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Have you heard the latest news about the Mortgage Debt Relief Act? Figured I’d share some info on this since it’s been a hot button issue in our country recently.
The fiscal cliff deal that was made during the first week of 2013
is bringing back a popular tax break on mortgage insurance premiums and debt
forgiveness for borrowers who go through a short sale, foreclosure, or debt
reduction.
One of the more watched provisions of the fiscal cliff was the
Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on Dec.
31, 2012.
The fiscal cliff deal extends it for another year; meaning
homeowners who experience a debt reduction through mortgage principal
forgiveness or a short sale are exempt from being taxed on the forgiven amount.
Its imperative that if you, or someone you know, is in a
situation where debt forgiveness is an option, that option is explored &
pursued this year because there’s no assurance it will be extended past the end
of 2013.
Very Important Changes to FHA
FHA issued a press release at the end of January officially announcing
upcoming changes to their mortgage program. Below are the 2 key changes that
will be the most relevant for buyers and sellers. At this time, they have not
indicated an official date for the changes to go into effect, but I would
expect it would be within the next couple of months. I
1
FHA will
increase its annual mortgage insurance premium (MIP) for most new mortgages by
10 basis points or by 0.10 percent
This will raise the factor for the
monthly premium from 1.25% to 1.35%. The formula for calculating the monthly
payment is Loan Amount x .0135 / 12
Here are
examples of how this will affect monthly payments:
$200,000
Purchase Price….Added Monthly Cost = $16.09
$300,000
Purchase Price….Added Monthly Cost = $24.13
$400,000
Purchase Price….Added Monthly Cost = $32.17
2. FHA will
also require most FHA borrowers to continue paying annual premiums for the life
of their mortgage loan
In my opinion, this is the bigger change,
as it will add enormous cost to borrowers over the life of the loan.
Beginning In 2001 and up until this
change is enforced, FHA cancelled required MIP on loans when the outstanding
principal balance reached 78% of the original principal balance. However, FHA remains responsible for insuring
100% of the outstanding loan balance throughout the entire life of the loan, a
term which often extends far beyond the cessation of these MIP payments. Soon, these annual premiums will no longer be
dropped at that 78% threshold and will be carried for the life of the loan.
How does that affect the borrower?
Based on current 30 Year Fixed FHA rates
of 3.25%, a borrower would be at a 78% loan to value which would make them
eligible to have their monthly mortgage insurance dropped after 108 months
(approx. 9 yrs). Based on this new change, the monthly mortgage insurance would
be required for the full 360 month term of the loan.
Examples of the added cost:
$200,000
Purchase Price….Added Cost Over the Life of the Loan: $54,714.24
$300,000
Purchase Price….Added Cost Over the Life of the Loan: $82,071.36
$400,000
Purchase Price….Added Cost Over the Life of the Loan:$109,431.00
FHA buyers will obviously be looking at
higher payments and added long term costs once the changes go into effect which
could price them out of their desired price range. Subsequently, this could affect sellers since
they could be faced with a smaller pool of buyers.
If you, or someone you know, is looking
to get into the market this year to buy or sell a home, it would be wise to get
the ball rolling sooner rather than later.
To switch gears for a moment, I wanted to share our 4
predictions on what we’re expecting in the real estate industry throughout
2013. Hopefully if you’re thinking of
buying and/or selling this year, or know someone who might, this information
will be helpful.
1 With
pending sales having trended up throughout 2012, we expect that trend to
continue throughout 2013
2 With
inventory of homes down sharply since the middle of 2011 and the market
seemingly starving for homes for sale, we expect to see a modest increase in
home prices of 3-5% by year’s end; quick side note, saw a survey conducted by
Redfin and 71% of buyers surveyed believe prices will rise by the end of 2013,
so that will create sense of urgency which could impact home prices
3 Mortgage
interest rates will rise slightly
4 Short
sale process will continue to be expedited, resulting in a higher % of short
sales and increasing their appeal to buyers
Overall, we’re expecting home affordability to remain at
record highs while home selling conditions to continue on the right track of
improving.
Please feel free to call, text or email with any
questions/concerns. Keep in mind though, we’re not a tax accountants or
lawyers, but we’re YOUR Real Estate Experts and always happy to help.
