Do you Pay Taxes? The IRS allows an exclusion on the capital gains earned on the sale of a home if you meet certain requirements. If you’ve gone through a divorce or your spouse died, you can count the time that your spouse lived in the home as a part of the required two years. If you were in the military, you can apply for an extension of the exclusion period. You can ask for a period of up to 10 years to satisfy the two-year requirement. This gives you a long time to fulfill the requirement while you are away doing your military service. Asking for a Reduced Exclusion If you don’t meet the above requirements due to circumstances outside of your control, you may be able to apply for a reduced exclusion. If you sold your house due to any of the following reasons, you may qualify: The amount of the exclusion you can claim is dependent on the time you lived in the home. For example, if you lived in the home for 1 year, that is half of the time, so you can get half of the exclusion. Knowing if You Have a Capital Gain Now, the bigger issue is figuring out your capital gain. It’s more than figuring out the difference between the price you bought and sold the home. First, you must determine the total amount you invested in the home. This means the purchase price plus any capital investments you made in the home. Did you make any renovations that added to the value or use of the home? This doesn’t mean minor things like painting the home or repairing a burst pipe. It’s things that prolong the home’s life, such as a new roof or change its use, such as adding a room. You will then need to deduct any of the following:
Your FHA lender will review your past credit history performance while underwriting your loan. A good track record of timely payments will likely make you eligible for an FHA loan. The following list includes items that can negatively affect your loan eligibility: -No Credit HistoryIf you don’t have an established credit history or don’t use traditional credit, your lender must obtain a non-traditional merged credit report or develop a credit history from other means. -BankruptcyBankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage. For Chapter 7 bankruptcy, at least two years must have elapsed and the borrower has either re-established good credit or chosen not to incur new credit obligations. -Late PaymentsIt’s best to turn in your FHA loan application when you have a solid 12 months of on-time payments for all financial obligations. -ForeclosurePast foreclosures are not necessarily a roadblock to a new FHA home loan, but it depends on the circumstances. -Collections, Judgements, and Federal DebtIn general, FHA loan rules require the lender to determine that judgments are resolved or paid off prior to or at closing.
Adjustable Rate Mortgages (ARM)s are loans whose interest rate can vary during the loan’s term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a more expensive home. Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a “margin” plus an “index.” Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called “caps”. Suppose you had a “3/1 ARM” with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%. Some ARM loans have a conversion feature that would allow you to convert the loan from an adjustable rate to a fixed rate. There is a minimal charge to convert; however, the conversion rate is usually slightly higher than the market rate that the lender could provide you at that time by refinancing.
Hybrid ARM mortgages, also called fixed-period ARMs, combine features of both fixed-rate and adjustable-rate mortgages. A hybrid loan starts out with an interest rate that is fixed for a period of years (usually 3, 5, 7, or 10). Then, the loan converts to an ARM for a set number of years. An example would be a 30-year hybrid with a fixed rate for seven years and an adjustable rate for 23 years. The beauty of a fixed-period ARM is that the initial interest rate for the fixed period of the loan is lower than the rate would be on a mortgage that’s fixed for 30 years, sometimes significantly. Hence you can enjoy a lower rate while having a period of stability for your payments. A typical one-year ARM on the other hand, goes to a new rate every year, starting 12 months after the loan is taken out. So while the starting rate on ARMs is considerably lower than on a standard mortgage, they carry the risk of future hikes. Homeowners can get a hybrid and hope to refinance as the initial term expires. These types of loans are best for people who do not intend to live long in their homes. By getting a lower rate and lower monthly payments than with a 30- or 15-year loan, they can break even more quickly on refinancing costs, such as title insurance and the appraisal fee. Since the monthly payment will be lower, borrowers can make extra payments and pay off the loan early, saving thousands during the years they have the loan.
VA home loans are a critical resource for military members seeking to achieve homeownership. These mortgage loans are guaranteed by the Department of Veterans Affairs (VA), making them a unique and advantageous option for eligible veterans, active-duty service members, and surviving spouses. The primary purpose of the VA loan program is to facilitate the home buying process for those who have served or are currently serving in the military, offering them a pathway to secure and stable housing. One of the key benefits of VA home loans is the absence of a down payment requirement. Unlike conventional loans that typically necessitate a significant upfront payment, VA loans allow qualified buyers to finance 100% of the home’s value. This can be especially beneficial for military members who may not have substantial savings due to frequent relocations and other service-related financial challenges. Another significant advantage of VA home loans is the competitive interest rates they offer. Because these loans are backed by the federal government, lenders can offer lower rates compared to conventional mortgages. This can result in substantial savings over the life of the loan, making homeownership more affordable for military families. Additionally, VA home loans do not require private mortgage insurance (PMI). In conventional loans, PMI is typically required when the down payment is less than 20% of the home’s value. The elimination of this cost further reduces the monthly mortgage payments for VA loan recipients. Moreover, the VA loan program provides flexibility and support through its forgiving credit requirements. Military members who may have faced financial difficulties can still qualify for a VA loan, as the program is designed to accommodate the unique financial circumstances of military life. Overall, VA home loans offer a range of benefits that make homeownership more accessible and affordable for military members. By understanding these advantages, eligible individuals can make informed decisions about utilizing this valuable resource to achieve their homeownership goals. Eligibility Requirements for VA Home Loans VA home loans provide a unique opportunity for military members and their families to achieve homeownership. However, to benefit from this program, specific eligibility criteria must be met. These requirements ensure that the benefits are reserved for those who have served their country and their surviving spouses. Firstly, active duty service members, veterans, and National Guard or Reserve members must meet the length of service requirements. For those who served during wartime, a minimum of 90 consecutive days of active service is required. This criterion ensures that individuals who served during critical periods are recognized for their contributions. Conversely, those who served during peacetime must have completed at least 181 days of continuous active duty. This difference acknowledges the varying demands placed on military personnel during different periods of service. Additionally, those who were discharged due to a service-related disability may qualify for a VA home loan regardless of the length of service. This provision is crucial as it supports veterans who sustained injuries or illnesses due to their service, ensuring they are not disadvantaged in their pursuit of homeownership. It highlights the commitment to providing comprehensive support to all service members, particularly those affected by their service. The program also extends benefits to surviving spouses of veterans who either died in service or from a service-related disability. This eligibility criterion is vital as it offers financial assistance and stability to families who have made the ultimate sacrifice. It recognizes the enduring impact of military service on families and provides a pathway to homeownership for those left behind. Understanding these eligibility requirements is essential for military members and their families considering a VA home loan. By meeting these criteria, they can access the benefits of a VA home loan, which include favorable terms and the potential to purchase a home without a down payment. This support is a testament to the nation’s gratitude for their service and sacrifice. Key Benefits of VA Home Loans VA home loans stand out from conventional mortgages due to their numerous advantages tailored specifically for military members and veterans. One of the most significant benefits is the absence of a down payment requirement. Unlike conventional loans, which typically demand a substantial upfront payment, VA loans allow eligible borrowers to finance 100% of the home’s value. This feature can make homeownership more accessible, especially for those who might struggle to save for a down payment. Another notable advantage is the elimination of mortgage insurance. Conventional loans often require private mortgage insurance (PMI) if the down payment is less than 20% of the home’s value. VA loans, however, do not impose this additional cost, which can lead to considerable savings over the life of the loan. This absence of PMI enhances the affordability of VA home loans. VA home loans also have lenient credit requirements compared to conventional mortgages. While a good credit score is always beneficial, the VA program is designed to help those who might have faced financial challenges. This leniency can make it easier for military members to qualify for a loan and secure favorable terms. Furthermore, VA home loans typically offer lower interest rates. The Department of Veterans Affairs backs these loans, reducing the risk for lenders and, in turn, enabling them to offer competitive rates. Lower interest rates can significantly reduce monthly mortgage payments and the overall cost of the loan. Limits on closing costs are another crucial benefit of VA home loans. The VA places caps on certain fees, ensuring that borrowers are not overcharged during the loan process. This regulation provides financial protection and further reduces the upfront costs associated with purchasing a home. Lastly, VA home loans come with the unique benefit of being assumable. This means that if the home is sold, the new buyer can take over the existing loan, provided they meet the VA’s eligibility requirements. This feature can be particularly advantageous in a rising interest rate environment, as it allows the buyer to assume the current, potentially lower rate. Overall, the key benefits of VA home loans make them an
6-Month CD Rate This index is used in ARM mortgages and is the weekly average of secondary market interest rates on 6-month negotiable Certificates of Deposit. The interest rate on 6-month CD-indexed ARM loans is usually adjusted every 6 months. Index changes on a weekly basis and can be volatile. 1-year T-Bill This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 1 year. This index is used on the majority of ARM loans. With the traditional one-year adjustable rate mortgage loan, the interest rate is subject to change once each year. There are additional ARM loan programs available (Hybrid ARMs) for those that would like to take advantage of a low-interest rate but would like a longer introductory period. The 3/1, 5/1, 7/1, and 10/1 ARM loans offer a fixed interest rate for a specified time (3,5,7,10 years) before they begin yearly adjustments. These programs will typically not have introductory rates as low as the one-year ARM loan, however, their rates are lower than the 30-year fixed mortgage. This index changes on a weekly basis and can be volatile. 3-year T-Note This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 3 years. This index is used on 3/3 ARM loans. The interest rate is adjusted every 3 years on such loans. This type of loan program is good for those who like fewer interest rate adjustments. The index changes on a weekly basis and can be volatile. 5-year T-Note This index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of 5 years. This index is used on 5/5 ARM loans. The interest rate is adjusted every 5 years on such loans. This type of loan program is good for those who like fewer interest rate adjustments. This index changes on a weekly basis and can be volatile. Prime The prime rate is the rate that banks charge their most credit-worthy customers for loans. The Prime Rate, as reported by the Federal Reserve, is the prime rate charged by the majority of large banks. When applying for a home equity loan, be sure to ask if the lender will be using its own prime rate or the prime rate published by the Federal Reserve or the Wall Street Journal. This index usually changes in response to changes that the Federal Reserve makes to the Federal Funds and Discount Rates. Depending on economic conditions, this index can be volatile or not move for months at a time. 12 Moving Average of 1-year T-Bill Twelve-month moving average of the average monthly yield on U.S. Treasury securities (adjusted to a constant maturity of one year.). This index is sometimes used for ARM loans in lieu of the 1 year Treasury Constant Maturity (TCM) rate. Since this index is a 12-month moving average, it is less volatile than the 1-year TCM rate. This index changes on a monthly basis and is not very volatile. Cost of Funds Index (COFI) – National This Index is the monthly median cost of funds: interest (dividends) paid or accrued on deposits, FHLB (Federal Home Loan Bank) advances, and other borrowed money during a month as a percent of balances of deposits and borrowings at month end. The interest rate on Cost of Funds (COFI) indexed ARM loans is usually adjusted every 6 months. The index changes on a monthly basis and it is not very volatile. Cost of Funds Index (COFI) – 11th District This index is the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California, and Nevada. Since the largest part of the Cost Of Funds, an index is an interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good if rates are falling. L.I.B.O.R L.I.B.O.R stands for the London Interbank Offered Rate, the interest rates that banks charge each other for overseas deposits of U.S. dollars. These rates are available in 1,3,6 and 12-month terms. The index used and the source of the index will vary by lender. Common sources used are the Wall Street Journal and FannieMae. The interest rate on many LIBOR-indexed ARM loans is adjusted every 6 months. This index changes on a daily/weekly basis and can be extremely volatile. National Average Contract Mortgage Rate (NACR) This index is the national average contract mortgage rate for the purchase of previously occupied homes by combined lenders. This index changes on a monthly basis and it is not very volatile.