Wednesday, March 20, 2013

Affordable properties in 2013

Been waiting to have your own house for the first time, then maybe 2013 is the best time for you to do so. The budget has some good news for you. For the first time property buyers, the finance minister has extended an additional benefit of Rs 1 lakh on home loans up to Rs 25 lakh.

This deduction will be on top of the deduction of Rs 1.5 lakh allowed for self-occupied properties under Section 24.

Nonetheless the regulation is that the property should not cost more than Rs 40 lakh. This rule means a outsized number of buyers in metro cities will not be qualified for the added benefit.

“This would mostly be helpful for people who want to buy a house in smaller cities or distant suburbs where the ticket size is lower,” says Niranjan Hiranandani, chairman of the Hiranandani Group.

You are probably wondering if and how much tax you can save but the thing is the additional deduction will not last forever. From the time period of 2013-14 and 2014-15, this maximum span of two years is the only time you can claim it. It is known that interest rates on home loans today range between 9.5% and 11% so a buyer will be able to claim deduction for the entire interest. You would have to pay about Rs 2.48 lakh as interest in the first year if you take a Rs 25 lakh loan for 20 years at 10% interest,.

You can claim the entire amount as a deduction in 2013-14. The Rs 1.5 lakh under Section 24 and the remaining under the additional deduction are the entire amount you can claim. The remaining Rs 50,000 deduction can be availed of in 2014-15 if your loan is smaller and you pay only Rs 2 lakh as interest. A buyer can accumulate between Rs 10,000 and Rs 30,000 a year depending on his income slab although the cost of property is a blockade.

One more notice which would create after-effects to the real estate sector is the 1% tax deducted at source (TDS) on the transfer of immovable property with a market value of more than Rs 50 lakh.

This will add to the paperwork for buyers aside from the increase in transaction cost.

“A person would now need a TAN (Tax Deduction Account Number) to deduct tax on behalf of the central government. So once a buyer gets a TAN, only then can he purchase an immovable property. He is paying only 99% of the value to the seller and the balance 1% to the government,” says PranayVakil, chairman, Praron Consultancy.

New luxury projects will also become more expensive at the same time as the TDS will impact all property transactions, counting the resale property.

From 75% to 70% has been reduced to the rate of abatement on homes and flats of more than 2,000 square feet or costing Rs 1 crore.

“Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive,” says Anuj Puri, chairman & country head, Jones Lang LaSalle India.

Tuesday, March 19, 2013

Know Why You’re Decline

Been wondering why you are still disapproved and your application is declined even though you have received pre-approval and found a property to purchase? There could be reasons why you are declined for formal approval. 

The pre-approval was worthless: If from the beginning, you had an on the spot approval or system generated approval then you loan was never really approved. In that case, therefore, your loan will be declined because it does not meet and in fact never did meet the lenders policy. 

The LMI provider declines your home loan: Your bank possibly will approve the loan; however, ten the bank may need approval from their Lenders Mortgage Insurer as well if your loan amount is more than 90% of the property value. Generally a loan is pre- approved by the LMI provider who has unlike guidelines to the lender. The Insurer may reject your loan. 

The security property is unacceptable: The property that you are purchasing is not appraised when you apply for a pre-approval. When you notify the bank of the type of security property you are buying, they may not approve the loan because of the peril implicated. You can find a list of the types of properties that are usually improper to lender on your property types page. Most people aren’t conscious that their bank may not accept inner city apartments, units under 50m2 or hobby farms, so they sometimes buy them without first examination with their bank. 

The pre-approval has expired: Pre-approvals are usually valid for three to six months, depending on the lender. Your pre-approval will no longer be valid if it takes you longer than this to find a property. 

Your situation has changed: The lender will re-assess your application if you change jobs, get a car loan / credit card or have some other aspect of your situation change, since your loan was pre-approved. If you no longer congregate their lending policy, your loan will be declined. 

The lender’s policy has changed: Some lenders will honor pre-approvals that are lodged before their policy changes; others will only formally approve your loan if it meets their new lending policies. Most lenders tweak their lending policy on a monthly basis. 

Interest rates have increased: If interest rates boost then the maximum amount you can borrow will cut. Initial home buyers often get a pre-approval for the maximum loan amount possible. This means that if the rates increase, their formal approval for that loan amount may be declined.

Thursday, March 7, 2013

Speed the Help for the Nevadans’ Homeowners

$200 million from federal government was given to Nevada to avoid homeowners from losing their homes.  Nevada had the highest foreclosure rate in the nation but a Reno Gazette-Journal analysis of the fund distribution confirms that the money was almost intact in the past two years.

Nevada only spent $21 million of the $194 million it was to be paid to homeowners facing foreclosure, this means only 11% of the money it received through the Obama administration’s Hardest Hit Fund, this is according to the most recent reports of the analysis of U.S. Treasury the third quarter of 2012

“This is government bureaucracy at its finest,” said Victor Joecks, communication director of think tank Nevada Policy Research Institute. “They can’t even give away $200 million. This program is a perfect example of why government shouldn’t pick winners and losers in the economy.”

According to Nevada Hardest Hit officials, just in January, the nonprofit gave $7.2 million in direct aid to help homeowners avoid foreclosure.  A total of $28.4 million was given by the program since it began in mid-2010, which is only 5% of the allocation. More or less 25 % of what they have given out was given out in January.

Mortgage assistance and principal reduction are the two separate components of the state Hardest Hit Fund program that has much given the aid.  75 percent of the budget went to direct aid from July 2011 to June 2012; this is another analysis of yearly financial statements obtained directly from the nonprofit.

“We are getting more money out of the door than we have ever before in a much shorter time frame,” said Candice Kelley, Nevada Hardest Hit Fund executive director.


Federal help to hardest hit

Many have tried to attend to the greed and carelessness that caused the housing crisis, they are the Government programs, public policy changes and a closer eye on financial service providers yet there are still many homeowners suffering from the collapse of the housing market.

And Hardest Hit Fund was one of those who are concerned homeowner programs.

Hardest Hit Fund was launched in 2010 by the Obama Administration mainly to help distraught homeowners in places that suffers from deep home price declines and high unemployment.  Nevada together with 17 other States and the District of Columbia are getting more than $7.6 billion to help homeowners prevent foreclosure.  The program ends in 2017.

“What states have had to do through this program is really unprecedented,” said Andrea Risotto, spokeswoman for the U.S. Treasury Department. “They have created their own servicing shop so that they can directly assist homeowners, evaluate them for help, process their application and help them transition from one form of assistance to another.”

Each state verifies what support their residents need, including mortgage assistance, short sales and unemployment programs.

Out of the $7.6 billion, Nevada was given $194 million.  Nevada Affordable Housing Assistance Corp., a nonprofit organization, was selected to head the program for the Nevada Housing Division. Mortgage payment assistance, principal curtailment, short-sale assistance and second lien assistance, are the types of programs Nevada offers.

The objective is to lend a hand to more than 10,000 Nevada homeowners avoid foreclosure.

Kelley, the nonprofit’s executive director said that the program didn’t want to overextend its allocated fund and needed to process the applications it already had in the pipeline.  This is because the nonprofit had to stop accepting new applicants in mid-December since of the increase in the number of Nevadans asking for aid.

She further added, the Hardest Hit Fund is aggressively working through the current applications, and the fund will reopen to new applicants.

Nonprofit and Treasury officials said when much of the first year of the Hardest Hit Fund’s existence was focused on setting up the infrastructure, staffing and marketing the program, many people, including mortgage companies and banks, were unaware of the program and its requirement, making it hard to help distressed homeowners.

“There are a number of states where we are still seeing homeowners really reluctant to reach out for help,” Risotto said.

Both Kelley and Risotto said that, also those homeowners who did apply early on were discouraged because they were rejected on eligibility requirements.  After that, the program has altered its eligibility requirements more than a few times to comprise a wider range of people. Those who were formerly discarded now could meet the criteria if they reapplied.

Nationally, more than 100,000 homeowners were helped with $1.1 billion of direct assistance since the program began, Risotto said. About $1.7 billion out of the $7.6 billion has been committed or budgeted to homeowners for future payments.

California, with the highest allocation of almost $2 billion, has helped more than 22,000 borrowers. North Carolina, Michigan, Ohio and Florida follow, Risotto said.

Joecks, with the Nevada think tank, said the only people who benefit from the program are the politicians who use it to generate publicity. The institute is against the Hardest Hit Fund program because it believes it is unjust, he said.

“It’s a perfect case study of how the government promises something, and it doesn’t end up being delivered as promised,” Joecks said.

“The Hardest Hit Fund rewards those who make poor financial decisions at the expense of those who make good ones.”


Who did it help?

According to the latest quarterly performance report the state submitted to the U.S., there were more than 6,000 applicants in the past two-and-a-half years and more than 2,700 homeowners have been given assistance by the Nevada Hardest Hit Fund since they are the only ones who qualified.  Nearly all borrowers made less than $50,000 and cited either unemployment or Sharon Logue applied for the program in August and was approved for principal reduction assistance in January.

Since six years ago home prices skyrockets, she bought her Carson City apartment at the peak of the market because it’s all she could afford that time.

“I thought I was doing great, but then things just went downhill,” she said.

After another six years, her home is values 30 percent of what she initially bought it for. Her mortgage payments make up nearly half of her paychecks after a job change last year and decrease in salary.

“Right now, it’s paycheck to paycheck,” she said. “I can’t save any money because I don’t have any extra money. If there’s an emergency, whip out the credit card and take care of it later.”

Logue makes her payment every month and is looking into ways to stay in her home.
“Usually, I don’t ask for handouts,” she said. “I’m very stubborn and have my pride, but there are just some times you have to put those aside and ask for help to make life better.”

Her loan servicer was not able to help her either because of restrictions in her private mortgage insurance. You must get PMI when the down payment is less than 20 percent of the value or sales prices.  Then she discovered Hardest Hit Fund in August.

“I didn’t want to foreclose,” she said. “To me, that’s not right.”

She found that the Hardest Hit Fund staff was helpful.

She was given $50,000 in January in principal reductions but she has run into the same PMI roadblock as she did when she tried to refinance.  Every the bank representatives told her that she is blocked from any action because of who the PMI is with or the type of PMI.

Now she is finding other banks that might take on her loan.

“I’m at a block,” she said. “ ... Something needs to happen or else I’ll be stuck.”

She is determined not to get foreclosure although she has until May to obtain the financing to use the Hardest Hit Fund.

“It’s like right there,” she said. “I have their certificate, but now, I’m stuck.”


Middle of the pack, but not for long

Even as Nevada spends its share of the federal money to help homeowners slowly, it falls in the middle of the pack for the 18 states and Washington, D.C., that also received money through the Hardest Hit Fund.

Oregon had spent about 40 percent of its allocation which is $88.7 million by end of the third quarter in 2012.  This is the latest date provided by the U.S. Department of Treasury. Washington, D.C.  Rhode Island on the other hand, according to the RGJ analysis, follows by using more than 30 percent of their money.

Arizona is the state slowest to spend, only $11.6 million was spent which is 4 percent of its $268 million.  6 percent of their share was spent by New Jersey, Georgia and Indiana.

According to the administration responsible for the money in Nevada, the said slowness of distributing the funds to responsible people who need the funds and stabilize the economy is sensible.  But Joecks sees otherwise, they have had three years to develop a more efficient process.

Joecks also countered the program for only helping rareness of underwater homeowners in Nevada. That’s not enough to make a difference in the overall housing market, he said

According to the latest data released by real estate data provider CoreLogic in January, the total value of all U.S. homes with negative equity during the third quarter of 2012 was $658 billion.
“States have to make decisions about how to balance helping homeowners and protecting taxpayers because it’s a government-funded program,” Risotto said. “All the states have been looking closely at their data that they are gaining from the first months of their program implementation and trying to make smart decisions about who is still struggling in their state and how they can best reach them to prevent foreclosure.”

The Hardest Hit Fund is just one tool in a host of other offerings to help distressed homeowners, U.S. Treasury officials said.

“It is a targeted program to help address some of the needs struggling home owners are facing in these states,” Risotto said. “It is meant to complement many of the other efforts federal and state governments already have under way and that mortgage companies, themselves, are offering today, that they weren’t even offering a year ago.”

Lately, the help to distressed homeowners sped up, the nonprofit Nevada Hardest Hit Fund has its distribution of U.S. Treasury funds a bit more faster.

“We are trying to be appropriately conservative with administrative costs,” Kelley said. “We want to make sure we have the right people on hand so that we can quickly respond to these applicants.”

In answer to the boost in applications this year, the Nevada Hardest Hit Fund gave jobs to more than 40 people. It has nearly tripled that number through community partnerships to process the applications.

Before the application process was put on hold in mid-December for those already in the pipeline, the nonprofit was getting at least 800 phone calls a day, Kelly said. She was unable to say how many borrowers currently are in the application process.

With the current trajectory of funds being approved, she said, hey will allocate all of the $194 million before the 2017 deadline.

“We suspect that the future outlays for the months to come will continue to be more and more aggressive because the demand is there,” she said. “We have expanded out partnerships so that we can respond in a faster way.”

The participating states expect that they will have spent a majority of the allocated funds by 2014, three years ahead of schedule, Risotto said. Rhode Island closed its application process in January, because it already has committed all of its funds. Several other states are expected to close this year also.

“We are all very committed to getting the assistance out of the door as quickly as possible while the need is still so great,” she said.