Fair Oaks Lender

TRANSFERRING THE TAX BASE FOR OVER 55 BUYERS CAN SAVE LOTS OF MONEY

Knowing the tax laws can allow homebuyers and the Realtors that assist them to make a move confidently and to save lots of money.  California Propositions 13, 60, and 90 can greatly affect people over 55 years of age.

Proposition 13:

Under Proposition 13, the value of a home, for property tax purposes, is reassessed to the new market level (the new purchase price) whenever a change in ownership occurs. This usually results in higher property taxes.

Prop 60:

Proposition 60 allows a transfer of base-year value of the principal residence sold of a senior citizen (55 and older) to a replacement dwelling of equal or lesser value within the same county.

Prop 90:

Proposition 90, enacted in the November of 1988 in California, and otherwise known as the “local option law”, provides an avenue for property tax relief to owners 55 and older who sell their principal residence and purchase a replacement home of equal or lesser value in another county.

The County Assessors will require a copy of the tax bill from the other county and a copy of the applicant’s birth certificate to be included with the application. Also, include a copy of the grant deed for the new purchase and a copy of the closing statements of both sale and purchase.

SUMMARY OF ELIGIBILITY REQUIREMENTS:

The seller of the original residence, or a spouse residing with the seller, 55 years of age or older, as of the date that the original property is transferred.

The replacement property must be of equal or lesser “current market value” than the original.

The tax base year of the original property cannot be transferred to the replacement dwelling until the original property is sold, BUT (and this is the cool part) the replacement property must be purchased or newly constructed within two years (BEFORE OR AFTER) of the sale of the original property.  This allows the property owner to take advantage of a low market, like the one we’re in, and sell when things are selling more briskly or vice versa. This just means that the homeowner will be taxed on the new property at the assessed rate until the sale is made on the original property and the proper paperwork is filed with the county. The owner must file an application within three years following the purchase date or new construction completion date of the replacement property.

This is a one-time-only filing. Proposition 60/90 relief cannot be granted if the claimant, or spouse, was granted relief in the past.

Proposition 60/90 relief includes (but is not limited to): single family residences, condominiums, units in planned unit developments, cooperative housing, corporation units or lots, community apartment units, mobile homes subject to local real property tax, and owner’s living premises which are a portion of a larger structure.

The taxpayer is not eligible for the tax relief until they actually own AND occupy the replacement dwelling as their principle residence.

If the buyer is moving to another county, it is essential that you call the co-operating County in question, to verify that they are currently accepting the value transfer under Proposition 90, and what their requirements are. If you have any questions, the property tax office in Sacramento for all counties in California may be reached at (916) 445-4982.

Counties that have rejected Prop 90: Sacramento, Placer, Butte, Yolo, Merced, San Luis Obisbo, Calveras, Mono, Contra Costa, Marin, Santa Barbara, Monterey, Santa Cruz, Napa, Shasta, Siskiyou, Fresno, Nevada

Counties that have adopted Prop 90: El Dorado, Alameda, Modoc, Kern, San Mateo, Orange, Santa Clara, Los Angeles, San Diego,  and Ventura

Frequently Asked Questions:

What is a “transfer of the base year value”? Let’s take this step by step. The base year is the year in which the property or portion thereof is purchased, newly constructed, or when ownership change occurs. The base year value, also called “original base year value,” is the full market value of the home in the base year. The full market value is typically determined by either the purchase price or the Proposition 13 value.  Strategies that some have employed to keep the sale price equal or less than the original property is to pay fees, such as commissions, outside of escrow—instead of having them built in to the purchase price.

What other “conditions” must be met to qualify? Both the original and replacement properties must be located in the same county, and, the original property must have been eligible for either the homeowner’s exemption (claimant owned and occupied it as principal residence at the time of sale or within two years of the acquisition of the replacement property) or entitled to the disabled veteran’s exemption (veteran with service related disability and California resident on the 1st of January of the claim year), and, the replacement dwelling must be of equal or lesser value than the original property. Also, the replacement dwelling must have been acquired or newly constructed within two years before or after the sale of the original property as long as the replacement property was acquired or newly constructed on or after November 6th, 1986, In addition, the original property must be subject to reappraisal at its current “fair market value” as a result of its transfer, in accordance with Revenue & Taxation Code sections 110.1 or 5803, and, a claim must be filed within three years of the replacement dwelling purchase or completion of new construction of the replacement dwelling too.

What if I jointly own the property with someone who is not my spouse? The same rule applies. If there are two or more co-owners of a dwelling, all owners qualify if only one owner of record is over 55 and if that owner/claimant occupies the property as of the date of the transfer.

How often can I claim the Proposition 60 benefit? The benefits of the Proposition 60 exclusion are granted only once in a claimant’s lifetime.

As a co-tenant of the original property with another owner, may I receive a partial benefit if we apply for the exclusion and buy separate replacement homes? No. Only one co-owner of a qualified original property may receive the benefit in this situation. The co-owners must choose between themselves which one will make the claim. The only exception is a multiple-residence original property (such as a duplex), where multiple owners qualify for separate homeowner’s exemptions. In that case, each owner may transfer a portion of the original property’s value to his separate replacement dwelling.

Does Prop 60 apply if I make a gift of my original property to my children and I buy a replacement? No. A gift of the original home to the owner’s child, while the owner is alive or through a will upon the owner’s death, does not qualify. The original property must be sold in exchange for something of monetary value (“consideration”) and be subject to reappraisal at full market value at the time of transfer.

What is “equal or lesser value” of the replacement dwelling? In most cases, where the replacement property is purchased before or at the same time as the original, the market value of the replacement must be 100 % or less of the market value of the original.

Must I buy the replacement home before I sell my original residence? No. You have up to two years before or after the sale of the original residence to buy a replacement. The date of the replacement’s purchase determines the relative market value that is required to qualify under Prop 60. Thus, (1) if the replacement is purchased or newly built before the original property is sold, the replacement’s value must be 100% or less than the market value of the original; (2) if the replacement dwelling is acquired or newly built within one year after the original is sold, the replacement’s value must be not more than 105% of the original’s value; and (3) if the replacement is acquired or newly built within two years after the original is sold, the replacement’s value must be not more than 110% of the original’s. Market value is not necessarily the purchase or sale price—it is determined by the county assessor.

As sole owner of an original property, may I qualify when I jointly buy a share of a replacement? Yes you may, as long as you are otherwise qualified, regardless of how many co-owners buy the replacement. All co-owners will share your benefit, although they need not join in your claim. You may not claim the benefit again, but the others may.

May one sole owner of a qualified original home and another sole owner of a separate qualified original home apply their separate Prop 60 benefits to the same replacement residence they buy jointly? No. Each owner may only receive the benefit of a single claim. The owners may not combine their benefits to buy a replacement dwelling of equal or less value than the combined original value.

As always, contact a qualified tax professional to get expert advice.

New money is now available for the SHRA MCC program.  This program blows away the $8,000 First Time Homebuyer program if the borrower keeps the loan in place for more than five years as an owner occupant.

The Sacramento Mortgage Credit Certificate (MCC) Program is designed to provide homeownership assistance on home purchases within the cities of Sacramento, Elk Grove, Folsom, Isleton, Galt, Citrus Heights, Rancho Cordova and the County of Sacramento. The MCC reduces the amount of Federal income tax a homebuyer pays, thus giving more available income to qualify for a mortgage loan and to make monthly mortgage payments. This new allocation won’t last very long, so take advantage of it while you can. For more details, please call me, John Easterbrook, The Fair Oaks Lender, at (916) 224-7653 or email me at je@fairoakslender.com.
Program Features:
20% Mortgage Credit Certificate – a tax credit of 20% of the annual mortgage interest paid (amount of the credit cannot be more than the annual federal income tax liability after all other credits and deductions have been taken into account)
MCC will be in effect for the life of the original mortgage loan provided property remains owner occupied
MCC may be reissued one time, upon the first refinance of the original mortgage loan
MCCs may be used with conventional loans, fixed-rate or adjustable loans, FHA and VA loans (MCCs are not available with bond-backed loans such as CHFA or Cal-Vet)
40 percent of an MCC allocation is reserved for households whose income does not exceed 80 percent of the area median adjusted for family size
Eligible Applicants:
Homebuyers who:
are first-time homebuyers (have not owned and occupied a home as a principal residence within the preceding three years) (in federally designated target areas, you do not have to be a first-time homebuyer)
are able to qualify for a loan to purchase the home
will live in the home being purchased
do not exceed the following income limitation:
Non-Target Areas Target Areas
1 or 2 person household $73,100 $87,720
3 or more person household $84,065 $102,340
Eligible Properties:
Single family homes that are located within the cities of Sacramento, Elk Grove, Folsom, Isleton, Galt, Citrus Heights, Rancho Cordova and the unincorporated areas of the County of Sacramento.
maximum purchase price limits:
Non-Target Areas Target Areas
New and Existing Homes $506,795 $619,417
Federally Designated Target Areas:
The following census tracts are federally designated target areas:
5, 7, 9, 10, 11, 13, 18, 21, 27, 28, 37, 42.03, 44.02, 45, 46.02, 49.03, 50.02, 52.01, 53, 55.06, 62.02, 64, 66, 67.02, 68, 73, 74.13, 75.03, 88, 91.10

Here’s the latest on the USDA funding voted on last night:

Last night by a vote of 67 to 28 (5 not voting), H.R. 4899 Supplemental Appropriations Act, 2010 passed in the U.S. Senate. The legislation will now move to a conference process with members of the U.S. House and U.S. Senate.  Contained in this legislation as passed in the Senate is the authority needed to raise the guarantee fee in the USDA Section 502 Guaranteed Rural Housing Program to an amount not to exceed 3.50% of the loan amount. Additionally, the legislation allows for funding authorization sufficient to meet all of the demand for the remainder of Fiscal Year 2010.  While USDA Rural Development has now implemented a process to issue loan approvals (Conditional Commitments: RD Form 1980-18) that are “subject to” Congressional action, this legislative action in the Senate takes the funding issue for the USDA Section 502 Guaranteed Rural Housing Program one step closer to a permanent solution for FY2010.

Question: Hi John, What do you know about the USDA Rural Housing funds being replenished? – Cheryl

Hi Cheryl,

The reason that you haven’t got any clarity on USDA funds is probably because the waters that Bills swim in are rather murky.

There is a Senate Bill (S. 3266), sponsored by Sen. Michael Bennet and 14 other Senators.  The bill is currently attached to HR 4899, the Disaster Relief and Summer Jobs Act of 2010.  S. 3266 will replenish the USDA Guaranteed Loan Program, which currently is out of money.  The Bill is up for consideration today in the Senate.  Many folks are suggesting that they bring a separate vote up so the Bill can be considered on its own merit, not w/ the other provisions in HR 4899.

And this is where it gets murky.  There are differing opinions on what will happen next: (1) It will then go back to the House Friday for review of the changes that will be made to it or (2) the Bill will go to Senate conference committee.  In the case of the Bill going to conference committee, the USDA will then start releasing funds.

This is pretty bad timing for all those folks trying to get the FTHB tax credit and close by June 30^th.  Hopefully the politicos will be mindful of this and expedite this Bill.

Maybe some wise political adviser can help us out and comment on what they know.

Today my national lender announced that they now have the Fannie Mae HomePath Renovation Program. With this program you are able to purchase select Fannie Mae Foreclosed homes listed on http://www.homepath.com and finance renovations into the loan. The renovation costs are limited to 20% of the as repaired or completed value or $30,000 whichever is less. The renovation money is placed into an escrow account and must be completed within 3 months after the closing.

This program allows owner occupant purchases with as little as a 3% down payment. It also allows investment or second home purchases with as little as a 10% down payment.

When you use this renovation product an appraisal will be required. If you do not use the renovation product then one is not required and the property is accepted as-is. I had made an announcement when I first had knowledge of HomePath program.

This product allows the seller to contribute up to 6% of the purchase price toward closing costs. (2% for second home or investment property) This amount may vary based on the down payment amount. There also is no PMI required.

I’ve been in the real estate game since 1985.  I’ve seen Federal and State incentives come and go (MCC, First House, DAP, etc.), but never has there been an enticement to buy like the $8,000 First Time Home Tax Credit.  Now, California has come along and thrown more fuel on the hot real estate market fire and given us another gift–

The New $10,000 Homebuyer Tax Credit

The new bill, just signed by the Governor into law, applies a $10,000 tax credit toward purchases of new homes for all buyers and existing homes for first time homebuyers.  It appears that the timing of the law to go into law after May 1st was so that there wasn’t any overlap with the Federal law, but homebuyers that got into contract prior to 5/1/2010, are allowed until 6/30/2010 to close escrow on their homes, giving them a potential boon of $18,000 in tax incentives!  The California Franchise Tax Board is scrambling to cover all their bases with this law and will not have all the provisions posted on their website until 3/30/2010, but I’ve got the latest for you here.

The new bill:

Provides a 5% tax credit, up to $10,000 limit, to all buyers of new or never-occupied homes.

Provides a 5% tax credit, up to $10,000 limit, to first-time-home-buyers of existing homes.

$100 million is set aside for each program (total lf $200 million)
Requires buyers to live in the home for two years or they must repay their tax credit.
The tax credit is to be paid for in thirds over a three year period.
Sets no income limitations on buyers.

1. FHA & VA EXPERT—Minimum down and the maximum Seller concessions with generous    underwriting guidelines.  Streamline and VA IRRRL at SMOKIN’ RATES!  Also take           advantage of the HUD $100 down financing currently available on HUD REO’s.
2. USDA—Get 100% financing in selected areas with generous income limits and great rates.
3. HOME PATH—Fannie Mae’s REO loan on selected properties (go to  www.Homepath.com) for financing with No MI, low as 3% down for owner occ, 10% down for investor, gift funds OK for downpayment.  LIMITED TIME OFFER-3.5% incentive for closing costs if close by 4/30/10.
4. INVESTOR LOANS UP TO 10 PROPERTIES—98% of our competition can only go to a         maximum of 4 financed investment properties.  Why limit your buyer and your income?
5. FLIPPED PROPERTIES—Resold properties under 90 days OK for FHA with only 3.5% down.  Conventional OK too with 20% down on owner occupant and investment.
6. CONVENTIONAL TO 60% RATIO—that’s right!  We have a way to get a borrower qualified with a back end ratio as high as 60%.   Let me turn a denied loan into a closed escrow for you.
7. NON-PERMITTED ADDITIONS—Additions may not need to be permitted.  We have two funding sources currently accepting these types of  homes.  Call me for details.
8. JUMBO & SUPER-JUMBO—I have great rates and terms for loans up to $3.5M.  For higher loan amounts, please call for pricing and terms.
9. DIRECT LOCAL BANK FUNDING—Our parent company, Sierra Pacific Mortgage is based in Folsom.  Get the BEST PRICE available with local doc drawing and funding.
10. CONNIE—She’s the best processor in the business!  For her, communication is job #1.  She is a former escrow officer with 20 years experience in processing loans.  We make a great team.

One huge challenge investors with over four properties are finding these days is financing for additional investment properties up to a total of ten.  Many lenders perceive an investor with more than four financed properties as an increased risk.  This, despite Fannie Mae announcing last spring that it would allow their mortgages to go up to ten financed properties from four.

Good news.  Sierra Pacific Mortgage, our parent company at Golden Bear Mortgage, has affiliates that will allow the practice of lending to investors with more than four properties.  We can even combine an investor purchase with a flip (a home that has been purchased and is being sold within a 90 day period).

Investor financing is alive and well.  Many investors were not able to generate positive cash flow on their investments with a 20% down payment as recent as 2008, relying on equity appreciation to capitalize on their properties.  Well…we all know what happened to the equity.   The current market realities are actually better for the investor, with plenty of highly qualified tenants for residential homes.

Continue to check in with www.FairOaksLender.com to receive valuable information about investing, first time home buying, tax laws, and what’s hot in the real estate market.  Thanks for viewing.

My advice?  Jump in with both feet and your eyes wide open!  Here’s what to watch for.

Mortgage rates are at an incredible historic low, and that will not last. The rate on a 30-year mortgage averaged 5% last week, according to Freddie Mac. Rates are low in part because the Federal Reserve has been buying up about $3 trillion in mortgage-backed securities and mortgage agency debt. The aim is to hold down interest rates and keep mortgages available. But the Fed is slowly removing that financial crutch as the economy improves. It has no plans to buy any more past March 30, 2010- it says. The likely result is an uptick in rates. Meanwhile, the recovering economy by itself should raise rates as the year goes on. Economists at the Mortgage Bankers Association expect to see a 6.1% rate by year end. Such a rise would add about $104 to the monthly payment on a $150,000 mortgage.  What does a healthy economy with still moderate interest rates equal?

Inflation.  Without your feet planted squarely on your own piece of dirt, you could loose out on the next wave of increased prices.  Gold and real estate (the ultimate tangible goods) will usually benefit from inflation.

The home buyer tax credit expires on April 30, 2010 and no one knows if Congress will renew it a second time. Expect a clash between the real estate lobby and fiscal conservatives worried about the $1.35 trillion federal deficit. To qualify for the credit, you must sign a purchase contract by April 30, 2010 and close by July 1, 2010. First-time buyers get up to $8,000. “First-time” is defined as someone who hasn’t owned a home in three years. Move-up buyers get up to $6,500 when they purchase a new primary residence. To get the credit, you have to have lived in the old home for at least five out of the last eight years. The credits start phasing out at $125,000 in adjusted gross income for singles and $225,000 for joint filers.  Keep logging on to www.FairOaksLender.com, email me at je@gbmc.com, or call me at 916-224-7653.

Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs a significant amount of the country’s home loans.

The FHA will raise the up-front Mortgage Insurance Premium paid by borrowers from 1.75% to 2.25% as well as request legislative authority to increase the maximum annual MIP that the FHA can charge.  This is the second time in two years that it has raised the premium.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens in a written release.

In addition, in order for new borrowers to qualify for the 3.5 percent down payment program, they will now be required to have a minimum FICO score of 580.  Borrowers with a lower score will be required to put down at least 10 percent.

The FHA will also reduce allowable seller concessions, from 6 percent to 3 percent. The change will give borrowers a greater financial stake in their home purchases, as well as brings the FHA into conformity with industry standards on seller concessions.

FHA, administered by HUD, which does not lend but only insures home mortgages, has been under increased scrutiny of late, as rising defaults put the agency below its required reserves. The authority went from insuring barely 3 percent of all home loans at the height of the latest housing boom to now backing an estimated 40 percent of all new loans.  It has been a significant player in housing’s so far weak recovery.

Earlier in the week on Monday, FHA announced that transactions after 2/1/2010 will no longer be subject to the “flipping rule”, which required private sellers to wait 90 days after purchasing a home before they could enter into a transaction with a new buyer.

“The changes announced by the FHA represent an attempt to navigate a prudent course without negatively impacting access to credit or contributing to a further slowing of the housing market in communities of color,” said David Berenbaum, Chief Program Officer at the National Community Reinvestment Coalition in a written release.

The opposition to this move has mainly been voiced by the mortgage community, which has criticized mainly the drastic reduction in allowable seller contributions.  Most transactions around the $100,000 price range have closing costs that exceed 3%.  Buyers in this price range typically have fewer assets than most and come to the transaction with the bare minimum to purchase the property.  The seller allowable contribution can make or break the borrower’s ability to purchase the property.

Summary of New Changes at FHA

• After 2/1/2010 will no longer be subject to the “flipping rule”, which required private sellers to wait 90 days after purchasing a home before they could enter into a transaction with a new buyer.
• Up-front Mortgage Insurance Premium, paid by borrowers, from 1.75 percent to 2.25 percent.
• In order for new borrowers to qualify for the 3.5 percent down payment program, they will now be required to have a minimum FICO score of 580.  Borrowers with a lower score will be required to put down at least 10 percent.
• A reduction in allowable seller concessions, from 6 percent to 3 percent.