Real estate market changes: Obamacare and escrows

Tuesday morning, Feb. 18, at the Southwest Riverside County Association of REALTORS® (SRCAR) weekly marketing meeting, Gene Wunderlich, SRCAR Government Affairs Director (GAD), alerted REALTORS® to an alarming trend that is developing and spreading heartache across the State of California, soon to be here in the Temecula-Murrieta Valley.

Without advocating for or against our president and his legendary Affordable Health Care Reform Act, commonly known as Obamacare, there are two issues that will affect real estate sales from this point forward.

New capital gains tax on the rich

The first issue is not going to have a direct effect on very many transactions – but those that it does will feel the consequences. There is now a 3.8 percent tax on high income home sellers, earning in excess of $200,000 or $250,000 for married couples filed jointly. The income is for adjusted gross income (AGI). The new tax is on their capital gains in excess of $250,000 for the single seller or $500,000 for the married taxpayers.

This is obviously a very quick snapshot of the new tax and if you want to know more, you really need to discuss the matter with your tax professional for advice that is pertinent to you.

Your health insurance and your new mortgage

When qualifying for a mortgage, the lender has always looked at your debt to income ratio, or DTI. Under the new rules of the Dodd-Frank Act, mortgages have to meet the new “qualified mortgage” (QM). The new QM has a ceiling of 43 percent DTI for most government-sponsored agencies (GSA) like VA, FHA, Fannie Mae, Freddy Mac, USDA, etc. It was 45 percent DTI last year for those of you keeping score.

Again, there is much to this discussion and certainly not enough room here to discuss in any detail. I just wanted to lay the foundation for the scenario Mr. Wunderlich shared at the SRCAR weekly marketing meeting.

Lenders have always looked at the borrower’s monthly bills and obligations in determining debt. This includes rent/mortgage payments, utilities, un-used gym memberships, child care and everything else the borrower spends their money on. This is revealed on the loan application and verified by reviewing three months (or more) of bank statements.

Simply put, the law now requires everyone to be covered or pay a fine. It’s no longer an option as some lenders up north see it. Therefore, if you never had insurance in the past, you must have it today. If it’s something you must have, then it is one more debt that needs to be factored into your DTI. Even if you have had health insurance for years, chances are very good that you’ll be paying more for it, resulting in more debt each and every month. Check with a trust insurance agent to confirm.

What should you do?

I suppose that depends if you are in favor of the law or not. Either way, contact your local politicians and let them know how you feel.

If you are planning on buying a home anytime soon, I’d look hard at doing it sooner rather than later. Apparently, this trend has started in Northern California where one title company has had nine escrows fall out so far this year because of the DTI factoring in health insurance that the borrower did not have prior to this year. While there are no known cases here in the Temecula-Murrieta Valley, or elsewhere in Southern California, it’s believed to only be a matter of time before it reaches us.

Check with your trusted local REALTOR® and lender to make sure you are covered. They will make sure you find that right home within your budget meeting all your needs. Call us today and get the information you need to make the right decision. The info is free, call now! (951) 296-8887.

Questions regarding available inventory and/or other real estate matters please contact me, [email protected] Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Traveling State Director, California Association of Realtors® (C.A.R.).

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