Wednesday, January 30, 2008

Tips for buying another home before yours goes into Foreclosure

If you are considering purchasing another home then letting your present home go into foreclosure here are some tips that will save you trouble later down the line as well as help the transaction run smoothly.

1. You need an excellent lender who can structure your new home loan properly; after all there will be questions by the new lender.

2. You need an excellent real estate agent who knows how to structure this deal. Your real estate agent also needs to know how to find the right home. This may seem strange but not all homes will help the transaction and some actually will hurt your chances of qualifying.

3. There are no longer 100% loans so you will need a down payment. If you dont have a down payment there are other alternatives but again your agent must be aware of these other options and how to implement them.

4. Once your real estate agent has located a likely home youll have to qualify for a new mortgage, so you cant have any mortgage lates and youll have to have sufficient income to qualify for your existing mortgage and the new one. This is where a savvy lender is most important.

Many people are concerned with the ramifications of the foreclosure. Can the foreclosed lender sue for the difference? Can he attach my new home? And what about the IRS? These questions are whirling around in everyones head as they consider this method so let me help you with the answers.

1. Can the original lender sue me for the difference between what my home is worth and what I owe on a foreclosure in California?

California is a non deficiency state which means if you are foreclosed on and the mortgage company sells using a trustee sale which is the most common in California, then the lender has no recourse after the sale. But you must have the original loan you bought your home with. This is called the Purchase Money Loan. You can have a first and a second but the second should not be a HELOC as this is considered a line of credit and is viewed differently than a mortgage.

2. Will the IRS tax me on the difference between what the home sells for and what is owed?

If you have lived in your home for two years or more and considered it your primary residence then you have no capital gains responsibility for amounts $250,000 and under for single people and $500,000 and under for married couples. If you have not lived in you home for two years yet, there are other alternatives and a tax professional should be consulted before you begin this process.

3. Can the old lender take any action against my new home?

The answer to this is easy. NO the old lender has no ties to your new home and therefore there are no options for him to regain any money through your new home.

4. How will my credit be affected?

You will have a bunch of late payments and a foreclosure that will take your credit from the 700s to the 400s within a few months but consider thisyou have a home and a new mortgage. If you have any credit cards or car payments these regular and on time payments will help you recover your credit score much more quickly. The new mortgage will have the biggest impact on your credit though. By making your new mortgage payments on time you are raising your credit scores monthly and if you dont plan on using new credit for a few years then your credit score should have little to no affect of your life.

Now this all may sound too good to be true so my best advice for anyone thinking along these lines is research what you want to do. Talk to a tax professional regarding the aftermath of this scenario. There are many websites dealing with the foreclosure issue and the IRS issue, so take you time and thoroughly research your situation. If you decide this is the best course of action for your situation and you live in the inland empire call me and Ill help you find the right lender and the right home.