Knowing what you owe, before you owe

In the wake of the economic collapse in 2010, the Dodd-Frank reform law was passed by U.S. legislators to tighten lending standards and make mortgage details more transparent to borrowers. Before the collapse, some lenders extended offers that were not truly feasible, and verbiage in the closing documents was often confusing to borrowers, causing them to gloss over important details.

By August 2015, however, the documents should be shorter, simpler and easier to understand. At least that is the hope of the Consumer Financial Protection Bureau, which is implementing the new, streamlined disclosure forms to erase some of that existing confusion.

Do you know and understand all of the mortgage term details agreed upon in your loan? If any information in the federal, state or lender disclosures is unclear or ambiguous to you, be sure to ask your loan originator or processor to clarify. Our goal is always to make the process as simple and pain-free as possible for you, the borrower, while complying with federal guidelines. Any way we can help you better understand your mortgage is our responsibility to you.

For more information on the new disclosure forms, read here. http://www.latimes.com/business/la-fi-new-mortgage-forms-20131120,0,5291252.story#axzz2lDx1ayf9

October jobs report better than expected. What does that mean for mortgages?

Numbers of U.S. jobs created in the past year - figures from the Bureau of Labor Statistics.

An important economic report was released on Friday that had an immediate impact on mortgage interest rates. The U.S. jobs report for October revealed that employers added 204,000 new jobs, well above the 100,000 expected. In addition, the number of job creations for August and September was revised higher by 60,000. The unemployment rate ticked up to 7.3 percent from 7.2 percent and was in line with estimates. The Labor Force Participation Rate (LFPR), a measure of how many people are looking for work, fell to 62.8 from 63.2 and remains at 35-year lows. It's important to note that in a recovery, the LFPR should be moving higher, not lower. Overall this was a good report for the U.S. economy but moved interest rates higher because an improving jobs market can lead to inflationary pressures and signal the end to the Federal Reserve's quantitative easing program.

The Fed's current quantitative easing program continues to help keep home loan rates attractive. The Fed has been purchasing $85 billion in bonds and treasuries each month to stimulate the economy and housing market. The Fed has said that its decision regarding when to taper these purchases will be dependent on economic data. If economic data in the coming weeks is strong, like the jobs report was, the Fed could discuss tapering its purchases in its December meeting of the Federal Open Market Committee. This could have a big impact on home loan rates heading into 2014.

Yet home loan rates remain attractive compared to historical levels and now remains a great time to consider a home purchase or refinance. And perhaps now is the perfect opportunity before interest rates move to higher levels. 

All economic news released last week was not rosy. Consumer spending - the main driver of the U.S. economy - fell to 1.5 percent, the slowest rate in three years. This is one reason the strong jobs report was significant: If consumers aren't confident about their jobs or are out of work or underemployed, spending will continue to be soft. That would not a good sign for the U.S. economy moving forward but may ensure a longer period of low mortgage interest rates.

Go long or short? Either way, don't go for broke

In other words, choosing between a 30-year or 15-year mortgage

 

Peyton Manning about to go long. (Photo by Doug Pensinger/Getty Images)

Making decisions on how to pay off your mortgage can seem more stressful than playing quarterback in the pocket sometimes. New rules have made the process more complicated than ever, but with proper guidance and support, you can feel confident in choosing the right plan.

The rate difference between 30-year and 15-year mortgages has widened by about 0.75% up to a full percentage on average, making the shorter-term interest rate look much more attractive to homeowners. If you are aiming to live debt-free by retirement, opting for a 15-year mortgage can be a great way to accomplish that goal.

But take a long look at your finances before signing up for payments you can't afford. Keep in mind investments and other expenses you may have down the road to avoid getting underwater on payments.

Ask yourself these five questions to manage your mortgage plan as successfully as Peyton Manning covers the field.

http://www.usatoday.com/story/money/personalfinance/2013/11/07/30-year-15-year-mortgage/3446437/

ARM vs. fixed-rate mortgages: Which is better bang for your buck?

Conventional wisdom may have given you the idea that adjustable-rate mortgages, or ARMs, are ill-advised gambles as opposed to the safer, more stable fixed-rate mortgage loans. However, there are several factors to consider before choosing which loan makes more sense for you.

How long do you intend to stay in your current home? If you plan to relocate in less than 10 years, a 5-year or 7-year ARM could be a great deal for you. For example, if you apply for a 5-year ARM, your initial rate will be locked in for the first five years (generally out of a 30-year overall term).

Most of the time, you can qualify for a substantially lower ARM interest rate compared to the lowest fixed rate available to you. If you then sell the house after five years, you will have saved thousands of dollars on monthly mortgage payments compared to 30-year fixed monthly payments.

In addition, there is no crystal ball telling where interest rates could go in the future. If, five or seven years down the road, rates happen to drop lower than when you initally locked the loan, your ARM will also adjust lower, saving you more money.

Of course, rates could also move the opposite direction, increasing your ARM payment...but then, why not refinance again? Remember you have the freedom to refinance your mortgage whenever you choose, opting into either a fixed-rate or ARM loan.

Still unsure? Consult a Vertex loan advisor to decide what plan might work best for you.

2014 tax season to be delayed

If you were hoping to get a head start on filing your taxes this year, you will have to wait a little longer than usual to turn them in.

Due to a backlog caused by the government shutdown, the IRS has announced that tax returns will start being accepted by late January or early February, a couple of weeks late. The deadline to submit tax returns will remain April 15, 2014.

The official start date to report tax returns will be determined in December, according to IRS officials.

Read more about the delay here: http://www.irs.gov/uac/Newsroom/2014-Tax-Season-to-Start-Later-Following-Government-Closure;-IRS-Sees-Heavy-Demand-As-Operations-Resume

Are government-backed loan programs a good fit for you?

With the U.S. government back up and running again, it’s a good time to consider some of the government-sponsored mortgage programs available to borrowers that may benefit your particular situation.

A Federal Housing Administration (FHA) purchase loan requires only a 3.5% down payment of the purchase price for a new home, lower than what is typically required for a conventional loan.  Lower interest rates are also offered to borrowers choosing an FHA loan, and lower credit scores can be accepted for loan approval.

If you have an FHA loan now, an FHA Streamline refinance can be used to lower your interest rate without the need to requalify with documented income or assets.  The FHA Streamline refinance does not require a new appraisal and is possible even if you’ve lost equity in your home and may owe more than your home is worth. 

The FHA program works with a government agency backing your mortgage in case of default, providing more assurance to the lender that your mortgage will be a safe bet.  In exchange for getting a lower rate and minimum down payment, an upfront mortgage insurance premium (UFMIP) is financed into your loan amount, and a monthly mortgage insurance premium (MIP) is added to your monthly payment.

To get more information about FHA loans, visit the Department of Housing and Urban Development’s website here: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory.

As always, if you have questions or want to know if this loan option makes sense for you, please contact one of our loan advisors toll-free at 1-877-939-0339.

From the IRS: Ten Tax Tips for Individuals Selling Their Home

If you’re selling your main home this year, the IRS has some helpful tips for you. Even if you make a profit from the sale of your home, you may not have to report it as income.

Here are 10 tips from the IRS to keep in mind when selling your home. All information is directly from www.IRS.gov.

1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.


2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.


3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.


4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.


5. Use IRS e-file to prepare and file your 2013 tax return next year. E-file software will do most of the work for you. If you prepare a paper return, use the worksheets in Publication 523, Selling Your Home, to figure the gain (or loss) on the sale. The booklet also will help you determine how much of the gain you can exclude.


6. Generally, you can exclude a gain from the sale of only one main home per two-year period.


7. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most of the time.


8. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523 for details.


9. You cannot deduct a loss from the sale of your main home.


10. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

For more information on this topic, see Publication 523. It’s available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).


Additional IRS Resources:
• Publication 523, Selling Your Home
• Questions and Answers on the Net Investment Income Tax
• Form 8822, Change of Address 
• U.S. Postal Service

IRS YouTube Videos:
• Selling Your Home – English | Spanish | ASL

IRS Podcasts:
• Selling Your Home – English | Spanish