Sunday, September 26, 2004
4 BASIC RULES of 1031 Exchanges
Here is an interesting article that appears at LAWSITE.COM.
It goes into depth about the 4 basic rules of the 1031 Exchange and why you need to know them. For details on these rules, please feel free to email me at janeAnne1031-4RULES@janeAnne.com And now on to the article:
TAXABLE BOOT IN SECTION 1031 EXCHANGES
By Carol A. Hayden, CLAS
(Published December 29, 1997 in North Carolina Lawyers Weekly)
http://www.lawsight.com/itcar.htm
An attorney recently lamented to me that some of his clients seem to think all they have to do is yell "1031!" and that magic number will make their capital gains taxes disappear. The utilization of 1031 exchanges by owners of investment or business property has increased dramatically since the final regulations of April, 1991(1) went into effect. Even though these regulations have clarified several gray areas concerning tax-deferred exchanges and simplified the exchange process, there are still many reasons why the taxpayer needs competent counsel when anticipating an exchange. Taxpayers may be surprised to discover that even after effecting a 1031 exchange, they still owe an amount of capital gains taxes.
Complete Nonrecognition vs. Partial Nonrecognition of Gain.
The exchange of qualifying like-kind properties under the regulations results in the nonrecognition of gain on the disposition of the relinquished property and a corresponding reduced basis in the replacement propertyacquired. It is widely understood that in order to accomplish complete nonrecognition of gain, the taxpayer must trade up or equal in both fair market value and equity.(2) Gain is, however, recognized in an exchange to the extent any "other property or money" ("boot") is received by the taxpayer in the exchange. (3) "Other property" received in an exchange would include either non-qualifying property or non-like kind property.(4) For instance, if a large parcel of undeveloped land is exchanged for a smaller parcel of farm land, a tractor, and some stock certificates, the gain on the disposition of the relinquished property would not be recognized to the extent of the farm land acquired, but would be recognized to the extent of the value of the tractor (non-like kind property) and the stock certificates (nonqualifying property).
Boot Receipt and Boot Offset.
The question remaining, however, is what are other less obvious examples of "other property" to be aware of in a typical exchange, and how can receipt of such boot be offset to minimize taxable gain? A review of basic boot offset principles will help us understand what constitutes boot as well as the tax consequences of boot received in an exchange. Long and Vrbanac, in their treatise Tax-Free Exchanges Under ' 1031 summarize these principles with the following four rules. Rule #1: "Liabilities incurred by the taxpayer in the exchange offset liability relief of the taxpayer in the exchange." For instance, a loan paid off at the closing for the relinquished property is considered mortgage boot received, but can probably be offset by mortgage liability incurred on the replacement property. The Tax Court, in Fredericks v. Commissioner, allowed the taxpayer to offset mortgage boot received from the relinquished property with mortgage boot given for the replacement property in a situation where the old loan was assumed by the purchaser of the relinquished property and the loan on the replacement property was from the seller. Both statutory and case law are vague, however, on the issue of new third-party financing on replacement property in an exchange.
Although new third-party loans taken on replacement property are commonly seen in exchanges, the Tax Court, in Wittig v. Commissioner, attempted to disallow a taxpayer to offset mortgage boot received with mortgage boot given when the loan for the replacement property involved new third-party financing. However, after much complaint from tax practitioners, the court withdrew its decision.
Rule #2: "Cash paid by the taxpayer in the exchange offsets liability relief of the taxpayer in the exchange." That same mortgage boot received from the loan payoff in the sale of the relinquished property can be offset by cash paid by the taxpayer.
Rule #3: Cash received by the taxpayer is not offset by debt incurred by the taxpayer. In other words, "mortgage boot given does not offset cash boot received."
Rule #4: "Cash paid by the taxpayer in some circumstances offsets cash received by the taxpayer."
To understand this rule, one must differentiate between types of cash boot. Cash boot received in an exchange may be in the obvious form of cash, which will generally result in some tax liability. The receipt of cash boot may also result, however, from the use of exchange funds for non-exchange expenses. The taxpayer may in certain instances be able to offset the latter example of cash boot received with cash boot paid.
This rule derives from Revenue Ruling 72-456 which found that the taxpayer was able to offset some of the cash he received at the end of the exchange by the payment of brokerage commissions on the sale of the relinquished property. Long and Vrbanac go on to say that, "In a deferred exchange, however, the Regulations take the position that cash received by the taxpayer during the exchange period may not be offset by cash subsequently paid by the taxpayer for the acquisition of the replacement property." For that reason, cash paid by the taxpayer to offset cash boot received from the closing of the relinquished property should be paid at the closing of the relinquished property and not later.
A look at exchange and non-exchange expenses typically found on closing statements will help further illustrate these concepts.
Transactional Items Found on Closing Statements. Although the tax code does not specify what an exchange expense is versus a nonexchange expense, it is generally held that expenses necessary for the sale or acquisition of property and ordinarily found on closing statements are exchange expenses, and will not result in taxable boot. Exchange expenses may include: commissions, finder's fees, title insurance premiums, escrow fees, legal fees, intermediary fees, transfer taxes, and recording fees.
Other expenses that are not direct costs involved with the disposition of the relinquished property or acquisition of the replacement property are nonexchange expenses, and may result in boot if paid with exchange funds.
Nonexchange expenses include property taxes, utility charges, association fees, hazard insurance premiums, security deposits, prepaid rent, and loan costs such as mortgage interest, loan fees, points, mortgage insurance, etc.
Specific examples follow showing how taxable boot received in an exchange might be offset.
Nonexchange expenses related to the sale of the relinquished property. In a normal closing, prorated items such as a security deposit held by the seller or property taxes due from the seller, are typically paid to the buyer by debiting the seller's proceeds on the closing statement and showing a credit to the buyer.
If this occurs in an exchange, the taxpayer would be considered to have liquidated a portion of his exchange equity. In a closing on the sale of relinquished property, these items would be considered non-exchange expenses and result in cash boot received by the taxpayer.
As an alternative, the taxpayer could pay the security deposit or property taxes to the purchaser of the relinquished property outside of closing rather than allowing the buyer to receive a credit against the purchase price, thus avoiding the receipt of cash boot.
Nonexchange expenses related to the purchase of the replacement property.
Common nonexchange expenses found on closing statements for the acquisition of replacement property may include fees for hazard insurance or association dues.
Additionally, if the taxpayer's purchase of replacement property involves a loan, there are specific costs associated with acquiring the loan, such as points, origination fees, prepaid interest, and appraisals.
Where exchange funds are used for these non-exchange expenses, the taxpayer will be considered to be in receipt of cash boot.
In order to totally defer taxable gain, the taxpayer could utilize personal funds at closing for these nonexchange expenses.
Another idea would be to simply pay from personal funds an amount (earnest money for example) sufficient to offset any cash boot received.
If the taxpayer wants to minimize recognized gain, all of the exchange funds provided from the sale of the relinquished property should go towards exchange expenses and equity.
Any remaining funds needed for loan closing costs or nonexchange expenses can be provided by cash the taxpayer brings to closing.
The taxpayer received earnest money from the purchaser of the relinquished property. Often, the taxpayer will know when he enters into the relinquished property sales contract that he wants to exchange rather than sell the property. The earnest money will generally be held in an attorney's trust account or realtor's escrow account until closing, at which time it will be applied towards the purchase price. The taxpayer in this case will not be in constructive receipt of the earnest money.
But what can be done if the taxpayer receives the earnest money deposit and cashes the check? Long and Vrbanac suggest that, "...[t]he taxpayer may arguably offset the cash boot received by cash boot given if the taxpayer deposits the payment in escrow prior to closing of the relinquished property. If the taxpayer retains the earnest money, it will constitute taxable boot at the time of the exchange."
The fair market value of the replacement property is higher than that of the relinquished property, but the taxpayer walks away from closing with cash. This situation occurs when the loan for the replacement property is too high. For example, suppose a relinquished property is sold for $100,000.00, and the exchange funds sent to the qualified intermediary. The taxpayer subsequently acquires replacement property for $150,000.00, but takes out a loan for $80,000.00.
At the closing, the intermediary provides the $100,000.00 in exchange funds, but only 70,000.00 is applied to equity and the remaining $30,000.00 is refunded to the taxpayer. According to Rule #3 above, mortgage boot given does not offset cash boot received. Sometimes the taxpayer may decide to take a higher loan knowing he will be taxed on the gain up to the amount of cash received. But if the taxpayer wants to totally defer taxable gain, he should lower the loan amount in order to avoid taking cash boot.
In conclusion, a 1031 exchange is an excellent mechanism for an owner of eligible property to trade into another qualifying property without the immediate recognition of a capital gain. It is important to realize that gain will be recognized to the extent that the client receives "other property or money". If a taxpayer wants to totally defer taxable gain, proper guidance concerning boot and boot offset principles is advisable.
It goes into depth about the 4 basic rules of the 1031 Exchange and why you need to know them. For details on these rules, please feel free to email me at janeAnne1031-4RULES@janeAnne.com And now on to the article:
TAXABLE BOOT IN SECTION 1031 EXCHANGES
By Carol A. Hayden, CLAS
(Published December 29, 1997 in North Carolina Lawyers Weekly)
http://www.lawsight.com/itcar.htm
An attorney recently lamented to me that some of his clients seem to think all they have to do is yell "1031!" and that magic number will make their capital gains taxes disappear. The utilization of 1031 exchanges by owners of investment or business property has increased dramatically since the final regulations of April, 1991(1) went into effect. Even though these regulations have clarified several gray areas concerning tax-deferred exchanges and simplified the exchange process, there are still many reasons why the taxpayer needs competent counsel when anticipating an exchange. Taxpayers may be surprised to discover that even after effecting a 1031 exchange, they still owe an amount of capital gains taxes.
Complete Nonrecognition vs. Partial Nonrecognition of Gain.
The exchange of qualifying like-kind properties under the regulations results in the nonrecognition of gain on the disposition of the relinquished property and a corresponding reduced basis in the replacement propertyacquired. It is widely understood that in order to accomplish complete nonrecognition of gain, the taxpayer must trade up or equal in both fair market value and equity.(2) Gain is, however, recognized in an exchange to the extent any "other property or money" ("boot") is received by the taxpayer in the exchange. (3) "Other property" received in an exchange would include either non-qualifying property or non-like kind property.(4) For instance, if a large parcel of undeveloped land is exchanged for a smaller parcel of farm land, a tractor, and some stock certificates, the gain on the disposition of the relinquished property would not be recognized to the extent of the farm land acquired, but would be recognized to the extent of the value of the tractor (non-like kind property) and the stock certificates (nonqualifying property).
Boot Receipt and Boot Offset.
The question remaining, however, is what are other less obvious examples of "other property" to be aware of in a typical exchange, and how can receipt of such boot be offset to minimize taxable gain? A review of basic boot offset principles will help us understand what constitutes boot as well as the tax consequences of boot received in an exchange. Long and Vrbanac, in their treatise Tax-Free Exchanges Under ' 1031 summarize these principles with the following four rules. Rule #1: "Liabilities incurred by the taxpayer in the exchange offset liability relief of the taxpayer in the exchange." For instance, a loan paid off at the closing for the relinquished property is considered mortgage boot received, but can probably be offset by mortgage liability incurred on the replacement property. The Tax Court, in Fredericks v. Commissioner, allowed the taxpayer to offset mortgage boot received from the relinquished property with mortgage boot given for the replacement property in a situation where the old loan was assumed by the purchaser of the relinquished property and the loan on the replacement property was from the seller. Both statutory and case law are vague, however, on the issue of new third-party financing on replacement property in an exchange.
Although new third-party loans taken on replacement property are commonly seen in exchanges, the Tax Court, in Wittig v. Commissioner, attempted to disallow a taxpayer to offset mortgage boot received with mortgage boot given when the loan for the replacement property involved new third-party financing. However, after much complaint from tax practitioners, the court withdrew its decision.
Rule #2: "Cash paid by the taxpayer in the exchange offsets liability relief of the taxpayer in the exchange." That same mortgage boot received from the loan payoff in the sale of the relinquished property can be offset by cash paid by the taxpayer.
Rule #3: Cash received by the taxpayer is not offset by debt incurred by the taxpayer. In other words, "mortgage boot given does not offset cash boot received."
Rule #4: "Cash paid by the taxpayer in some circumstances offsets cash received by the taxpayer."
To understand this rule, one must differentiate between types of cash boot. Cash boot received in an exchange may be in the obvious form of cash, which will generally result in some tax liability. The receipt of cash boot may also result, however, from the use of exchange funds for non-exchange expenses. The taxpayer may in certain instances be able to offset the latter example of cash boot received with cash boot paid.
This rule derives from Revenue Ruling 72-456 which found that the taxpayer was able to offset some of the cash he received at the end of the exchange by the payment of brokerage commissions on the sale of the relinquished property. Long and Vrbanac go on to say that, "In a deferred exchange, however, the Regulations take the position that cash received by the taxpayer during the exchange period may not be offset by cash subsequently paid by the taxpayer for the acquisition of the replacement property." For that reason, cash paid by the taxpayer to offset cash boot received from the closing of the relinquished property should be paid at the closing of the relinquished property and not later.
A look at exchange and non-exchange expenses typically found on closing statements will help further illustrate these concepts.
Transactional Items Found on Closing Statements. Although the tax code does not specify what an exchange expense is versus a nonexchange expense, it is generally held that expenses necessary for the sale or acquisition of property and ordinarily found on closing statements are exchange expenses, and will not result in taxable boot. Exchange expenses may include: commissions, finder's fees, title insurance premiums, escrow fees, legal fees, intermediary fees, transfer taxes, and recording fees.
Other expenses that are not direct costs involved with the disposition of the relinquished property or acquisition of the replacement property are nonexchange expenses, and may result in boot if paid with exchange funds.
Nonexchange expenses include property taxes, utility charges, association fees, hazard insurance premiums, security deposits, prepaid rent, and loan costs such as mortgage interest, loan fees, points, mortgage insurance, etc.
Specific examples follow showing how taxable boot received in an exchange might be offset.
Nonexchange expenses related to the sale of the relinquished property. In a normal closing, prorated items such as a security deposit held by the seller or property taxes due from the seller, are typically paid to the buyer by debiting the seller's proceeds on the closing statement and showing a credit to the buyer.
If this occurs in an exchange, the taxpayer would be considered to have liquidated a portion of his exchange equity. In a closing on the sale of relinquished property, these items would be considered non-exchange expenses and result in cash boot received by the taxpayer.
As an alternative, the taxpayer could pay the security deposit or property taxes to the purchaser of the relinquished property outside of closing rather than allowing the buyer to receive a credit against the purchase price, thus avoiding the receipt of cash boot.
Nonexchange expenses related to the purchase of the replacement property.
Common nonexchange expenses found on closing statements for the acquisition of replacement property may include fees for hazard insurance or association dues.
Additionally, if the taxpayer's purchase of replacement property involves a loan, there are specific costs associated with acquiring the loan, such as points, origination fees, prepaid interest, and appraisals.
Where exchange funds are used for these non-exchange expenses, the taxpayer will be considered to be in receipt of cash boot.
In order to totally defer taxable gain, the taxpayer could utilize personal funds at closing for these nonexchange expenses.
Another idea would be to simply pay from personal funds an amount (earnest money for example) sufficient to offset any cash boot received.
If the taxpayer wants to minimize recognized gain, all of the exchange funds provided from the sale of the relinquished property should go towards exchange expenses and equity.
Any remaining funds needed for loan closing costs or nonexchange expenses can be provided by cash the taxpayer brings to closing.
The taxpayer received earnest money from the purchaser of the relinquished property. Often, the taxpayer will know when he enters into the relinquished property sales contract that he wants to exchange rather than sell the property. The earnest money will generally be held in an attorney's trust account or realtor's escrow account until closing, at which time it will be applied towards the purchase price. The taxpayer in this case will not be in constructive receipt of the earnest money.
But what can be done if the taxpayer receives the earnest money deposit and cashes the check? Long and Vrbanac suggest that, "...[t]he taxpayer may arguably offset the cash boot received by cash boot given if the taxpayer deposits the payment in escrow prior to closing of the relinquished property. If the taxpayer retains the earnest money, it will constitute taxable boot at the time of the exchange."
The fair market value of the replacement property is higher than that of the relinquished property, but the taxpayer walks away from closing with cash. This situation occurs when the loan for the replacement property is too high. For example, suppose a relinquished property is sold for $100,000.00, and the exchange funds sent to the qualified intermediary. The taxpayer subsequently acquires replacement property for $150,000.00, but takes out a loan for $80,000.00.
At the closing, the intermediary provides the $100,000.00 in exchange funds, but only 70,000.00 is applied to equity and the remaining $30,000.00 is refunded to the taxpayer. According to Rule #3 above, mortgage boot given does not offset cash boot received. Sometimes the taxpayer may decide to take a higher loan knowing he will be taxed on the gain up to the amount of cash received. But if the taxpayer wants to totally defer taxable gain, he should lower the loan amount in order to avoid taking cash boot.
In conclusion, a 1031 exchange is an excellent mechanism for an owner of eligible property to trade into another qualifying property without the immediate recognition of a capital gain. It is important to realize that gain will be recognized to the extent that the client receives "other property or money". If a taxpayer wants to totally defer taxable gain, proper guidance concerning boot and boot offset principles is advisable.
Thursday, September 23, 2004
Asheville's GREEN BUILDING Council
A newly formed organization, the Western North Carolina
Green Building Council, lists local and regional businesses that manufacture, design with, or sell building products that are created to promote environmentally sound (green) building practices.
It can be a handy guide for you.
Some of you may be interested in incorporating energy efficient, recycled, renewable, nontoxic, natural and reused products/resources into your investment or residential properties. More and more people these days are taking a good hard second look at materials that support healthy indoor air quality, cut down on energy usage, and provide them with a much more healthful indoor environment and long-term energy savings.
Green buildings minimize construction waste and have the least impact possible to the local building site and to the global environment as a whole. ..and architects, builders, consultants, product distributors, and the Land of Sky Regional Council are getting on board with the idea of a "green building" effort .
"As a way of encouraging environmentally conscious (green) building and development in the region, the WNC Green Building Directory will encourage sustainable, efficient and healthy buildings. It will also act as an organizational and promotional tool for regional businesses and an educational tool for the community at large," MAIN CONNECTION notes.
"As we have come, more and more, to understand that the environment is the place where we live, and is not just a political issue; we can more easily put environmental stewardship in our bottom lines," Asheville Mayor Stinik explained.
The Council estimates that the building industry consumes over 60% of our natural resources and is responsible for more than half of the waste produced by the US annually. A properly designed green built home will use30-60% less energy to operate than the conventional home and require fewer precious resources in the building process. "The result of lessening the impact buildings have on the environment caters to greater sustainability of natural resources..."
Green building is already becoming mainstream in other parts of the US, "says Meehan-Patton of the Green Building Council. "Austin, Texas, the cradle of green building initiatives, has developed extensive programs to encourage innovative and sustainable building practices. There are also programs in Washington, Oregon, Colorado and Maryland. "
If you would like more information, please contact The WNC Green Building Council, PO Box 8427, Asheville, NC 28814, or call Cindy Meehan-Patton, (828) 251-5888. Tell her the folks at
www.janeAnne.com sent ya'!
Green Building Council, lists local and regional businesses that manufacture, design with, or sell building products that are created to promote environmentally sound (green) building practices.
It can be a handy guide for you.
Some of you may be interested in incorporating energy efficient, recycled, renewable, nontoxic, natural and reused products/resources into your investment or residential properties. More and more people these days are taking a good hard second look at materials that support healthy indoor air quality, cut down on energy usage, and provide them with a much more healthful indoor environment and long-term energy savings.
Green buildings minimize construction waste and have the least impact possible to the local building site and to the global environment as a whole. ..and architects, builders, consultants, product distributors, and the Land of Sky Regional Council are getting on board with the idea of a "green building" effort .
"As a way of encouraging environmentally conscious (green) building and development in the region, the WNC Green Building Directory will encourage sustainable, efficient and healthy buildings. It will also act as an organizational and promotional tool for regional businesses and an educational tool for the community at large," MAIN CONNECTION notes.
"As we have come, more and more, to understand that the environment is the place where we live, and is not just a political issue; we can more easily put environmental stewardship in our bottom lines," Asheville Mayor Stinik explained.
The Council estimates that the building industry consumes over 60% of our natural resources and is responsible for more than half of the waste produced by the US annually. A properly designed green built home will use30-60% less energy to operate than the conventional home and require fewer precious resources in the building process. "The result of lessening the impact buildings have on the environment caters to greater sustainability of natural resources..."
Green building is already becoming mainstream in other parts of the US, "says Meehan-Patton of the Green Building Council. "Austin, Texas, the cradle of green building initiatives, has developed extensive programs to encourage innovative and sustainable building practices. There are also programs in Washington, Oregon, Colorado and Maryland. "
If you would like more information, please contact The WNC Green Building Council, PO Box 8427, Asheville, NC 28814, or call Cindy Meehan-Patton, (828) 251-5888. Tell her the folks at
www.janeAnne.com sent ya'!
1031 Tax-Deferred Exhanges and the SPECIAL QI
If you are interested in investing in Real Estate, it is a wise choice to interview and select a Qualified Intermediary to assist you in your transactions.
A good place to start is with the Federation of Exchange Accommodators .
The Federation of Exchange Accommodators (FEA) is the only national trade organization formed to represent qualified intermediaries (QI's), their primary legal/tax advisors and affiliates who are directly involved in Section 1031 Exchanges. A search for their site will also provide you with a locator link.
Formed in 1989, the FEA was organized to promote the discussion of ideas and innovations in the industry, to establish and promote ethical standards of conduct for QI's, to offer education to both the exchange industry and the general public, and to work toward the development of uniformity of practice and terminology within the exchange profession. The FEA also provides timely input and updates on pending State and Federal legislation, Internal Revenue Service and Treasury Rulings, and Court Decisions.
Rememeber, ethical standards are essential in the matter of real estate transactions.
Members of the FEA represent the companies whose primary business is acting as QIs for Section 1031 Exchanges.
The FEA takes an active role in responding to legislative and regulatory actions at both the state and national level. The association has repeatedly presented commentary to the IRS, House Ways and Means Committee and Senate Finance Committee in connection with legislative proposals under review and consideration by Congress to amend IRC Section 1031 and related tax provisions. The FEA has provided commentary and testimony to many state legislatures and regulatory agencies regarding the licensing and regulation of exchange professionals. The FEA remains committed to actively monitoring the issues affecting the exchange industry.
Let us know if you would like further information. Contact
www.janeAnne.com
A good place to start is with the Federation of Exchange Accommodators .
The Federation of Exchange Accommodators (FEA) is the only national trade organization formed to represent qualified intermediaries (QI's), their primary legal/tax advisors and affiliates who are directly involved in Section 1031 Exchanges. A search for their site will also provide you with a locator link.
Formed in 1989, the FEA was organized to promote the discussion of ideas and innovations in the industry, to establish and promote ethical standards of conduct for QI's, to offer education to both the exchange industry and the general public, and to work toward the development of uniformity of practice and terminology within the exchange profession. The FEA also provides timely input and updates on pending State and Federal legislation, Internal Revenue Service and Treasury Rulings, and Court Decisions.
Rememeber, ethical standards are essential in the matter of real estate transactions.
Members of the FEA represent the companies whose primary business is acting as QIs for Section 1031 Exchanges.
The FEA takes an active role in responding to legislative and regulatory actions at both the state and national level. The association has repeatedly presented commentary to the IRS, House Ways and Means Committee and Senate Finance Committee in connection with legislative proposals under review and consideration by Congress to amend IRC Section 1031 and related tax provisions. The FEA has provided commentary and testimony to many state legislatures and regulatory agencies regarding the licensing and regulation of exchange professionals. The FEA remains committed to actively monitoring the issues affecting the exchange industry.
Let us know if you would like further information. Contact
www.janeAnne.com
Saturday, September 04, 2004
Save The Gray-Haired Agents, a 1031 Specialist's Lament
Save The Gray-Haired Agents, an "indutry-specific" article by David Reed made me chuckle when I read it today. I know were-of he speaks from personal experience, and if you happen to read this and want to give this "graying" haired, and hard-working professional a smile, please read this article---and then consider my advice at the close.
Mr. Reed writes:
" There are about 2.5 million real estate agents of all shapes and sizes -- give or take. And many of them have gray hair. How did they get gray hair? From home buyers. A typical closing time on any sales contract might be 30 days or so, and a lot has to happen during that time. There's much at stake, and if either the buyer or the seller doesn't perform as agreed then things can go wrong. Blown escrows, re-listing of the home for sale, lost deposits. Why do buyers give agents gray hair?
1. The buyers haven't applied for a mortgage, much less gotten a prequalification letter. Sure, they've been to the websites and calculated their own debt ratios. I've even seen a website that lets buyers compose their own prequalification letters based solely on data input by the borrowers. (Can you believe it?) But the buyers haven't applied for a mortgage because they figure that everything's going to be okay because their credit is good and why apply for a mortgage without a contract in the first place only to "ding" their credit report, right?
2. The buyers haven't chosen a lender. Okay, maybe the buyers have applied for a mortgage but they've applied with more than one company waiting until the very last minute to make up their minds. Nothing wrong with having one lender play off another is there? Of course not. America was built on competition. The problem is that buyers think they can just call up any of those lenders the day before closing and say, "Okay, I choose you!" and everything falls into play. All third-party documentation such as title work, appraisals and verifications all have one name on them, most likely the initial lender.
3. The buyers aren't sending in their "loan conditions." When lenders approve loans, invariably there are a few missing pieces to the puzzle that are needed before printing closing documents. Some of these loan conditions might be a missing bank statement, tax returns or even providing proof of insurance coverage for the new home. Sure, they've been to the websites and calculated their own debt ratios. I've even seen a website that lets buyers compose their own prequalification letters based solely on data input by the borrowers. (Can you believe it?) But the buyers haven't applied for a mortgage because they figure that everything's going to be okay because their credit is good and why apply for a mortgage without a contract in the first place only to "ding" their credit report, right?
WHAT BUYERS/INVESTORS can do to
SAVE the Gray-Haired Realtors....:-)
1) PLEASE DO go ahead and get a PRE-QUALIFICATION letter for your mortgage if you are looking at buying a home, or if you are working towards a 1031 investment, and you need to do some financial strategizing, talk with a banker who specializes in 1031 Like-Kind Exchanges so that you canhave a heads-up on your flexibility.
2) Speaking of bankers, PLEASE DO talk with several and if you are buying real property in your home town/area, do this before you start your search.If you are investing in property out of your area, ask me for referrals, I will be happy to give you the names of a number of excellent bankers with whom I've worked over the years, and then you can interview them and make a choice.
3) Yes. It is important to save all those IRS documents and to have them at your fingertips if you are a serious buyer/investor. Try to gather up all your documents including bank statements and IRS returns in one place. ..and then SEND them on over to your chosen banker who will need them to be able to get ready for closing day.
If you intend to invest in a second or vacation home, remember that insurance requirements are different than if you live in your home full-time, so DO call the folks who will insure your property and have proof ready before closing.
THANK YOU, and 10,000 happy bows!
Mr. Reed writes:
" There are about 2.5 million real estate agents of all shapes and sizes -- give or take. And many of them have gray hair. How did they get gray hair? From home buyers. A typical closing time on any sales contract might be 30 days or so, and a lot has to happen during that time. There's much at stake, and if either the buyer or the seller doesn't perform as agreed then things can go wrong. Blown escrows, re-listing of the home for sale, lost deposits. Why do buyers give agents gray hair?
1. The buyers haven't applied for a mortgage, much less gotten a prequalification letter. Sure, they've been to the websites and calculated their own debt ratios. I've even seen a website that lets buyers compose their own prequalification letters based solely on data input by the borrowers. (Can you believe it?) But the buyers haven't applied for a mortgage because they figure that everything's going to be okay because their credit is good and why apply for a mortgage without a contract in the first place only to "ding" their credit report, right?
2. The buyers haven't chosen a lender. Okay, maybe the buyers have applied for a mortgage but they've applied with more than one company waiting until the very last minute to make up their minds. Nothing wrong with having one lender play off another is there? Of course not. America was built on competition. The problem is that buyers think they can just call up any of those lenders the day before closing and say, "Okay, I choose you!" and everything falls into play. All third-party documentation such as title work, appraisals and verifications all have one name on them, most likely the initial lender.
3. The buyers aren't sending in their "loan conditions." When lenders approve loans, invariably there are a few missing pieces to the puzzle that are needed before printing closing documents. Some of these loan conditions might be a missing bank statement, tax returns or even providing proof of insurance coverage for the new home. Sure, they've been to the websites and calculated their own debt ratios. I've even seen a website that lets buyers compose their own prequalification letters based solely on data input by the borrowers. (Can you believe it?) But the buyers haven't applied for a mortgage because they figure that everything's going to be okay because their credit is good and why apply for a mortgage without a contract in the first place only to "ding" their credit report, right?
WHAT BUYERS/INVESTORS can do to
SAVE the Gray-Haired Realtors....:-)
1) PLEASE DO go ahead and get a PRE-QUALIFICATION letter for your mortgage if you are looking at buying a home, or if you are working towards a 1031 investment, and you need to do some financial strategizing, talk with a banker who specializes in 1031 Like-Kind Exchanges so that you canhave a heads-up on your flexibility.
2) Speaking of bankers, PLEASE DO talk with several and if you are buying real property in your home town/area, do this before you start your search.If you are investing in property out of your area, ask me for referrals, I will be happy to give you the names of a number of excellent bankers with whom I've worked over the years, and then you can interview them and make a choice.
3) Yes. It is important to save all those IRS documents and to have them at your fingertips if you are a serious buyer/investor. Try to gather up all your documents including bank statements and IRS returns in one place. ..and then SEND them on over to your chosen banker who will need them to be able to get ready for closing day.
If you intend to invest in a second or vacation home, remember that insurance requirements are different than if you live in your home full-time, so DO call the folks who will insure your property and have proof ready before closing.
THANK YOU, and 10,000 happy bows!
news~ MORTGAGE RATES EASE
Fixed mortgage rates ease back for the eighth week.
Freddie Mac (NYSE:FRE) released the results of its Primary Mortgage Market Survey in which the 30-year fixed-rate mortgage (FRM) averaged 5.81 percent, with an average 0.7 points, for the week ending August 19, 2004, slipping from the previous week when it averaged 5.85 percent. Last year at this time, the 30-year FRM averaged 6.24 percent.
The average for the 15-year FRM for the week ending August 19 is 5.19 percent, with an average 0.6 points, down from the previous week when it averaged 5.24 percent. A year ago, the 15-year FRM averaged 5.58 percent.
One-year Treasury-indexed adjustable-rate mortgages (ARMs) averaged 4.01 percent for the week ending August 19, with an average 0.6 point, down from the previous week when it averaged 4.08 percent. At this time last year, the one-year ARM averaged 3.75 percent.
more news at www.janeAnne.com
Freddie Mac (NYSE:FRE) released the results of its Primary Mortgage Market Survey in which the 30-year fixed-rate mortgage (FRM) averaged 5.81 percent, with an average 0.7 points, for the week ending August 19, 2004, slipping from the previous week when it averaged 5.85 percent. Last year at this time, the 30-year FRM averaged 6.24 percent.
The average for the 15-year FRM for the week ending August 19 is 5.19 percent, with an average 0.6 points, down from the previous week when it averaged 5.24 percent. A year ago, the 15-year FRM averaged 5.58 percent.
One-year Treasury-indexed adjustable-rate mortgages (ARMs) averaged 4.01 percent for the week ending August 19, with an average 0.6 point, down from the previous week when it averaged 4.08 percent. At this time last year, the one-year ARM averaged 3.75 percent.
more news at www.janeAnne.com
