Individuals selling one property and buying (or building) another may face challenges with coordinating both events, especially in competitive environments. Bridge loans can be a useful solution to this dilemma. The information below on MA bridge loans – how bridge loans work will assist you with understanding this financing alternative.

MA Bridge Loans – How Bridge Loans Work

Many sellers have equity in their existing real estate. There may be a gap in the date those funds are available if a new home must be closed before the old real estate sells. Bridge loans are temporary loans that bridge that gap. It is a substitute for home equity loans (since many lenders do not approve home equity loans for properties on the market).

The underwriting process and criteria for bridge loans will be very different from typical mortgages. Because bridge loans are short-term, they are not normally submitted to the secondary market and therefore need not use the same standards. Minimum credit scores, debt-to-income ratios, and other qualifying factors may range among lenders. During the life of the bridge loan, the homeowner will essentially have two mortgages (one on the hoem listed for sale and one on the new property). Therefore, the borrower must be able to afford both.

Weighing the Pros & Cons of Bridge Loans

Bridge loans allow homeowners to buy and list without the use contingencies on both transactions and scheduling simultaneous closings. This can usually result in additional negotiation ability or facilitate transactions that can otherwise fall apart. It also makes the packing and moving coordination less cumbersome by removing the need for interim storage in same-day closing scenarios. On the other hand, not all borrowers qualify for bridge financing. They also have more fees than home equity financing. Individuals should evaluate these factors with the assistance of both real estate professionals and loan officers.

The First Step

Whether you should obtain a bridge loan is dependent on your financial and real estate goals. A local mortgage company that provides bridge loans can offer more comprehensive information beyond the MA bridge loans – how bridge loans work shown above.

A 1031 exchange is a method for postponing taxes when selling one property and purchasing another. It applies to business or investment real estate. When used properly, it can lead to significant savings. This blog details the benefits of tax deferred 1031 exchanges in MA.

Qualified Property

You must own qualified real estate before considering a tax deferred 1031 exchange. Qualified properties are ones used in a business/trade or for investment. They may be rental, land, residential, industrial, and commercial real estate. You must also intend to purchase new like-kind property that is also qualified.

Benefits Of Tax Deferred 1031 Exchanges In MA

Usually, when you sell an investment property, you pay capital gains taxes on the profits from the sale. This applies regardless of what the funds are used for afterwards. Taxes may be owed to the federal government and local state. Based on how many years you owned a property and the amount of equity, the taxes due can be quite large. A 1031 exchange enables you to put the equity from a property sale towards purchasing a new like-kind property and delay capital gains taxes until you sell that new property. Of course, another 1031 exchange may be an option on that future sale to delay taxes again.

Considering a 1031 Exchange

There are different elements to a 1031 exchange that you should be aware of prior to selling a qualified property. 1031 Exchanges are not something that you can take advantage of after the fact. You must intend to use an exchange when you list a qualified property for sale. Very exact guidelines must be adhered to to execute the exchange. This includes time frames for identifying and purchasing replacement property. A qualified intermediary must also be used to manage the exchange and funds. If a step or time frame is missed, all potential tax savings will be forfeited. Speak with an experienced attorney for detailed guidance on 1031 exchanges and to enjoy the full benefits of tax deferred 1031 exchanges in MA.

The assistance of a MA real estate attorneys is useful or even vital at certain stages of the home buying process. Although real estate professionals can provide you with general guidance on purchase and sales agreements, they are not permitted to practice law. There may be situations where you want an attorney to analyze specific legal terminology or create special terms for a contract. The following is guidance on finding MA real estate attorneys to represent your real estate purchase.

Different Specialties of MA Attorneys

There are a variety of attorneys, each experienced in an individual field. For a similar reason that you would not consult with a foot doctor for a heart problem, you should not use an attorney that focuses on a field other than real estate. MA real estate attorneyss stay informed on local laws and typical real estate contract terms, and will therefore be best skilled to advise you. Given that buying a home is a large investment, finding MA real estate attorneys to represent your real estate purchase would better promote your interests.

Finding MA Real Estate Attorneys To Represent Your Real Estate Purchase

Most lenders hire a real estate attorney (or title company) to complete your closing. It is common for the attorney to offer to review the purchase and sale for you, either at no cost or for a low charge. In most cases, these attorneys can provide a very good job assisting you. Know that even though they will help you, they do work for the mortgage company. If your real estate purchase is more complicated, then you should think about hiring a separate attorney. You may also be able to recommend an attorney that you or your real estate buyer broker knows and ask your loan officer to use that attorney for the closing. Discuss with your real estate broker and/or your mortgage company for guidance on finding MA real estate attorneys to represent your real estate purchase.

The qualified mortgage rule was issued by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It applies starting Jan. 10, 2014 and affects the way lenders must qualify and verify information from borrowers. A summary of the qualified mortgage rule for MA mortgages can be found in this article.

Summary Of The Qualified Mortgage Rule For MA Mortgages

The qualified mortgage rule requires mortgage companies to review financial paperwork of borrowers and to determine their capacity to make payments. First and foremost, the income and assets must be sufficient to repay the loan. Secondly, the ability to pay must be analyzed for the entire life of the loan and not strictly for a shorter length of time. This is a particularly critical rule for loans with lower initial interest rates.

Elements of the Qualified Mortgage Rule

The qualified mortgage rule provides guidelines for assessing the ability to repay, debt-to-income ratio meximums, and a cap on points and fees charged. Lenders will be required to analyze at least eight specific underwriting factors to assess the ability to repay a mortgage. They are:

• Salary and Assets
• Current Employment
• Credit Reports
• Mortgage Payments
• Monthly Payments on Additional Mortgages
• Additional Home Ownership Expenses (Real Estate Taxes, Condo Fees, etc.)
• Other Liabilities
• Debt-to-Income Ratios

Debt-to-income ratios are maxed at forty-three percent. This is actually more than the existing forty-one percent limit. Lastly, points and other charges must not be greater than 3 percent of the mortgage amount. All of these rules go into effect Jan 10., 2014.

Mortgages Being Eliminated

Due to the components of the new qualified mortgage rule, some loan programs will no longer be legal. Examples are ones requiring no documentation, interest-only loans, balloon loans, negative amortization, and those for payment terms longer than 30 years. Even though these categories of loans account for a small percentage of all loans, it will impact specific types of buyers such as those wanting jumbo products.

Intention of the Qualified Mortgage Rule

The real estate and financial crisis is blamed on specific financial practices such as offering home loans with risky terms or buyers receiving home loans that were obviously not within their ability to repay. The new qualified mortgage rule specifically targets toxic loan features. It also seeks to reduce fees charged by lenders. All of this is intended not only to protect borrowers but also to decrease the chances of a future crisis. The above summary of the qualified mortgage rule for MA mortgages is provided only as an introduction. To view full information on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website

Single family and 2-family residential properties sold in the state of MA must be inspected by the fire department. They check for working smoke detectors and carbon monoxide detectors. They then issue a smoke certificate required for the closing. It is prudent for home owners to know the MA smoke detector rules and different kinds of smoke detectors in order to be in compliance (even if they are not planning to sell their home).

Different Kinds Of Smoke Detectors

Ionization and photoelectric at the two different types of smoke detectors. Each has different strengths and weaknesses relating to handling smoke versus flames.

Ionization Smoke Detectors

Ionization detectors contain two electrodes and current that runs between them. The presence of smoke interferes with this constant current and activates the alarm. This technology is better at detecting flaming fires but cannot differentiate between smoke and steam. Thus, they are likely to issue false alarms when placed near kitchens and bathrooms.

Photoelectric Detectors

Photoelectric smoke detectors use a beam of light. The presence of smoke or fire will scatter this beam and trigger the alarm. It is more effective at recognizing smoldering fire and is not as sensitive to false alarms from cooking or shower steam.

MA Smoke Detector Rules

MA laws dictate the kinds and placement of smoke detectors in single family and two-family buildings. The rules differ depending on when a property was constructed or significantly altered. The following is an overview of the installation of smoke detectors within a property.

Additional Information

More details on MA smoke detector rules can be viewed at http://www.mass.gov/eopss/agencies/dfs/dfs2/osfm/fire-prev/smoke-alarm-regulations.html. Note that this information is just an overview, must not be interpreted as legal advice and may change without notice. Additionally, cities can impose additional rules beyond state mandated ones. Contact your local fire department for full and up-to-date information for your home.

Homestead protection is provided to MA property owners and shelters them from unsecured creditors. This is a vital law for any homeowner. The MA homestead law details below addresses the most important components of this law.

Why Property Owners Need This Protection

Property owners gain equity in a home over time. This equity may not be much initially, but can grow to a larger value over time. There are scenarios where creditors or other parties will target that equity to fulfill a financial obligation of an individual. Shielding it can be critical.

Imagine you are in a car accident and the other party sues you and wins, and the damages are beyond the dollar value of your insurance. Your assets, such as real estate, may be used to cover your financial obligation. This is merely one example of many different situations where homestead protection could save you from losing equity.

MA Homestead Law Details

Massachusetts homeowners get an automatic protection of one-hundred and twenty-five thousand dollars (125,000) without filing any forms. A Declaration of Homestead may be filed at the registry of deeds in the county where your primary residence is located to extend the dollar value up to five hundred thousand dollars (500,000). The filing involves a specific form and payment of a filing fee, which differs from county to county but is typically less than one-hundred (100) dollars. If you are purchasing a new home, your closing attorney will provide the information to you.

Other Details

Homestead protection strictly applies to a primary residence. There are special provisions for individuals over the age of sixty-two (62) and disabled persons. The Homestead Law will not cover all creditors or lawsuits. Exceptions do apply, such as municipal tax assessments, mortgages on the home, and probate court decisions, just to list a few. For complete details on this law, visit the Secretary of State website. The information in this blog is provided as an overview using facts available at the given time. It is subject to change without notice (as changes may apply to the Homestead law). Please always visit the website link included above for current facts.

Irrevocable trusts cannot be revised after they are established. Revocable trusts also become irrevocable after the trustmaker dies. Irrevocable trusts may be comprised of multiple agreements each with a different goal. The following are details on the types and goals of irrevocable trusts including reducing estate taxes, protecting assets, and charitable donations.

Types And Goals Of Irrevocable Trusts

Reducing Estate Taxes

An irrevocable life insurance trust is one way of transferring property from an estate in order to reduce estate taxes. The person who owns the assets and sets up the trust basically transfers their belongings into the trust (to the trustees and beneficiaries) and therefore no longer possesses the assets personally. Those belongings therefore cannot be taxed as part of the estate when that trustmaker passes away.

There are other trusts that can accomplish this same benefit. AB trusts can used to benefit a surviving spouse for a certain exempted amount plus deferment of estate taxes for amounts exceeding the limit. ABC trusts are helpful in states with estate taxes and are helpful when the state tax exemption amount is lower than the federal one.

Protecting Assets

Most irrevocable trusts can protect family assets. Since property is transferred into the trust and are no longer personal assets, they are hidden from creditors and others who may file personal claims against the trustmaker. Family members can be made the beneficiary of the trust and would still receive the benefit from those assets. This may be an important feature for certain people based on their profession and potential liabilities.

Charitable Donations

A few types of irrevocable trusts are specifically created for charitable donations. Examples of this are charitable remainder trusts and charitable lead trusts. Trustmakers can transfer assets into a charitable trust while living and obtain a charitable income tax deduction for the tax year. If the transfer takes place after death, then the estate will obtain the tax deduction.

More Information On Irrevocable Trusts

If you are comparing revocable and irrevocable trusts, it is important to understand their differences and benefits as it applies to your personal situation. The above types and goals of irrevocable trusts is merely intended as a basic overview. Contact Peter DaMore at Law Offices of Peter T. DaMore Jr. for further information about trusts and other pieces of your estate plan.

Understanding the loan process will be complicated, especially with all of the mortgage-specific terminology. Becoming familiar with commonly used lending terminology will help the process. Below you will find details on commonly used lending terminology in MA.

Commonly Used Lending Terminology

Pre-approval

A pre-approval is paperwork written by a loan officer detailing the amount and type of loan that a buyer may be able to obtain using their income, debt, and credit report. This is much more significant than a pre-qualification, which provides only an “unconfirmed” estimate. Full approval is usually obtained after a buyer finds a particular property.

Home Loan Commitment

After a buyer finds a property, a lender inspects all of a personal documentation and the data on the home. A loan commitment is subsequently provided to state that the initial criteria have been fulfilled and that the home loan will be officially granted pending a few final items.

Appraised Value

An appraisal is required by a home loan provider to confirm the market value of a home. It must be required prior to a mortgage commitment or approval.

Closing Items

Closing Costs

There are a standard set of expenses associated with buying and selling a property. These are referenced as closing costs. They can include broker commissions, transfer fees, loan charges, attorney costs, title insurance, and local recording fees. Pre-paid charges such as home owners insurance are sometimes also lumped into the closing cost terminology, but they are officially a different type of charge billed at closing.

Title Insurance

Title insurance relates to issues with a title and the costs associated with protecting your ownership. Even though title searches are completed prior to a closing, there could be problems that impact your title to real estate that are not easily included in a title search. Title insurance is a single charge at closing that remains valid for the entire time that you own a home.

Mortgage Insurance (MI)

MI stands for mortgage insurance and is usually charged on loans higher than 80% of the sale price. There is commonly an up-front fee and a recurring bill, both calculated against the original loan balance. MI remains active until it is paid down to 80% of the purchase value.

More Details On Commonly Used Lending Terminology In MA

This blog offers details on commonly used lending terminology in MA. There will be other lingo that you encounter while obtaining a home loan or during the home buying process. For additional guidance, contact Peter DaMore at 781-229-7900 or pdamore@ptdlaw.com.