Tax Season 2017: Part 1

Tax season has officially begun! As of January 23rd, millions of taxpayers are able to file with the Internal Revenue Service. Unfortunately, similar to 2016, those who choose to file early will once again face a delay in receiving their refunds.

Despite having the ability to file in January, 2017's taxpayers will have to wait till February 15th for the IRS to start sending out refunds. This means that an IRS tax refund probably won't land in your bank account till the following week. But aside from the refund schedule here are a few other items worth knowing:

Take Advantage of E-File & Free File

When it comes to filing your tax return, there's no easier way than through the IRS' e-file technology. Not only is this the fastest way to pay your taxes, it's also the safest. 

The IRS also offers free, user-friendly software for those who have an income below $64,000. This software is known as "Free File". For those with an income level above $64,000, the IRS does offer free fillable forms. However, it should be known that you do need to have technically sound knowledge when it comes to tax preparation.

Safeguard Improvements

Every year, the IRS partners with leaders software, tax preparation, and financial product processors industries at the Security Summit. Along with them, they also collaborate with state tax administrators. The general purpose is to continually improve their processes against identity theft and refund fraud.

According to the IRS, "the 2017 focus revolves around “trusted customer” features that will help ensure the authenticity of the taxpayer and the tax return - before, during and after a tax return is filed. The additional protections will build on the 2016 successes that prevented fraudulent returns and protected tax refunds."

Working with the Affordable Care Act

For many taxpayers, it's as simply as checking off a box, acknowledging that every member of the family has healthcare coverage. Under the Affordable Care Act, each family member must have health insurance for every month of the year or an exemption. Also, taxpayers can make an individual shared responsibility payment.

For further information on how the Affordable Care Act impacts you as a taxpayer, check out the IRS ACA page, which provides useful information pertaining to its tax provisions. For help with legal assistance, please contact Michna Law Group at 1 (847) 446-4600 or at BJM@MichnaLaw.com.

Don't forget to check back next week on our second installment on tax season 2017.

Additional Settlement Services

When applying for a loan, the lender will require several settlement services from you. Here are some of the ones you'll need.

Title Services & Settlement Agent

After purchasing your new home, you'll receive a "title", otherwise known as a deed or a proof for your ownership of the home. Lenders require certain title services as a method for protection against claims on your property. These services include the title search and examination, preparation of a commitment to insure, conducting the settlement, and the necessary administration and processing services.

It's important to note that while a lender’s title insurance policy does protect the lender; it does not protect you. If a title claim occurs, it can be financially devastating to an uninsured homeowner, which is why you'll need an owner's title insurance policy. If you are buying a newly constructed home, make certain your title insurance covers claims by contractors. These claims are known as “mechanics’ liens” in some parts of the country.

In many states, title insurance premium rates are filed with the state and may not be negotiable, but other title service related charges may be. Be sure to ask your title agent about any available discounts, such as a reissue rate or a simultaneous issue discount.

Title services also include the services of a settlement agent. Settlement practices vary from locality to locality, and even within the same county or city. Depending on the locality, settlements may be conducted by lenders, title insurance companies, escrow companies or attorneys for the buyer or seller. In some parts of the country, a settlement may be conducted by an escrow agent. Unlike other types of settlement, the parties may not meet around a table to sign documents, which is why it's crucial for you to inquire as to how your settlement will be handled.

Surveys

Survey lenders or title insurance companies may require a survey to disclose the location of the property. The survey is a drawing of the property showing the location of the house and other improvements on the property. If you determine which company conducted the previous survey, you may be able to request an update, thereby avoiding the cost.

Homeowner’s Insurance

As a condition to settle, most lenders will require that you procure homeowner’s insurance, flood insurance, or other hazard insurance to protect the property from loss.

With any of the aforementioned settlement services, it's best to price shop as much as possible to ensure you minimize additional costs to you. For further questions on settlement services, contact Michna Law Group at (847) 446-4600 or at BJM@MichnaLaw.com.

Home Sales Agreement Term

When it comes to signing a sales agreement, real estate brokers typically will hand you a preprinted form containing the terms of the sales agreement. Despite this, many terms are in fact negotiable, so you should feel free to discuss changes, such as the sales price. That said, in order for the changes to be officially written into the sales agreement, the seller must agree to them.

It's important to have a thorough understanding of the terms of the sales agreement, especially when it comes to the sales price, which can often include appliances. In addition to that, there are other terms to be aware of:

Mortgage clause

The mortgage clause will state whether or not your deposit will be refunded if the sale is cancelled because you are unable to get a mortgage loan. Your agreement could allow the purchase to be canceled if you cannot obtain mortgage financing at or below a specific interest rate or through a specific loan program.

Settlement costs

You can negotiate which settlement costs you will pay and which will be paid by the seller. The seller may contribute a lump sum amount or may agree to pay for specific items on your behalf.

Inspections

Most buyers prefer to pay for the following inspections so that the inspector is working for them, not the seller. You may want to include in your sales agreement the ability to cancel the agreement or renegotiate the contract for a lower sales price or for the needed repairs if you are not satisfied with the inspection results.

Home inspection

You should have the home inspected. An inspection should determine the condition of the plumbing, heating, cooling, and electrical systems. The structure should also be examined to assure it is sound and to determine the condition of the roof, siding, windows, and doors. The lot should be graded away from the house so that water does not drain toward the house and into the basement. You should be present during the inspection to ask any questions.

Pests

Our lender may require a certificate from a qualified inspector stating that the home is free from termites and other pests and pest damage. Even if your lender does not require a pest inspection, you may want to obtain a pest inspection to ensure the property does not have termites or other pests.

Lead-based paint hazards

If you buy a home built before 1978, you have certain rights concerning lead-based paint and lead poisoning hazards. The seller or sales agent must give you the EPA pamphlet “Protect Your Family From Lead in Your Home” (or other EPAapproved lead hazard information). The seller must also disclose any known lead-based paint hazards in the property through a Lead Warning Statement and give you any relevant records or reports.

Other environmental concerns

Your city or state may require sellers to disclose known environmental hazards such as leaking underground oil tanks, the presence of radon or asbestos, lead water pipes, and other such hazards. You may want to determine the environmental condition of the home for your own safety. You could also be financially liable for the clean-up of any environmental hazards.

Sharing of expenses

You need to negotiate with the seller about how expenses related to the property such as taxes, water and sewer charges, condominium fees, and utility bills, are to be divided on the date of settlement. Unless you agree otherwise, you should only be responsible for the portion of these expenses owed after the date of sale.

This post is courtesy of the Consumer Financial Protection Bureau and the American Land Title Association. For additional questions regarding the legal process of purchasing or selling a home, please contact Michna Law Group via phone at (847) 446-4600 or by email at BJM@MichnaLaw.com.

Types of Loans and Programs

Shopping for your loan is probably the most important step in your home-buying process. Mortgage brokers and lenders have a wide variety of mortgage products. The type of loan product and your interest rate will not only influence your total settlement costs but will determine the amount of your monthly mortgage payment.

Government Programs

You may be eligible for a loan insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA), or offered by the Rural Housing Service (RHS). These programs usually require a smaller down payment. Ask your lender or mortgage broker about these programs. You should shop and compare quotes from different loan originators because each may offer different rates and loan terms.

If you are a first-time home buyer, ask your real estate agent/broker and loan originator about the availability of local or state programs such as reductions in transfer taxes, special income tax deductions, or state homestead exemption discounts.

Types of Mortgages

Two of the most common types of mortgage loans are fixed-rate mortgages and adjustable-rate mortgages. The interest rate on a fixed-rate mortgage will remain the same for the entire life of your loan while the interest rate on an adjustable-rate mortgage (ARM) may adjust at regular intervals and may be tied to an economic index, such as a rate for Treasury securities. When the interest rate on an ARM adjusts it may cause your payment to increase.

Some adjustable-rate mortgages allow the borrower to pay either the “interest only” or less than the “interest only”. In both options, none of the mortgage payment is applied towards the loan balance (principal). In a less than “interest only” option, the unpaid interest is added to your loan balance and you can owe more than the amount you initially borrowed, even if you make all your payments on time. This is called negative amortization. If you are a first-time borrower and your mortgage could result in negative amortization, your lender is required to make sure you get homeownership counseling before you borrow the money.

When the loan balance increases to the maximum amount the loan is “recast” and your loan payment may double or even triple. When faced with “payment shock,” you may discover too late that the loan payments no longer fit within your budget and that the loan is difficult to refinance. You may then be in danger of losing your home.

For additional information on the types of loans and government programs, please contact Michna Law Group by phone at (847) 446-4600 or by email at BJM@MichnaLaw.com.

Closing Costs Explained

There are costs associated with purchasing a home. Here’s a review of many of the common fees.

Origination: The fee the lender and any mortgage broker charges the borrower for making the mortgage loan. Origination services include taking and processing your loan application, underwriting and funding the loan, and other administrative services.

Points: Points are a percentage of a loan amount. For example, when a loan officer talks about one point on a $100,000 loan, this is 1 percent of the loan, which equals $1,000. Lenders offer different interest rates on loans with different points. You can make three main choices about points. You can decide you don’t want to pay or receive points at all. This is a zero-point loan. You can pay points at closing to receive a lower interest rate. Alternatively, you can choose to have points paid to you (also called lender credits) and use them to cover some of your closing costs.

Underwriting: Paid to the lender, this fee covers the cost of researching whether or not to approve you for the loan.

Appraisal: This charge pays for an appraisal report made by an appraiser.

Credit report: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.

Flood determination: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance is paid separately.

Home inspection: Fee to verify the condition of a property and to check for home repairs that may be needed before closing.

Pest inspection: This fee is to cover inspections for termites or other pest infestation of your home.

Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor’s fee, but sometimes this may be paid by the seller.

Title insurance binder: Commitment to issue a title insurance policy at future date. Lender’s title insurance: The cost of the lender’s policy, which protects the lender’s investment. Owner’s title insurance: The cost of the owner’s policy, which protects the homeowner’s investment for as long as they, or their heirs, own the property.

Settlement: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee can be negotiated between the seller and the buyer. Title search: The fee to search the public records of the property you are purchasing.

Document Preparation: This fee covers the cost of preparation of final legal papers, such as a mortgage, deed of trust, note or deed. Notary: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.

Attorney fees: Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents. Frequently, however, where an attorney is acting as a settlement agent, there may only be one involved in the closing. Who pays for those services is a matter of contract negotiation.

Recording fees: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage.

Transfer tax: This tax is collected in some localities whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well.

Homeowner’s insurance premium: This insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year’s premium at settlement.

Mortgage insurance premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.

Prepaid interest: This is money you pay at closing in order to get the interest paid up through the first of the month. Property taxes: Usually six months of county property taxes.

Home warranty: Fee for an insurance policy to protect you from cost of unexpected failures to the major systems and appliances in your home.

Real estate commission: This is the total dollar amount of the real estate broker’s sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.

This post is courtesy of the Consumer Financial Protection Bureau and the American Land Title Association. For additional questions regarding the legal process of purchasing or selling a home, please contact Michna Law Group via phone at (847) 446-4600 or by email at BJM@MichnaLaw.com.