When to Apply for a Mortgage

As a real estate law firm, Michna Law Group often receives questions for clients pertaining to the home buying and selling process. Today, we'd like to examine another one of those questions: "How early should I apply for a mortgage when looking for a house?"

The first thing to keep in mind is that any information can be useful information. It doesn't hurt to meet with lenders, banks, mortgage brokers, and other real estate industry workers prior to signing a real estate contract.

By educating yourself about the costs of financing a home, you'll wind up better prepared for the eventual costs. Additionally, this information can help you decide how expensive of a home you can purchase.

In general, prequalifying for a mortgage offers a couple key benefits:

1) Sellers are more comfortable with a pre-approved buyer. In general, the last thing anyone wants is another hiccup in the homebuying process. In fact, prequalification can help you wain out over a competing buyer.

2) Standard residential real estate contracts allow the buyer five days to apply for a loan with a 30-day final approval deadline. Through prequalification, this issue is completely negated.

So when is the best time to apply for a mortgage? Assuming you know you want to own a home, the earlier the better.

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Avoiding Capital Gains on a Sale

Lately, we've focused a little more on the home buying aspect of real estate law. This week, Michna Law Group is going to delve more into the home selling end of the spectrum. Specifically, we want to talk about how to remain tax-exempt when selling your home.

Every year, the U.S. tax code grows more advanced. Prior to August 5th, 1997, home sellers would face a capital gains tax on the sale of their home. This could only be avoided if they were upgrading to a more expensive property. The Taxpayer Relief Act changed that. Now, those filing individually can exclude up to $250,000 of capital gains from taxation. For married couples, the benefit is even better, allowing them to exclude up to $500,000. However, there are some caveats to this rule.

First of all, people can only qualify for this form of tax exemption once every two years. In addition, individuals must own and live in the house for at least two out of the last five years. While the two-year period doesn't have to be consecutive, the property must be your primary domain for at least two years.

Even if you don't meet these minimum standards, there are still ways to qualify for a prorated exclusion. For example, if you sold your property due to a change in employment, health reasons, or other circumstances, you would be entitled to a 50% exemption. This would be $125,000 for individuals and $250,000 for married couples.

Additionally, there are still more caveats to the caveats. If you wind up living in a nursing home, for example, the two-year minimum can be reduced to one. On the other hand, if you claim a home office exemption that amount will be subtracted from your capital gains exclusion.

For two individuals sharing a property, you can each claim a $250,000 exemption assuming you both meet the standards. Couples who lived together and later married can claim any unmarried time living in the residence towards their two-year goal. Divorced couples can include any portion of time that a former spouse lives in the home after the divorce.

Families living together can include their children in home ownership to receive larger still tax exemptions. If a husband and wife gave their son or daughter one-third ownership of the property, he or she can apply their time living in the home as an individual exemption. Meanwhile, the parents could still benefit from the couples' $500,000 exemption.

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Commercial Financing: Why It's Important

Michna Law Group has received tons of questions over the years pertaining to real estate law. Today, we'd like to cover the concept of commercial financing and why it's important.

Financing enables individuals to purchase something without paying the full price up front. In terms of real estate, this method of purchase permits individuals and/or businesses to buy residential and commercial real estate without paying the full amount at the closing.

When financing non-residential real estate, the buyer(s) generally obtains funds from a bank, insurance company, or another lender for the acquisition, development, and operation of a commercial real estate venture.

In order to finance commercial real estate, you'll need to secure a commercial financing loan, usually using assets owned by the debtor (you). These assets act as collateral for the investment of the financial entity lending the loan.

Collateral assets, outside of additional real estate, can include the following:

• Fixtures
• Equipment
• Bank and/or Trade Accounts Receivables
• Inventory
• General Intangibles
• Supplies.

Lastly, an assortment of documents is needed to secure the commercial real estate loan. These can include:

• Loan Agreements
• Promissory Notes
• Mortgages
• Deeds of Trust
• Assignments of Rents and Leases
• Financing Statements
• Environmental Indemnity Agreements
• Guaranties
• Subordination
• Non-disturbance and Attornment Agreements
• Estoppel Certificates

For further information on real estate law, please contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.