VA Loan Updates

Households with annual income of $100,000 or less can get a tax break on their mortgage insurance when purchasing a home in 2007 using less than the traditional 20 percent down payment.

That’s because a new tax deduction effective Jan. 1 will allow them to write off the full cost of their private or government mortgage insurance on their federal tax return.

With rising interest rates and slowing home-price appreciation, insured loans are often the best deal for borrowers, according to the Mortgage Insurance Companies of America, a trade association representing the private mortgage insurance industry.

Mortgage insurance helps loan originators and investors make funds available to home buyers for low-down-payment mortgages by protecting lenders from a portion of the financial risk of default.

“Making the cost of mortgage insurance tax deductible helps those who need it most: low- and moderate-income Americans, primarily first-time home buyers, who are financially responsible but simply don’t have the means to amass a 20 percent down payment,” said MICA president Steve Smith in a statement.

On average, the new deduction is expected to save those eligible to claim it an average of $300 to $350 a year, said MICA spokesman Jeff Lubar.

The deduction applies to private and government mortgage insurance programs, such as VA and FHA-backed loans, Lubar said. Legislation creating the deduction was supported by consumer, business, taxpayer and civil rights groups, including the National Urban League, the National Taxpayers Union, the American Homeowners Grassroots Alliance, and the Cuban American National Council.

Manny Mirabal, president of the National Puerto Rican Coalition, said about one in three families benefiting from the deduction will be minorities.

Mirabel said that with the rate of Hispanic home ownership lagging 20 percent below the national average of 68 percent, “this legislation (will) enable more hardworking Hispanic families and consumers to become homeowners.”

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Eric and Leslie have had their offer accepted on a house in Colorado and are moving through the inspections, appraisal, and all of the other processes preliminary to closing on what they hope will be their new home. The questions about their joint ownership and liability, however, remain.

As explained earlier, the two are not married nor do they intend to be, at least in the near future. In their case it is a matter of choice but with other couples there may be financial, legal or social constraints prohibiting a legal union. As we said in part one of this short series, these unmarried couples need to be aware of the many potholes on the path to significant otherhood.This is not an isolated issue. It is estimated that unmarried buyers accounted for over 9 percent of residential property transfers in the first half of 2004. This number included relatives, investment partners, and friends but the majority were undoubtedly significant others.

Laws governing property ownership are almost universally enacted and enforced on the state level. Some states are in the process of expanding the rights of the unmarried in this respect while others are narrowing them, particularly when it comes to same-sex couples.

In many states there is nothing to prevent either a real estate agent or a lender from discriminating against unmarried partners. The subject may not even arise with heterosexual couples who often pass, at least with real estate agents, as married, but same-sex partners often encounter prejudice at every state. There are also still states where co-habitation by unmarried couples is a felony. These laws are rarely enforced but be aware.

Eric and I had talked about the problems inherent in his being on the note alone while he and Leslie were both on the deed. For example, in the event of a tragedy he might end up owning the home with Leslie’s parents while he had sole responsibility for the mortgage or she might lose the home by triggering the due on sale clause if she attempted to put the title in her own name.

Eric is buying with a VA loan and, while the government always moves in mysterious ways, it is unlikely that they, or most banks, would allow a couple to share ownership of a home while only one was responsible for repaying the money that purchased it. The bank will be virtually unable to foreclose on the whole house if they only hold a mortgage note signed by the owner of half of it. On the other hand I have no idea how the current government might approach a situation where a borrower and a co-borrower were not joined in wedlock.

Even if the application for a mortgage goes forward under both names the fact of their non-marriage will cause difficulties.

Many banks will require that unmarried applicants qualify separately rather than as a unit; thus, although their combined incomes are adequate to support the mortgage, Eric may not be able to prove he can pay his portion on his own. If married, Eric’s AAA credit rating would carry the day but as they are unmarried his may not be considered to compensate for Leslie’s marginal history.

According to The Wall Street Journal, in the event of the death of one spouse, the surviving partner may have to pay estate taxes on the portion of the property he or she owned if the IRS determines that the deceased partner was the sole owner and then the surviving partner’s estate would be taxed again upon his/her death. Apparently sole ownership is a rather arbitrary decision that the IRS can make if the couple doesn’t keep adequate records of their individual contributions to the property.

A property owner who enters into a relationship and then decides to put his unmarried partner on the deed will run afoul of gift tax regulations and may have to file a gift tax return. There is also the risk of giving up part of the $1 million lifetime gift-tax exemption that he may need later.

Older unmarried couples confront more problems if one or both desire to leave assets to a child from an earlier marriage or have financial obligations arising out of that marriage.

Types of property ownership automatically provide some protection to the married. Owning a home as Joint Tenants with Rights of Survivorship or under joint ownership are the defaults for married couples although it may not be the best option among others available. These two types do not allow one partner to unilaterally sell his share or leave it to anyone other than the co-owner but does facilitate title transfer upon a death and avoids inheritance taxes. Unmarried couples may want to ask their attorney about taking title as tenants in common as this will allow them to bequeath their individual share of the home to whomever they wish.

Pre-nups are pretty unromantic but similar agreements between the unmarried who are buying property together are essential. Call them, as the Real Estate Journal does “domestic partner agreements.” These should spell out exactly how the property is to be divided and/or disposed of if the relationship does not last. Partners should also keep detailed records of the contributions, financial and in-kind, to equity in the property by each partner. Another possible protection for each party to the purchase is a will. This is particularly important if one partner wishes to protect a parent or a child in the event of his death.

If you or someone you care about is contemplating a property purchase with a significant other there is an essential step. Consult an attorney and follow his advice. A real estate attorney may be appropriate or it might be one specializing in estates or in family law. Most attorneys will provide a free short consultation over the phone so call one in each of these disciplines and see what they recommend. It may cost several hundred dollars to get the appropriate documents drawn, but if love does not in the long run conquer all it will be money well spent.

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Have preapproval? Will show houses.

That’s the mantra most Realtors live by when taking buyers out to look for a house.

“Most Realtors, at this point in time, won’t even talk to anybody until they have been preapproved,” said Glynis Hyde of AmSouth Mortgage in Mobile. “It’s too expensive. With gas prices right now, they don’t want to carry people all over town and then come in and find they cannot be approved for that amount.”

The first stop, especially for first-time home buyers, should be to a mortgage lender or banker, according to real estate agents and lenders.

“Until the lender runs that credit score, the agent is not sure what program is best for that person,” said Anne Powell, director of career development at Roberts Brothers in Mobile. “We need to know before we start showing them houses.”

Lenders will walk newcomers through the process — and the paperwork, Hyde said. “Even though it’s 100 times better than 10 years ago, there’s still a lot of paperwork to sign,” she said. “When they look at that, they get a little freaked out. My job is to make sure that the person walks out of the closing happy and has understood what happened.

“You’d be surprised the people who call me to refinance and say they got a notice and didn’t know they had a balloon note or an ARM (adjustable rate mortgage). It was probably disclosed, but it simply went over their head, and they didn’t get it.”

Lender Ken Cramton said his company has tried to discourage customers from taking out the more volatile loan products such as adjustable-rate or interest-only programs.

“In many cases, what was very attractive to them is now a burden for them,” said Cramton of Home Mortgage Company in Fairhope. “They have to bail out or refinance with a more stable, conforming loan. We’ve helped some people get out of them.

“For people making purchases, the fixed rate is still under 6 percent and historically, that’s pretty doggone good.”

The 30-year, fixed-rate mortgages averaged 6.14 percent as of Nov. 30, down from 6.18 percent the previous week, according to mortgage giant Freddie Mac. The 15-year fixed rate averaged 5.87 percent.

With so many loan programs available, buyers should work with a lending expert to find what will work best for them — and their budget, lenders said.

“I’m working with a first-time buyer now and she’s getting so much information from so many directions — mom and dad, neighbors, people at work,” Hyde said. “That can be good and bad. We told her we need to do FHA (Federal Housing Administration), and she hangs up and calls dad and he says, What about VA (the Veterans Affairs loan program)?’ She’s never been in the military.”

Even experienced agents and real estate educators talk to their lenders first, according to Powell.

“When I go to buy a house, I call my lender a month to six weeks ahead of time,” she said. “If my children were buying for the first time, I’d have them call a lender six months ahead of time. I have saved thousands of dollars because I’ve had good lenders.”

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A young relative called over the long weekend. He had just made an offer on a house and wanted advice about inspections and other details. We had been in e-mail touch for several weeks as he worked through his mortgage pre-approval, structured the offer and generally obsessed over a very important decision. But I had never thought to ask a critical question of my own: “Are you and Leslie - his girlfriend - buying this house together?” They would, he responded, both be on the deed, but only Eric would sign the note; as a retired Marine it would be a VA guaranteed loan.

Alarm bells went off everywhere. It was a touchy subject and it is tough to burst bubbles at 10 a.m. on a Sunday morning. Eric and Leslie are no doubt convinced they will be together forever as are most married couples, 50 percent of whom will, at some point, no longer be. But there is a very big difference between the legally married and likely to be divorced and those in Eric and Leslie’s position. Significant others (SOs) lack a ton of legal protections that are automatically available to the married.

I laid out a few possible scenarios on the phone, the least uncomfortable I could come up with on the spur of the moment, and then started researching the subject. The dangers inherent in buying property with a significant other are - okay - significant. And worse than I thought.

This is not to say that unmarried couples should not own a home. Financially, where two people are sharing rent and paying taxes, it is a financial no-brainer. Sometimes people are ready to own but not ready to wed. It could be that an unresolved previous marriage precludes wedlock, and of course, in 49 states same sex couples are denied the legal protections available through that institution. In each of these situations buying a home may be exactly the right thing to do - financially and/or emotionally - but still may be darn dangerous legally. At its heart (and it is probably better in this case to ignore the heart) buying a home is a financial and legal transaction and should be approached with clear and open eyes. If the principals are not protected by the legal cover of marriage, it should be approached with clear and open eyes and the advice of an attorney.

Among the scenarios I gingerly laid out for Eric.

• With the deed in both names, if Leslie should die Eric could end up owning a home with her heirs - her parents or siblings - while being totally responsible for the mortgage;
• If the loan is solely in Eric’s name and he should die this might not only endanger Leslie’s partial ownership of the home by triggering the “due on sale” clause in the mortgage but tie up his estate which would still be obligated to pay the mortgage without the right to sell more than half the house.
• With Leslie not a participant in the mortgage and because as SOs they have to file separate tax returns, Leslie would be unable to claim a part of the homeowner’s deduction for mortgage interest or property taxes. They are non-traditional students (i.e. older than others in their classes) and earning low wages. The available deductions may well be more than Eric’s tax obligation could absorb and these deductions would thus go to waste.

Since they are young and in love and I want to keep their trust and friendship I didn’t even mention the biggest danger to their real estate dream. In a year or two they might split and if they do disentangling their real estate relationship could be more complicated and ugly than anything they might encounter in dissolving a marriage.

What if they did break up and both wanted to keep the house? There have been a couple of movies based on this situation and while it might be funny in fiction it is likely to be costly and emotionally draining in real life.

If only one wants the house how does that work? Can one SO force the other to sell or, alternatively, be held hostage by his or her refusal to do so?

What if the pair had made unequal contributions to equity? Maybe Leslie provided the bulk of the down payment or owned the good credit that made the purchase possible but Eric contributed dozens of hours to upgrading or maintaining the home or had the income necessary to carry the monthly payments. Somebody has to decide how to value the contributions and if it is the courts, the costs of the conclusion may be more than the equity is worth.

Eric was very quiet at the end of our talk. Perhaps he thinking quickie wedding. More likely he was deciding never to call this particular relative again. I hope he isn’t thinking about giving up his dream of home ownership. I have seen the pictures and the house is lovely and probably perfect for both Eric and his SO. But, as I said before, I then began to do some research on the subject and found even more uncomfortable scenarios but also some helpful information.

We will go there next.

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‘A leg up’ would be nice, local guardsman says 

WASHINGTON — National Guard and Reserve troops face the same combat risks in Iraq and Afghanistan as active-duty soldiers, but when it comes to military benefits to pay for college, there are sharp, some say unfair, differences.

The GI Bill — a federal law that veterans have used to advance their education since the end of World War II — provides a top benefit of $1,075 a month for a veteran of active-duty service.

With the latest version of the law, passed in 1985 and called the Montgomery GI Bill, National Guard and Reserve troops called to active duty for a war or national emergency can receive up to $860 a month, if they serve two consecutive years. Without active-duty service, the basic National Guard and Reserve educational benefit is $309 a month.

Guardsmen and reservists must remain in the service while using their GI Bill benefits while their active-duty counterparts have a decade after leaving the military to use their benefits.

“That’s a humongous difference between the active duty and National Guard benefits,” said Jeremy Baughman, 19, of Seminary, Miss., a medic in the Mississippi National Guard. “I think (the military) are playing favorites.”

Gerrard Paschke got home from Iraq in late August after a year of service in Kuwait/Iraq with his Wisconsin Army National Guard unit. He’s resumed his schooling at Northeast Wisconsin Technical College after serving on active duty and will transfer to the University of Wisconsin-Green Bay next semester.

“The benefits are much better than before I left … but you’re not going to be able to really maximize your benefits if you don’t stay in,” the 21-year-old Green Bay resident said. “I can’t complain too much, but it would be nice to get a little more. The (monthly amount) I’m getting now gets you by, doesn’t let you get a leg up.”

He now gets about $400 a month more than he did before serving in Iraq on active duty.

Veterans in Wisconsin also have the Wisconsin G.I. Bill program that covers half of tuition costs for eligible veterans to attend colleges in the Wisconsin Technical College System and the University of Wisconsin System, according to the state Department of Veteran Affairs Web site. Under the bill, eligible Wisconsin veterans who entered active military duty as a Wisconsin resident receive a remission of 50 percent of tuition fees.

Beginning with the 2007-08 academic year, this remission increases to 100 percent, according to the site.

“For returning veterans that’s a huge step up,” Paschke said Friday.

Rep. Vic Snyder, D-Ark., who expects to become chairman of a House Armed Services subcommittee with jurisdiction over the National Guard and Reserve benefit next year, is among the lawmakers sponsoring a proposal to change the GI Bill.

Michael Dominguez, principal deputy undersecretary of defense for personnel and readiness, said the current educational program is working — in that the National Guard and reserves are meeting their recruitment and retention goals.

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Mortgage brokers have the ability to locate the perfect home loan for your credit type. Before lenders began offering a range of home loans, getting approved for a mortgage loan with poor credit was impossible.

Today, there are many loans and lenders that focus on both good and bad credit mortgage loans.

Options Available to Homebuyers with Good Credit

Naturally, having a high credit score will present better mortgage loan options. For starters, if your credit score is above 680, you are considered a prime borrower. This status allows you to apply with any mortgage company and receive the best rates.

Furthermore, those with good credit may qualify for zero money down home loans up to 107%. This financing option is perfect for homebuyers who seek assistance with down payment and closing costs. Moreover, real estate investors may take advantage of 107% financing in order to have enough funds to make improvements to the property.

Individuals with good credit may also qualify for a no documentation loan or a stated income loan. Both options are ideal for the self-employed or income that’s difficult to verify.

Poor Credit Loan Option

If you have poor credit, your loan options for a mortgage are also great. Lenders realize that excellent credit is hard to maintain. Bad credit happens for many reasons, and can affect good people. For example, loss of employment or serious illness may create a financial burden. In this instance, it becomes difficult to maintain regular payments.

The majority of mortgage lenders and brokers believe in second chances, thus they offer several loan programs that cater to low credit scores. This include 100% financing loans, no money down home loans, VA homes loans, low income home loans, etc.

How to Apply for a Mortgage Loan

If new to the home buying process, mortgage lenders and brokers will assist you with the application. Before completing and submitting a mortgage application for approval, request multiple quotes from different lenders. If using a broker, multiple offers are automatic.

There are several benefits to obtaining several mortgage quotes. Lenders offer different rates and terms. By acquiring several offers, you can compare varying loan packages and select the finance option with the lowest mortgage rates.

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Students and faculty were offered a bit of a history lesson Wednesday, as a University of Wisconsin researcher presented on how the GI Bill had an immediate effect on institutions when it was introduced more than 60 years ago.

The GI Bill provides veterans with financial aid to attend a higher education institution following their stint in the military.

Beth Stransky, who serves as project assistant for the Wisconsin Center for the Advancement of Postsecondary Education, also talked at the presentation about the lessons that can be learned from the GI Bill.

According to Stransky, the GI Bill’s effect in creating a more accessible campus has presented its own set of obstacles.

“We need to understand that improving access creates a host of new challenges,” Stransky said, adding that just because a policy is created in Washington, D.C., it could still be the responsibility of “local groups to make it happen.”

The GI Bill, introduced in 1945, created a student “explosion,” Stransky said, as enrollment rose from 6,500 in 1944 to 20,000 in 1947. Of those 20,000, almost 60 percent were veterans.

Students were provided with $500 per academic year for tuition, supplies and equipment — an amount Stransky said would be enough for a veteran to attend Harvard University.

“It’s a real shift in federal involvement in education,” she added. “Funds are given directly to veterans — it’s a loosely regulated approach.”

While the GI Bill improved accessibility for students, it also created challenges for the university, including problems with capacity, faculty shortages and a lack of housing.

But Julie Underwood, dean of the UW School of Education, said the approach Stransky takes is not common when talking about the GI Bill.

“Usually when you think about the GI Bill, you think about its impact on students, not its effect on the institutions,” Underwood said. “The GI Bill has had an effect on campus.”

Earlier this month, the University of Wisconsin Board of Regents recognized veterans.

John Scocos, secretary of the Wisconsin Department of Veterans Affairs, thanked the board for its enthusiastic support of the GI Bill. Scocos said he will work closely with the board to encourage the Wisconsin Legislature to provide the funding support needed to allow veteran tuition remission.

In addition, Scocos said at the meeting he believes a reformed Wisconsin bill is more important than ever because the old federal benefits are not large enough to cover the cost of an education today.

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