How To Give Adult Children Money For A Home, And Avoid Tax Problems

19th Jan 2021 Uncategorized

 Some parents feel the need to help their children out to purchasing a home. But what does that mean for the parents when it comes to doing their taxes? are they allowed to give the entire amount, or just a small sum? Below we have a scenario and some answers to a few questions that may arise during the process. Here are a few scenarios that may make sense to you if you are planning to help your children out with their home mortgage: For Example, Let’s say my spouse and I lent our daughter and her husband the total amount they needed to purchase their new home but none of this was documented. What should we be doing to minimize the tax bite and keep things legal? Well, there are a number of factors you and your spouse should consider—and your daughter and her husband, too Let’s presume your intention is to be repaid this amount. The loan should be documented by a written promissory note. The note should reflect the amount borrowed, with the interest rate, and the terms of repayment and other key provisions. The loan interest rate can either be a fixed rate or can be a floating rate based on some benchmark, such as a specified prime rate of interest. And it should be payable in periodic intervals. While the intervals can provide for annual, quarterly or monthly payments, most home mortgage loans are paid on a monthly basis. The interest should be set at a rate no less than the IRS prescribed rate of interest so the loan is not treated as a below-market loan, which could trigger taxes. Here is another question you may have: What’s the tax vulnerability? Gift taxes are the issue here.  If there is no promissory note and the IRS …

An Indicator of Mortgage Rates Spiked Last Week. What does that Mean for You?

13th Jan 2021 Uncategorized

A sudden movement in the bond market this week could predict rising mortgage interest rates ahead, financial experts say. For the first time since March of last year, U.S. 10-year Treasury bonds hit 1%. This change comes on the heels of Georgia’s two runoff elections concluding this week, in which Democrats won control of the U.S. Senate. The increase to 1.08%, up from 0.93% at the beginning of the week, was driven by investors’ expectations that when Democrats take control of both houses of congress — and the White House — there will be more stimulus spending in an effort to boost the struggling economy. The bond market did exactly what it should do. The prospect of more disaster relief combined with increased distribution of COVID-19 vaccines will continue to push bond rates higher if the economy rebounds. Historically, 10-year Treasury rates and mortgage rates have moved in tandem. So normally, we’d expect to see mortgage rates climb, but so far the increase has been minimal. And sustained rate growth is still dependent on a variety of factors outside of investor optimism on the potential for government aid. Here’s what this could mean for the housing market. What Are the Short-Term Implications for Mortgage Rates? This week, 30-year fixed rates hit another record low of 2.65%, according to the latest data released by Freddie Mac. But don’t read too much into that. “Bond yields have only moved up in the last two days, and Freddie’s survey looks over the last week,” says Greg McBride, chief financial analyst at Bankrate. While mortgage rates aren’t poised to skyrocket, there’s no guarantee rates will remain at an all-time low. This uncertainty is due to the spread between 10-year U.S. Treasury bonds and 30-year mortgage rates during the pandemic, which have been higher than …

10 outrageous 2021 predictions for the mortgage industry

30th Dec 2020 Uncategorized

If a year ago at this time, everyone looked into their personal crystal balls and predicted mortgage originators would have their best year ever in the midst of a pandemic, odds are that would have been considered too outrageous. For 2021, National Mortgage News reached out to people in the mortgage and ancillary businesses for their (more or less) outrageous predictions on what could happen. Several of our pundits’ short takes on the market are diametrically opposed! Pop goes the bubble Banks realize that real estate is in an artificial bubble and rates are artificially low. They realize that values are likely to go down from here and they’re going to be saddled with fixed rate mortgages that are upside down and [will] crush their balance sheets. They pull back on lending and increase standards to what they used to be: 20% down, only top credit with financial reserves and clawback provisions. This is what it always should have been. Mortgage loans will shift to a digital currency Twenty-five percent of all mortgages (mainly in cities like Austin, San Francisco and Denver) will be made in Bitcoin (BTC). The mortgage will be ‘tokenized’ on a blockchain. Tranches of a loan will be sold as BTC addresses, packaged together on the secondary market, linked to a BTC Exchange Trade Fund. Lenders change the way they assess borrowers because of the coronavirus. “The loan underwriting process will drastically change to include ‘health points’ like, ‘you have got the vaccine, you are in good physical and mental health, more points to you;’ the rationale is as you will be alive, you will keep a job and pay back the loan. And social media could affect underwriting as well. “Facebook will use all of your data and serve up preapproved loans for homes. It …

CFPB Finalizes Qualified Mortgage Changes

21st Dec 2020 Uncategorized

The Consumer Financial Protection Bureau (Bureau or CFPB) issued two final rules on December 10 with significant implications for the mortgage marketplace. Of the two final rules from the Bureau, one drastically simplifies the definition of a “qualified mortgage,” or “QM,” and the other provides an alternative pathway to QM safe harbor status for certain seasoned mortgage loans, which together may encourage innovation in the mortgage market and potentially help to bring certainty to secondary market participants. Despite their technical-sounding features, these two rules together will affect a huge portion of mortgage originations in the United States and have the potential to offer meaningful regulatory relief for mortgage originators and securiti zation participants—so long as the rules go into effect as written, are upheld, and/or not revised or rescinded by the incoming administration. We previously reported on the Bureau’s proposals that were issued earlier this year with respect to these rulemakings: CFPB Proposes Substantial Amendments to Qualified Mortgage Definition, Addresses GSE Patch and CFPB Proposes New ‘Seasoned’ Qualified Mortgage Category. General QM Final Rule The Bureau’s first final rule, the General QM Final Rule, replaces the current requirement for general QM loans that the consumer’s debt-to-income ratio (DTI) not exceed 43% with a limit based on the loan’s pricing (General QM loans). In adopting a price-based approach to replace the specific DTI limit for General QM loans, the Bureau determined that a loan’s price is “a strong indicator of a consumer’s ability to repay and is a more holistic and flexible measure of a consumer’s ability to repay than DTI alone.” Additionally, the rule reflects the Bureau’s decision that conditioning QM status on a specific DTI limit could impair access to responsible, affordable credit. Under the General QM Final Rule, a loan receives a conclusive presumption that the consumer has …

10 Things to Do Now if You Plan to Buy a House Next Year

08th Dec 2020 Uncategorized

One Step at A Time Purchasing a home is exciting, but there are a lot of people and moving parts involved in the decision. Mortgage applications, real estate agents, movers, and more—it is a lot to handle all at once. You can reduce the stress of the process by getting prepared well ahead. Do your research, figure out your budget, find a lender, and get a real estate professional on your side, and before you know it, you’ll be jangling the keys to your new home sweet home. Check Your Credit The first thing a mortgage lender will do is check your credit, so before that process begins, you need to review your reports and make sure they’re accurate. Obtain a credit report from all three bureaus (Equifax, Experian, and TransUnion) at least 12 months prior to applying for a mortgage. This will give you time to make any necessary adjustments and improve your score, if needed. Put Together Your Budget Before you start shopping for a house, you need to know what you can afford. You can start by calculating your DTI (debt-to-income ratio), which is one of many metrics that lenders use to evaluate borrowers. But for yourself, be sure to do your homework on the local taxes, utility costs, and other expenditures you can expect to pay as a homeowner. Factor those monthly costs into your personal budget, because those expenses can vary greatly depending on where you buy. Get Preapproved Getting preapproved for a loan can make the shopping and purchase process go more smoothly. When you’re preapproved, you know exactly what is within your means and can narrow down neighborhoods accordingly. As well, having a preapproval letter lets sellers know you are serious and puts you a step ahead of other buyers, which could make …

2021 predictions for mortgage lending

01st Dec 2020 Uncategorized

As lenders look ahead to a new year and a new administration, they offer some insights into what lies ahead for non-bank lenders and servicers. Fannie Mae predicts 30-year FMR will stay between 2.8% and 2.9% through 2022 Fannie Mae predicts avg rates for the 30-year fixed loan will remain at 2.8% through 2021 and only rise to 2.9% for 2022.The GSE’s November forecast calls for $4.12 trillion in mortgage origination this year, up from $4.08 trillion in the October outlook. For 2021, the latest projections call for $2.72 trillion in volume, up from the $2.62 trillion that Fannie Mae Chief Economist Doug Duncan last predicted. Total home sales will increase 5.7% this year over 2019, to 6.37 million units on a seasonally adjusted annual rate basis, Fannie Mae said. That will be driven by a 21.5% increase in new-home sales. Existing-home sales will be up 3.6% on a year-over-year basis. While total home sales are expected to increase by 0.8% next year, new-home sales will be up by 6.2% while existing-home sales should remain flat in Fannie Mae’s forecast. The MBA, however, projects rates will rise to 3.3% in 2021 and to 3.6% in 2022 The MBA is more conservative than Fannie Mae, predicting the 30-year FRM will go from 2.9% in the current quarter to 3.3% one year from now and to 3.6% by the end of 2022. However, the MBA’s chief economist, Mike Fratantoni, recently said he expects rates to go even higher if both Senate seats in Georgia flip to the Democrats after January’s runoff election.In November, Fratantoni raised his projections for 2020 to $3.39 trillion from October’s $3.18 trillion. Next year, he projects $2.56 trillion, compared with $2.49 trillion one month prior. The forecasts for 2022 and 2023 were also raised to $2.2 trillion and …

Refinance appraisal vs. purchase appraisal: What’s the difference?

24th Nov 2020 Uncategorized

Home appraisals are common steps in both the home buying and home refinancing processes. Surprised? Yes, even current homeowners are expected to endure the appraisal process. Since refinancing requires a financial institution to underwrite a brand-new loan, existing homeowners looking to take advantage of current record-low interest rates will need an appraisal to assess their home’s current value. Refinance appraisal vs. purchase appraisal If you’re ready to start the mortgage refinance process, the first step is to shop interest rates and it’s best to check with multiple lenders to see who is offering the most competitive rates and terms What is a purchase appraisal? A home appraisal is a process by which a lender determines the fair market value of a home. Appraisals are a lender-required process as the bank doesn’t want to loan more money for a home than it is worth. Yes, you’ll need a new appraisal even if you currently own the home and purchased it as recently as 2019. An appraisal is typically ordered anytime a buyer is using a mortgage to purchase the home. If you are buying a home in cash, you don’t need one. A low appraisal can be a headache for both the buyer and the seller, particularly in a home refinance situation. What is a refinance appraisal? Because a refinance mortgage is a new loan, the appraisal process is almost exactly the same as when you purchased the property. There’s less at stake during a refinance appraisal, since three parties (buyer, seller, and lender) aren’t anxiously awaiting the appraisal to reflect the sales price, but even during a refinance you still want the appraisal to accurately represent your home’s value. An appraisal validates the amount of equity a homeowner has in the home, which impacts a cash-out refinance. Substantial equity can also snag …

What a COVID-19 vaccine would mean for mortgage rates and the housing market

17th Nov 2020 Uncategorized

When the coronavirus pandemic first reached U.S. shores earlier this year (actually exactly a year today), worries abounded about how it would affect the country’s housing market. Starting in March, home sales all but ground to a halt as Americans stayed at home to avoid getting sick. All the while, mortgage rates turned lower — and lower and lower. The nation saw the beginnings of a boom in refinancing activity, as homeowners welcomed the lowest interest rates on record. A few months later, home-buying activity resumed with abandon. With low mortgage rates locked-in and a desire for more space amid the pandemic, Americans flooded the housing market in search of new homes. Even now in the fall, when home sales activity typically slows down with the cooler weather, Americans are still buying properties well ahead of last year’s pace. In many ways, the pandemic has driven this home-buying craze, experts say. “This has been an acceleration to lifestyle and behavior changes that were already underway,” said Mark Fleming, chief economist at First American Financial Corp., a title insurance company. Case in point: The pandemic appears to have nudged the timeline forward for many millennial households who might have otherwise waited a few years to become homeowners. But now, the end of the pandemic may be in sight. On Monday, the COVID-19 vaccine candidate from BioNTech and Pfizer became the first to demonstrate it could protect people from contracting the illness in a Phase 3 clinical trial — with a reported efficacy rate of 90%. What’s more, Pfizer’s vaccine candidate is taking a similar approach as some of the vaccines being developed by other companies, meaning that other vaccine candidates could hold similar promise. While the world is still months away from seeing the distribution of an approved vaccine, the vaccine …

How Will Biden Reshape the Nation’s Housing Market?

11th Nov 2020 Uncategorized

It was a knock-down, drag-out fight that polarized much of the nation in the months—all right, years—leading up to Election Day, as well as over the last few nail-biting days after the election as ballots across the country continued to be counted. But former Vice President Joe Biden managed to get a victory, although President Donald Trump insisted he would challenge the results. The election played against the stark backdrop of the deadly COVID-19 pandemic, a battered economy, and a slew of hot-button racial and immigration issues. Almost lost in the partisan spectacle has been the future of the white-hot housing market. But the 46th president’s ambitious housing plan could have momentous consequences—if it shakes out to more than just empty campaign promises. A historic home shortage and record-low mortgage rates have pushed prices to new heights, even as the U.S. entered into the worst recession since the Great Depression. “Everyone may not love the outcome of this long-drawn-out roller coaster of an election, but I think everyone can breathe a sigh of relief that it’s over,” says Chief Economist Danielle Hale. “Biden has a really ambitious agenda that will try to create opportunities for more low- and middle-income Americans to become homeowners or afford rental housing.” That could result in some big changes. “The issue is really how affordable housing, as a category of efforts, compares to the other things he’s going to want to accomplish, such as student loan debt, climate change,” and how he prioritizes them, says Goetz. Soon enough, Biden will have to make good on his campaign-trail promises. Here’s a roundup of his to-do list. Campaign promise: Help more Americans achieve home ownership One of the main planks of Biden’s $640 billion housing plan, which his campaign dropped in February, has been to help more …

Will The Election Outcome Impact Record-Low Mortgage Rates?

04th Nov 2020 Uncategorized

  The path from mortgage rates to the White House is a circuitous one. There is no direct route, as the president doesn’t control rates, but there are factors the president controls—in tandem with Congress—that can have a major influence on them. As we pass the Nov. 3 election, mortgage rates are still hovering near record lows. The 30-year fixed-rate mortgage is at 2.81%, according to Freddie Mac’s latest Primary Mortgage Market Survey. These are the lowest rates on record, and they’re generating lift to the housing market, as refinance applications are up 80% year-over-year and mortgage applications to buy a home are up 24% compared to last year, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Heightened lending activity is a ballast in today’s shaky economy. The question is: What will happen to rates after the election? We talked to a few experts in the housing and mortgage industries that weighed in on how the presidency can sway the economy and in turn affect mortgage lending and rates. A Few Factors Consistently Influence Mortgage Rates We know that mortgage rates are driven by a few things: Treasury yields, the economy, the Federal Reserve (policy, not the prime rate) and the housing market. However, these factors don’t necessarily operate in any kind of prescribed pattern. Rather, like a Rube Goldberg device, one action can set off a chain of events that impacts rates. In 2020, that action was a global pandemic. Before President Trump declared Covid-19 a national emergency, the housing market was strong. Home prices were steadily rising and mortgage rates were steadily falling from their five-year peak of around 5% in Nov. 2018, landing at 3.36% one day before Trump issued the emergency declaration on March 13. In some ways, buyers and sellers were splitting …