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There is a little-known provision in the tax code that allows homeowners to rent their principal residence or second home for up to 14 days a year without having to recognize the income. In this situation, the taxpayer does not deduct the rental expenses associated with the income.

There is no restriction on how much you earn. If your first or second home is in a desirable area where people are looking for short-term rentals, it could provide a windfall to the homeowner.

In cities where any big sports championships are played, there could be a market for a temporary rental of a home. Events like PGA tournaments, college basketball tournaments, Bowl games, NFL playoffs and others can create a demand for this type of rental.

For instance, there are people in Augusta, Georgia who rent their homes during the Master’s Golf Tournament each year. There are not a lot of hotel rooms in the area relative to the number of people who usually attend in non-pandemic years and the homes can fetch a nice daily rate.

There can be confusion about the different types of properties and what constitutes a home. The intended use coupled with actual experience will usually determine the type of property.

There are four types of property. A principal residence is the home you live in. There is income property that you rent and do not live in. There is investment property that is primarily held for an increase in value. And, there is inventory, which is related to your business like homes that are built or purchased to be flipped.

A second home is one that is used for the primary enjoyment of the owner in addition to their principal residence. Taxpayers are allowed to deduct the mortgage interest and property taxes on a first and second home up to specific limits. A vacation home could be another name for a second home but more accurately, it is a rental property that has more than 14 days of personal use during the year. It becomes a hybrid.

You might want to check with your insurance agent to see if your current policy covers temporary rentals, including liability in case of an accident involving personal injury. This could affect your decision as to whether you want to consider the rental.

For more information, see IRS facts about renting out a residential property or consult your tax professional.

The deadline for filing taxes for 2020 is May 17, 2021. And one thing you should note is that this year, debt forgiveness on your property is being treated differently than usual and that could benefit you.

Normally, debt forgiven on your property is considered income and therefore taxable. However, due to the unusual circumstances during the COVID-19 Pandemic, qualified principal residence indebtedness is excluded as income by the Internal Revenue Service through 2020. This applies to some taxpayers who have had debt forgiven due to foreclosure, loan modification, short sale or deed in lieu of foreclosure.

This has the potential to make a significant change to how much taxable income you need to declare. If you were involved in discharged debt on your principal residence, you should consult with a tax advisor to determine how this affects your taxes.

Doing a lot of work to a car before you trade or sell it to a dealer is not generally a good idea. In most cases, you won’t recapture the cost of the repairs. They can do the repairs for a less than you can. Not to mention, you are selling to a wholesaler who needs to sell it again to the end user and still make a profit.

A home sale is totally different. The owner is selling the home to an end user. Since the buyer, in many cases, is using their available funds for the down payment and purchase costs, they don’t have money to spend on repairs or decorating the home. They would need to live in it “as is” for a while which may not be as appealing as finding a home that is refurbished, up-to-date, and ready to move into.

Even if the buyer would be willing to get a home improvement loan after the sale, it would be a separate loan at a higher interest rate making their payment higher than financing it all in one mortgage at the lower first mortgage rates.

The seller may experience some inconvenience going through the remodeling process, but it will, most likely, result in a higher sales price in less time. Occasionally, sellers say they’ll let the buyer choose their own colors but not all people have the imagination to know what something will look like after it is finished. It is better to go ahead and get the work done before putting it on the market.

The bathrooms and kitchen are the most important rooms to update. If the finish on the cabinets is bad, have them painted. New countertops and appliances can make a world of difference. Paint, countertops, and fixtures in the bath give the home a great feel.

In addition to the repairs, a major cleaning and decluttering can make a home look and feel better than the competition.

The first step is to go through the home and pack up or get rid of things you don’t need or things that detract from the home like excess furniture, exercise equipment, personal artwork, etc. Now, do the same with the closets and cabinets. By getting rid of things, there will be more room and they’ll look larger.

Next, walk across the street from your house and give it a critical look. How is the drive-up appeal? Would you want to go inside to see the rest if you were a buyer? Are the trees and shrubs trimmed? Yard cleaned up? Do you have blooming flowers in the beds? Does the front door and mailbox need a new coat of paint? Do you need to power wash the outside of the home and the sidewalks and driveway? Do the windows need washing?

Buyers are visual people and beauty is always rewarded. Restaurants know that people eat with their eyes first and they go to a lot of effort to plate the food so it is visually appealing. The same approach works for selling a home. Ask your agent if they have ever taken a buyer to a home that refused to go inside because they didn’t like the looks from the street.

Your real estate professional can make specific recommendations and assist you in finding someone to do the work. This is what they do. TRUST THEM!

When you’re looking for a new place to live, you want to find the perfect rental property. But in the Bay Area, you often need an advantage because of the high demand for choice rentals. So how do you get the rental you want?

PRE-QUALIFYING FOR YOUR RENTAL

Working with Sound Investments, Inc., we help you understand the qualification criteria landlords look for from their rental prospects. Have this information completed BEFORE you apply. This definitely gives you an advantage over other prospective renters. So what types of information should you have? Click here to see a delineation of these criteria.

COMMON REASONS THAT GET YOU DECLINED

It’s important to also look at the reasons landlords reject prospective renters. Incomplete application forms, previous evictions or active collections from other landlords and a credit score below 590, are some of the most common reasons to be declined. Also, criminal records may be grounds for denial. Review our complete Tenant Qualification Criteria to learn more.

PETS OR NO PETS?

Although there are always landlords who ban any type of pets, many rentals today allow certain types of pets. Want the upper hand when requesting to have a pet in a rental property? Prepare in advance. Watch the video below for information to help you and your furry, feathered or scaly friends find a new home.

WATCH THIS VIDEO

NON-DISCRIMINATION

It is our company’s mission and process to always conduct our business in accordance with the Federal Fair Housing Law, and we welcome persons of all Race, Color, Religion, Gender Identification, Sexual Orientation, Handicap, Familial Status, or National Origin. We are here to help you.

RECENT HOMEOWNER EQUITY GROWTH

Lately, the impact of Homeowner Equity on wealth accumulation has grown. National homeowner equity grew in the fourth quarter of 2020 by $1.5 Trillion or 16.2% year-over-year based on a CoreLogic analysis. Furthermore, the number of mortgaged residential homes with negative equity in the fourth quarter of 2020 decreased by 8% from the third quarter. Compared to the same quarter in 2019, negative equity decreased by 21%.

Equity is defined as the value of the home less the mortgage owed. Negative equity means that the homeowner’s debt is more than the value of the home. Appreciation is the dynamic that moves homeowner’s equity to the positive position.

On a national basis, according to National Association of REALTORS®, annual price growth for the last ten years was 6.4%. In the last five years, it has grown at 7.3% annually. According to the CoreLogic Home Price Index, home prices in December 2020 rose 9.2% from the year before.

Frank Nothaft, Chief Economist for CoreLogic, is quoted as saying, “The amount of home equity for the average homeowner with a mortgage is more than $200,000.”

EQUITY AS A COMPONENT OF NET WORTH

Equity in a home is a significant component of net worth. The median homeowner has 40 times the household wealth of a renter, $254,000 compared to $6,270. According to the 2019 Survey of Consumer Finances by First American, housing wealth was the single biggest contributor to the increase in net worth across all income groups.

Housing wealth represented nearly 75% of total assets of the lowest income households. For homeowners in the mid-range of income, it represented 50-65% of total assets. For the highest income households, it represented 34% of total assets.

RENT VS. OWN COMPARISON

How does renting property affect homeowner equity and wealth? Renters do not benefit from any housing appreciation. They also don’t benefit from the amortization of a mortgage. These two factors are significant contributors to home equity that results in net worth. Run a “Rent vs. Own comparison for yourself and find out how much a down payment can grow in seven years.

One of the silver linings to filing your income tax return is when you find out that you are going to receive a refund. Your tax refund could literally open the door to owning a home. You can use If you happen to be one of these fortunate taxpayers, your next decision is what to do with it.

With the average tax refund near $3,000, it could be the ticket to buying a home sooner rather than later. Regardless of the size of your refund, it can be used toward the down payment or closing costs of the home.

Most people think it takes 10% or more down payment to purchase a home, but actually, it is much less because of several low down payment mortgages . There are VA and USDA mortgages that allow for no down payment for qualified buyers. FHA has a 3.5% down payment program and FNMA and Freddie Mac have 3% down payment mortgages for qualified creditors as well as 5% down programs.

Closing costs for originating new mortgages can easily range from two to three percent of the purchase price but most lenders will allow the seller to pay part or all of them based on the agreement in the sales contract. If you are using a VA or USDA loan, your refund could go toward paying the closing costs.

On a practical matter, if you are due a refund, have it deposited directly into your account. It is necessary to trace the source of the funds. Cashing a refund check and depositing the cash adds an unnecessary aging requirement.

Maybe you have the money saved for your down payment and closing costs but you have other debt that is keeping you from qualifying for a mortgage. The IRS refund could be used to pay down that debt. However, you need solid advice from a trusted mortgage professional before you do that.

While the average tax refund might not cover the down payment on the median price home, it certainly helps. Your refund could make it a simple as 1-2-3 to get into a home.

Get the hard, cold facts for the homes and mortgages in your area and price range.
Get pre-approved with a trusted mortgage professional.
Start looking at homes.

Download the Buyers Guide and contact me at (510) 244-0085 or email me at rdwilson@soundnvest.com to get started. Or, click here and fill out our contact form and I’ll get back to you as soon as possible.

Saturday, February 20th is “Love Your Pet Day” in the United States. But those of us who are pet owners, we know that EVERY DAY is Love Your Pet Day. But it’s not a bad idea to take a moment our of our busy schedules to give a little extra attention and love to our wonderful furry, feathered or scaly friends who have been especially helpful to our mental and emotional well-being during the current pandemic.

So, in honor of “Love Your Pet Day,” Sound Investments, Inc. is sponsoring our first annual “Love Your Pet Day Contest.” We invite you to post a picture of your special pet to our Facebook page by March 14th. We’ll gather them together and on March 15, we’ll open up voting so people can start select who they think should be “The 2021 #1 Pet.” On March 14th, we’ll tally up the votes and the person who submits the pet with the most votes will receive a $25 Amazon Gift Card from Sound Investments that can be used to get a special treat for your special pet. In March, we urge you to get your family and friends to check this Facebook page and vote for their favorite four, two or no-legged personality!

Follow us on Facebook at https://www.facebook.com/SoundInvestmentsInc/ to keep learn more about this contest, and about other fun activities we have in store for 2021!

Mortgage insurance benefits the lender if a borrower with less than a 20% down payment defaults on their loan. Most conventional mortgages greater than 80% and all FHA loans require the borrower to have this coverage.

Private mortgage insurance on conventional loans can range from 0.5% to 2.25% based on the loan-to-value and the credit worthiness of the borrower. A $350,000 mortgage would have a monthly mortgage insurance premium of $146 a month at the low-end of the scale and over $600 on the high-end.

You may request that your mortgage servicer cancel the PMI when the principal balance reaches 80% of the original value at the time the loan was made. You should have received a PMI disclosure form when you signed the mortgage documents stating the date. If you have made additional principal contributions, it will accelerate the date.

Other criteria considered to cancel the PMI on your loan is:

The request must be in writing.
You must be current on your payments with a good payment history.
The lender may ask that you certify there are no junior liens in effect.
If the lender is concerned that the value has declined, an appraisal may be required to show that it is eligible.
Conventional loans are supposed to remove the mortgage insurance when the unpaid balance is 78% of the original purchase price.

Another possibility is that the lender/servicer must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. For a 30-year loan, it would be after the 180th payment was paid. The borrower must be current on the payments for the termination to occur.

With the rapid appreciation that many homes have enjoyed in recent years, homeowners may be able to refinance their home and if the new mortgage amount is less than 80% of the current appraised value, no mortgage insurance would be required.

The owner would incur the cost of refinancing but eliminate the cost of the mortgage insurance. To calculate the savings, subtract the new principal and interest payment from the old principal and interest with PMI. Then, divide the savings into the cost of refinancing to determine the number of months necessary to recapture the cost.

FHA loans have two types of mortgage insurance premium: up-front and monthly. For loans with FHA case numbers assigned on or after June 3 2013 with LTV% greater than 90%, the MIP will be paid for the entire term of the loan. If that is the case, refinancing on a conventional loan is the only way to eliminate the MIP. For loans with original LTV% less than 90%, the MIP is collected for 11 years until the balance is 78% of the original amount.

When buying a home, purchasers may not have enough resources for a large down payment. It is understandable to use the best mortgage available to buy the home. The next goal should be to manage the mortgage to lower the overall costs. In this article, we explored eliminating the private mortgage insurance.

Many homeowners with mortgages pay for both types of insurance but only one of them protects the owner.

Homeowner’s insurance covers damage to your property and losses from fire, burglary, vandalism, and other named natural disasters. When an insured has a loss, they file a claim with the insurance carrier which would be subject to the deductible mentioned in the policy.

If the homeowner has a mortgage on the property, the lender will require that the borrower carry adequate insurance on the property and name the lender as an additional insured. This protects the lender that the home will continue to be sufficient collateral for the loan in case of a loss.

Mortgage insurance is not like homeowner’s insurance in that it is solely for the protection of the lender if the borrower defaults on the loan. Usually, lenders require mortgage insurance on any loan greater than 80% loan-to-value. Occasionally, they may require it on some loans less than 80% based on their underwriting requirements and possibly, from anticipated risk from the borrower.

VA loans do not require mortgage insurance. Conventional lenders must remove the mortgage insurance when the loan amortizes below the stated percentage. FHA loans require mortgage insurance for the life of the loan.

When a property appreciates so that when the owners refinance, the loan-to-value ratio is less than 80%, no mortgage insurance would be required. This can be a strong motivation for some owners to refinance to save the cost of the mortgage insurance.

Mortgage insurance premiums are not regulated by law like homeowner’s insurance is in most states. Most buyers are concerned about the interest rate on their mortgage, but few question the amount of the mortgage insurance premium.

The homeowner can select the carrier for his homeowner insurance, but the lender determines the carrier for the mortgage insurance. When you are interviewing lenders, the type of insurance that will be required and the price of the mortgage insurance should be included in the discussion.

A solid FICO Score helps optimize your ability to obtain a better home loan. And, since the overwhelming majority of us don’t have the ability to purchase a new home with a cash payment, getting a good loan with great terms is essential to our ability to purchase a new property. It also can have a major impact on your finances going forward over many years.

A FICO score is the credit score created by the Fair Isaac Corporation (FICO). Lenders use borrowers’ FICO scores, along with other details on borrowers’ credit reports, to assess credit risk and determine whether to extend credit. Having a strong FICO Score positions you favorably for quicker approval and better lending rates.

There are several ways you can optimize your score. The main “levers” or contributors to your score are:

• Your Payment History
• The Amount of Money You Owe
• The Length of Time of Your Established Credit
• Any New Credit You Have Applied for and/or Received

You can improve your FICO Score, and therefore increase your ability to qualify for favorable home loans by managing these levers. For example, you can:

• Pay all your bills on time.
• It’s important to avoid going to collections because an account that goes to collections stays on your credit report for 7 years. This is true even if you pay it off.
• Keep your credit card balances low. Having higher AVAILABLE credit improves your FICO Score.
• Pay off your debts. Lower levels of outstanding debt helps your score. Also, consolidating your debt so you have fewer accounts may also help.
• The number of credit inquiries you make do affect your score. So, don’t make inquiries you don’t really need.
• Don’t open accounts you don’t need.
• Make sure you show you have managed credit responsibly. Responsibly managed levels of credit will result in you being rated as a better risk than if you had no credit or debts at all.

Watch the short video below:

Check out more helpful hints to make buying a home easier on our Home Buying Tips category page. Click here to learn more.