Author: Stephanie Donnell

Credit Tip – Charged Off Credit Cards

 

Today I want to thank Matt with Synergy Credit Pros for the great information! Give him a call for personal credit repair. They are the real deal! Matt “The Bureau Crusher” Johnson @ 281.971.9887.

As you have learned before in the past from our credit tips, paying off most collections will have a negative impact on the credit score.

Why is it that paying off a charged off credit card that is held by the original creditor, the only collection that will boost your credit score? The reason is because a charged off credit card is impacting two sections of the client’s credit score where all other collections are impacting only the payment history section of the credit score. When you pay off a collection, it will push forward the date of last activity and the reporting dates which will have a negative impact on the credit score.

However, when you pay off a charged off credit card held by the original creditor it will also clear up the amounts owed section of the credit score. So, when you pay off a credit card, it will push forward the reporting date and date of last activity which will drop the score about 10-20 points but will also see a gain of 40 points by clearing out revolving balances, which will net the client 20-30 points.

If the charged off credit card is transferred from the original creditor to a third-party collection company, it will not benefit the client because it is now an O-9 instead of an R-9 so it is not impacting the amounts owed section of the credit score anymore. If the charged off credit card is 4 years or older, we do advise you to call us first to look at the report and make sure it is an account that will benefit the client. If it is 4 years or younger, you can go ahead and have the client pay it off because it will be beneficial for the score.

Be sure to check out my website for more credit tips and tricks as well as other useful information about the homebuying process!

Appraisal Waivers Help You Get Into A Home Quickly!

Not every loan requires an appraisal!

Both Fannie Mae and Freddie Mac started collecting data on every appraisal they received a few years back (yes, big brother is always watching). They began storing every detail from the appraisals and created their own information database which pinpoints a specific property and looks at all of the recent information they have about properties around it in order to determine if they think the value or sales price is accurate. Since Fannie and Freddie are the primary sources of mortgage providers across the U.S., chances are they have all of the information for the home that just sold a few doors down. As long as they feel like the value is not inflated or they do not feel that you are in a declining market, they might offer you an appraisal waiver which means they are good to go with the value of the property offered.

Not every loan qualifies for an appraisal waiver, so let’s look at what is need to qualify.

Fannie Mae

Refinancing:

  • Must be a one-unit property (including for condos).
  • For a rate/term refinance on a primary residence or second home, you need at least 10% equity; 25% on investment properties.
  • Purchase:
    • Must be a one-unit property, (including condos).
    • You need at least a 20% down payment on a primary residence or second home. Investment properties aren’t eligible.

It is also worth a mention that if an appraisal has already been done (by the lender or recently by another potential buyer and lender where the deal may have fallen through), that value is used and the property would not be eligible for the waiver.

Freddie Mac

  • Must be a one-unit property, including condos.
  • The loan must be a new home loan or a rate/term refinance.
  • You must have a 20% down payment for buying a home, 20% equity for refinances.

The waiver is property and borrower specific so it can be hit or miss but always worth a shot. I should also mention that the waivers are only eligible on Conventional Conforming loans and that not every lender will offer the appraisal waiver option due to their own internal guidelines/requirements. If you meet the down payment requirements listed above, I will always run your loan through both the Fannie Mae and Freddie Mac automated underwriting engines to see if either one gives us the waiver to help ensure your loan process is as smooth as possible! As always I am here with any questions you might have! I am always here to help!

WHEN IS MORTGAGE INTEREST TAX DEDUCTIBLE?

Contrary to popular belief, mortgage interest is NOT always tax deductible. Here’s some basic information to help guide you to determining if your mortgage interest could be deducted:

1. DO YOU ITEMIZE YOUR TAX DEDUCTIONS?

First thing first, you cannot take the mortgage interest deduction if you are taking the standard deduction. In 2018, the standard deduction is $12,000 for single taxpayers, $18,000 for heads of household, and $24,000 for married taxpayers filing a joint return. In 2013, 30% of households itemized their deductions and experts are expecting the number of people that itemize to decrease with the increase in the standard deduction. Please see a CPA for details.

2. IS YOUR HOME A “QUALIFIED RESIDENCE”?

Mortgage interest is only deductible if the mortgage is attached to a “qualified residence”. Taxpayers can generally deduct the mortgage interest on two qualified homes:

  • One Primary Residence; and,
  • One Vacation Home

3. IS YOUR MORTGAGE CLASSIFIED AS “ACQUISITION INDEBTEDNESS”?

Your mortgage or home equity line of credit is considered “acquisition indebtedness” if it was used to buy, build or improve a qualified residence. Generally, you can deduct the interest on mortgage balances up to $750,000 of Acquisition Indebtedness. Here are two examples:

  • Jane buys her $500,000 primary residence using a $400,000 mortgage. Jane would be able to deduct the interest on the $400,000 mortgage as acquisition indebtedness because (1) the mortgage was to buy a qualified residence; and, (2) the mortgage falls within the $750,000 limit.
  • Janice buys her $500,000 primary residence with cash.  A year later, Janice does a cash-out refinance and puts a $400,000 mortgage on the home.  The funds are not used for home improvements. Janice would NOT be able to deduct the interest on the new $400,000 mortgage because the funds were not used to buy, build or improve the house.

THREE PITFALLS TO AVOID

As you can see, it’s very important to structure your mortgage in a way where it can be classified as “acquisition indebtedness”! Here are three common mistakes that many people make when choosing a mortgage strategy and deducting their mortgage interest:

  • Pulling cash out of a primary residence to buy a vacation home, and then illegally deducting the interest on that cash-out mortgage (in these cases, it’s often better to place a mortgage on the vacation home itself so that it can be classified as “acquisition indebtedness”)
  • Paying cash for a home, taking out a mortgage later on, and then illegally deducting the interest on that cash-out mortgage
  • Illegally deducting the interest on mortgage balances that do not qualify as acquisition indebtedness

DISTINCTION BETWEEN A QUALIFIED RESIDENCE AND AN INVESTMENT PROPERTYEverything mentioned above pertains to a mortgage transaction involving a primary home or vacation home that is elected as a “qualified residence” for tax purposes. If your transaction involved an investment property, see IRS Publication 527.

PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.

Stephanie Donnell

Residential Mortgage Loan Originator

NMLS Number: 1031976

stephanie.donnell@capstarlending.com

 

Capstar Lending, LLC NMLS 214411 (www.nmlsconsumeraccess.org) 6836 Austin Center Blvd #110; Austin TX 78731 512-459-2400. Capstar Lending, LLC is an Equal Housing Lender. This is not an offer to enter into an agreement. Information, rates and fees are subject to change without prior notice. Loan approval is subject to applicant’s qualification for a loan program. All products are subject to credit and property approval. Capstar Lending, LLC is not affiliated with any government agency. Intended for Texas consumers only, Texas- SML Mortgage Banker Registration. Residential Mortgage Loan Originator.