How 2012 Taxes Affect Home Loans

An important message from our friends at Cherry Creek Mortgage

 

Tax time is just around the corner! As you prepare to file your 2012 federal income tax return, I wanted share a few of the hot items to keep in mind; specifically when it comes to obtaining a home loan.

Until April of this year when the deadline approaches for taxes to be filed, lenders will use either 2010 and 2011 tax returns or 2011 tax returns (depending on loan type) to calculate income for your home loan. If you are currently pre-qualified, but have not yet found a home, it’s important to be aware of the items which may affect your pre-qualification once taxes are filed.

Below are a few items that can affect your home loan pre-qualification:

  • Declining Income from 2011 to 2012 – if your income has declined from 2011 to 2012, this may be a problem. Be sure to discuss with your lender.
  • Un-reimbursed Business Expenses (Form 2106) – such as uniforms, union dues, licenses or exams, travel expenses, car mileage, meals and entertainment. These will be subtracted out of your qualifying income.
  • Schedule C Filing (for those self-employed or who have a side business)  Income/Loss – this can affect you even if it’s not your primary form of income. See next week’s update when I’ll unveil the mystery behind how lenders calculate income for a self-employed borrower who files a Schedule C form on their tax returns.
  • Schedule E Real Estate – the purchase of additional properties or the conversion of a primary/secondary residence to an investment property will affect the income/loss numbers from the previous year.

Keep in mind, timing is important! Once you file your 2012 tax return, it can take the IRS 4-8 weeks to process the filing. If your home loan pre-qualification depends on the income reported on your 2012 tax return, lenders will require the return to be processed and verified by the IRS before the income can be used for qualifying.
This is most important for self-employed borrowers or those filing a Schedule C or Schedule E.
Also, if you file an extension, lenders will require a copy of the extension along with proof of any payment required at the time of the extension. If you are self-employed, lenders generally require a P&L (Profit & Loss) for the previous year (in this case 2012) and a year-to-date P&L for 2013.

I realize this topic is complex, however it is so important this time of the year. Educating our clients on how tax returns can impact their home loan pre-qualification is a key ingredient to understanding the home finance process. This way we can possibly avoid the tragic “well, you were qualified but now you’re not because of your tax filing” discussion. Knowledge is good – share it! ~Kelly

 

After a Foreclosure or Short Sale

Have you gone through a foreclosure or short sale in recent years?  Ever wonder how long it will be until you qualify to purchase again?  This handy chart takes the guess work out of this sometimes complicated process.  Please feel free to contact Kelly Zitlow if you feel that you are ready to purchase and would like to know how much you qualify for.

 

Improve your Credit Score NOW

We all know that your credit score is a critical factor when applying for a home loan, but did you know that there are some steps you can put into action now to improve your overall score?

Your score can improve by managing your credit responsibly over time and following some basic tips:

  • Make sure the information in your credit report is correct. You are entitled to one free credit report annually from the three credit bureaus – Experian, Transition, and Equifax. Visit www.annualcreditreport.com to obtain your free reports. You may also purchase a copy of your credit score report through this website.
  • Review your credit report for accuracy (review the account-opened date, account balance, account limit and last activity information). Act quickly to correct erroneous information.
  • Pay down high credit card and revolving account balances, but don’t close the account. Don’t apply for credit that you don’t need – excessive credit report “inquiries” can lower your score.
  • Avoid moving credit balances from one account to another just to take advantage of low introductory interest rates. The combination of “inquiries” and “new accounts” can negatively impact your score.
  • If possible, avoid “finance company” type credit accounts, including “90-day” and “12 months same-as-cash” accounts. Mortgage loans, installment loans and revolving credit card accounts impact your score more favorably than finance company accounts.

If you would like more information about obtaining your credit report, or getting pre-qualified for a home loan, please contact us!

Rising Home Prices in the Valley

Metro Phoenix home prices continued to rapidly climb in May.

The median sales price of a home in the region is up 32 percent from May 2011, according to the latest report from the W. P. Carey School of Business at Arizona State University.

During last month alone, the cost to buy a Phoenix-area house climbed 7 percent to $147,000. The region’s home prices have rebounded back to early 2003 levels.

More regular buyers and investors coupled with a shrinking supply of homes for sale are propelling metro Phoenix home prices higher.

ASU housing analyst Mike Orr said in his report “high demand and low supply” remain the dominant factors in Phoenix’s housing market.

The number of homes for sale in the area is down 50 percent from May 2011. Currently, 8,550 homes are listed for sale and don’t have pending contracts from buyers.

Moderately-priced homes continue to draw the most buyers and bids.

“Most houses below $250,000 priced realistically are attracting large numbers of offers in a short time, and many exceed the asking price,” said Orr, director of the Center for Real Estate Theory and Practice at W. P. Carey School.

He said a Chandler owner recently received 84 offers, and a Glendale owner snared 95.

The Glendale house closed within four weeks for 17 percent above the original asking price.

“Needless to say, this is not something we would see in a normal market,” Orr said.

Metro Phoenix home prices can’t continue to climb at the “extremely fast rate” recorded in the past few months.

“The most likely time for prices to stabilize is during the hot summer months of June through September,” Orr said.

 

Want to have the leading edge in this competitive market?  Have questions about what your home might be worth?  Contact The Aladin Group!

The Aladin Group’s New Blog Series

The Aladin Group has come out with a new youtube blog series called “5 Things Your Realtor CAN’T Tell You!” Subscribe to their channel HERE

! Check out Part 1 of 5 below! Enjoy!

This series will be very helpful for prospective buyers! There are some great questions that need to be asked but Realtors can’t legally or morally give the answers to.