Post-Good Faith Estimate

Previously, we defined a good-faith estimate, which you can read about here. But what do you do after receiving your estimate?

Since good faith estimates promote price shopping, it’s best to obtain several estimates. Once you've compared several good-faith estimates, it's time for you to sit down and select the best-suited loan option. Following this, notify your loan originator of your intention to proceed with their option.

Throughout this process, it's important to hold onto your good faith estimate. This will enable you to compare the estimate with final costs, providing insights into where those costs may have fluctuated.

Despite what the forms say, inquire with both your mortgage lender and your settlement agent in regards to any changes between the good faith estimate and your HUD-1 Settlement Statement.
Also, keep in mind that a good faith estimate is just that: an estimate. So, your final costs can be affected by numerous variables.

As an example, for those purchasing a new home that is either being built or hasn't been built at the time of receiving the good faith estimate, the costs may change. In this event, the loan originator must notify you up to 60 days before the settlement. With altered costs, it's vital that you reevaluate whether or not this loan is ideal for your circumstances.

Additionally, your personal circumstances may be subject to change as well. Changes could include a different credit score, the loan amount, the property value, or other information that was relied on when issuing the good faith estimate was initially presented. When this happens, you may receive a revised good faith estimate. Ultimately, only these additional charges may be later altered.

For additional information on good faith estimates, contact Michna Law Group by phone at 847.446.4600 or by email at BJM@MichnaLaw.com.

Real Estate Industry Facing Tax Reform

Recently, the GOP has revealed their plans for a tax reform bill. Under this new bill, the House proposes for income tax brackets would be consolidated from seven to four. However, the Senate's variation retains the seven brackets but adjusts their ceilings and corresponding percentages. But how will the Tax Reform bill affect the real estate market?

Additionally, both the House and Senate took a swing at itemized deductions, eliminating many of them. As it pertains to the real estate industry, one of the impacted deductions is the mortgage interest deduction (MID). But what is a mortgage interest deduction?

Investopedia describes mortgage interest deductions as an "itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase or make improvements upon their residence."

While the House initially lowered the cap on mortgage interest deductions from $1.1 million to $500,000, the Senate primarily spared this deduction, permitting a $1 million cap. According to Zillow, the initial cap of $500,000 lowered mortgage interest rates because the loss of itemized deductions made borrowing a mortgage less attractive. Thus, home buying as a whole appears less likely for many first-time home buyers.

Additionally, the Senate's Tax Reform plan completely shutters the property tax deduction, whereas the House' plan would've capped it at $10,000. Based on Zillow's research, a smaller percentage of homeowners would benefit from the deductions, declining from 44% of homes to 12%. Following the Senate's strategy that percentage drops to a mere 7%.

Lastly, the Senate bill takes aim at another topic we've previously covered on this blog: the capital gains tax.

While the law currently allows an individual and a married couple to deduct $250,000 and $500,000 on a home sale respectively, the caveat is that they must own and live in the home for a minimum of two out of the last five years. The new Tax Reform bill bumps that requirement to five out of the last eight years.

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