Elvin@Stearns – FHA Help, PLEASE!!!
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Help answer the question about refinance cash out
Is the cash out of a mortgage refinance taxable?I am buying a foreclosure and refinancing to pull cash out to update the house. I will be under the current appraised value but I am worried about tax ramifications when pulling out the refinance money because I have not owned the house 2 years.
Any help would be great. Thx
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October 29th, 2009 at 9:10 am
I seriously doubt it, my Wife and I just did that 2 months ago and our loan officer told us that they were not even looking at anyone with scores under 720.
October 29th, 2009 at 10:13 am
it all depends on where your current loan to the value is at this point. The most cash you can take out at this point is with an FHA insured note and that is 85% loan on the value. If you owe that much or more as the rules changed over the last year then you have no shot at a HELOC or a refinance. If you owe less than that then yes it is a great time to get cash for improvements
I am a mortgage banker in TN
October 29th, 2009 at 9:38 pm
It all depends on the difference in the value of the place and the amount owed on the loan – that is what's considered your equity. Many banks will only loan up to about 80% of the equity, but a few go higher. For example, lets say you owe $50,000, but the place is worth $60,000, then you have $10,000 in equity. Take 80% of that and you have about $8,000 you could loan against.
I found a great article about it on
http://www.payoffmyloansnow.com
October 30th, 2009 at 6:56 am
If you read your agreement, you will undoubtedly see that they have included language along the lines of "the bank has the right to change these (the refinance rules) conditions from time to time with proper notice."
In effect, what you signed gave you the right to refinance under certain conditions, but those conditions can change somewhat.
October 30th, 2009 at 8:52 am
A refinance with cash out would save you money in the long run. The interest rate would be lower for a 1st mortgage.
If you refinanced for a lower interest rate, you would be required to pay for the refinance and other closing cost.
Now if you turned around immediately and got a second mortgage or a Home Equity Line of Credit (HELOC) you would once again be required to pay for the loan as well as any related closing cost. On this 2nd mortgage the interest rate would be 2%-3% higher.
For any legal or tax matters you should consult with your attorney or tax consultant.
I hope this has been of some use to you, good luck.
"FIGHT ON"
October 30th, 2009 at 10:15 am
Once you get the house back into good shape, and the value is back above where you financed it in the first place you can get it reappraised and start over on your new loan for the unit. Or get a second mortgage.. Time factor is not a big deal,, the equity in home is the deciding factor.
October 31st, 2009 at 2:22 pm
They go after your other assets, accounts, property and wages until you have repaid all of the money they gave you, interest on it and the legal expense of getting their funds returned to them.
Eventually you will pay them back.
November 1st, 2009 at 1:30 am
there are multiple limits of various kinds.
1st. if you cash out more from property A than your remaining equity in property A [original down payment or basis less accumulated depreciation plus capitalized items during your holding period less salvage received or loss deducted], the excess is taxable income in the year received.
Depending on depreciation recapture provisions, some or all of this may be ordinary income.
2nd. yes, all the interest paid on debts on Property A would go on Schedule E.
3rd. yes, the net loss on Property A [including depreciation] would offset the net income on Property B.
4th yes, there is a limit on losses from passive activites — and a separate schedule on which to figure it out [see forms at irs.gov -- Limitation on Passive Activity Losses -- I think that's what it is called].
5th. points, costs, and fees paid to refi the debt on Property A probably have to be capitalized and amortized over the life of the new loan. [The loan statements will include them in the capital paid figure]. The similar remaining balance of points, fees, and costs that you are currently amortizing for the current loan on Property A are probably deductible as financing expense.
Atm, that's all I can think of…
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And that's all if you can find a cash-out refi of an investor property in the present loan market. My offhand guess is that you'll not be allowed to lower the equity to appraised value ratio beyond 20% at least — possibly more depending on market. AND, I'll bet the lender will want an unconditional personal guarantee of the loan as well.
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Are you sure you don't want to hire an accountant to figure out this stuff??