Tax: During 2010, the estate tax was repealed, but heirs who received assets from an estate were required to use a so-called "carryover basis" in determining the value of the assets they receive. Carryover basis is the amount that the original owner of the asset paid for it. Prior to 2010, the heirs had always received the asset with a "stepped-up basis." Carryover basis requires heirs to know when the decedent acquired his/her assets and at what price. Stepped-up basis measures the value of the asset at its fair market value at the time of the death. Carryover basis is astonishingly burdensome. "Basis" is the value used to determine gain/loss when the heir sells an inherited asset.

In 2009, the estate tax was in place with an exclusion of $3.5 million and a maximum tax rate of 45%. In 2010, there was no estate tax. Without Congressional action, the estate tax would have been revived in 2011 with an exclusion of only $1 million and a maximum rate of 55%. This legislation revives the estate tax as of January 1, 2010, with an exclusion of $5 million ($10 million for a couple) and a maximum rate of 35%. The executors and heirs of those who died during 2010 may elect to pay no estate tax, but the assets will be subject to the more burdensome carryover basis rules. That election will not be available for those who die after 2010. The $5 million exclusion and 35% rate will be effective through December 31, 2012.

Leasehold Improvements: The legislation renews the 15-year cost recovery period for leasehold improvements made between January 1, 2010 and December 31, 2011.

Bonus Depreciation:Assets with a cost recovery period of 20 years or less are eligible for 100% depreciation (expensing) in the year the assets is placed in service. This rule applies to all assets placed in service on or after September 8, 2010 and before January 1, 2012. Eligible assets placed in service during 2010 will qualify for a 50% bonus depreciation allowance.

Energy-efficient Existing Homes: The tax credit for homeowners who make specified energy-related improvements to existing homes was scheduled to expire December 31, 2010. It has been extended through December 31, 2011. The qualified investments include replacement windows, doors, or skylights, some roofing materials and some heating and cooling equipment. The amounts of the credit vary depending on the asset and its energy rating as determined by the Energy Star program. The standards for qualified property are tougher than they were in 2010, so homeowners will need to exercise great care in their acquisitions. The credit is available only for improvements to a principal residence and only if the improvement is original to the property and only if the property will last for at least 5 years. The credit is not available if the improvement is financed using any form of subsidized energy program.

Energy-efficient Buildings: Owners of commercial buildings may qualify for tax credits for investments in designated insulation, windows and roofing improvements. Improvements to the heating/air conditioning systems, water heaters and air circulation fans may also be eligible for the credit. As with the home improvement credits, these credits require compliance with a variety of energy efficiency standards. Investors should exercise great care in determining what assets will satisfy the given criteria. The improvements must be in place on or before December 31, 2011.

See: REAL ESTATE PROVISIONS IN THE 2010 TAX RELIEF BILL for a complete summary posted by the National Association of REALTORS.

 

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Photo of Connie Erickson Real Estate
Connie Erickson
Door County Realty, Inc.
Po Box 340 - 4027 Main Street
Fish Creek WI 54212
Office: 920-868-2075
Toll Free: 888-678-3949
Fax: 920-868-2425

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