DEAR MR. MYERS: I am the vice president of a large condominium development. The home values here haven’t gone up very much, mostly because the Federal Housing Administration won’t insure loans here. This is because a lot of the condos are owned by investors who rent their places out instead of living there themselves. I heard that the FHA is now re-thinking its loan rules to make it easier to buy, sell or refinance a condo in developments like ours. Do you know anything about this?
ANSWER: Sure. Back in May, at the National Association of Realtors’ annual Legislative Meetings and Trade Exposition in Washington, D.C., U.S. Department of Housing and Urban Development Secretary Julian Castro – who also sets policy for the FHA – announced a plan that would ease the mortgage restrictions that the FHA currently imposes on condo and townhome developments, where a large percentage of units are owned by private investors rather than folks who bought their unit and live in it themselves.
Though details of the plan are complicated, the changes would make it much easier to buy or refinance a condo or townhouse in a planned community by dropping some of the onerous provisions that have blocked such deals in the past. It already has been sent to the federal government’s Office of Management and Budget for review and public comment, which typically is one of the final steps before a change in federal policy can become law.
Separately, U.S. Department of Education adviser Rohit Chopra told the crowd that changes also may be coming that would make it easier for millennials – the millions of Americans who began reaching early adulthood around the turn of the century – to buy a home, even though many of them are saddled with huge amounts of student-loan debt.
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A staggering 42 million Americans have an average of $29,000 in federally backed student loans outstanding, Chopra said. About one-sixth of these borrowers are in default, and each day an additional 3,700 fall behind in their payments.
Chopra stressed that many of those who are in default aren’t just 20-somethings. Millions are baby boomers who co-signed for their grown child’s student loan or borrowed money to go back to college themselves, but now can’t repay the cash.
To help pave the way for new home buyers, HUD Chief Castro said that the FHA would reduce the amount of deferred student debt, from 2 percent to 1 percent, that counts against a borrower’s debt-to-income ratio. That means that someone with $10,000 in deferred student loan debt would technically be considered to have a $100-per-month repayment obligation when a mortgage lender reviews a loan application, rather than $200.
The change could add thousands of dollars to a buyer’s borrowing power, lower the amount of the required down payment and help to keep sending home values upward.
REAL ESTATE TRIVIA: A survey by the National Association of Realtors states that 41 percent of all homes across the U.S. sold at or above their list price, up from 36 percent one year earlier.
DEAR MR. MYERS: Instead of selling my home, I decided to rent it out to tenants. I know that I have to declare the rental income on my next federal tax return, but do I also have to report the $800 security deposit that the tenants gave me?
ANSWER: No. The Internal Revenue Service generally states that a security deposit that a landlord receives is not considered income, so it doesn’t have to be reported.
There is one key exception: If your tenants eventually skip out and you use the deposit to recover any lost rent, it will be considered rental income and must be reported to the IRS. Get your free copy of IRS Publication 527, Residential Rental Property, by calling the agency at 800 829-3676, or by downloading it to your computer from irs.gov.
DEAR MR. MYERS: What are the best household items to buy in September?
ANSWER: Labor Day has traditionally kicked off the end-of-summer clearance sales by retailers, though some have already got them in full swing. Many are offering discounts of 50 percent or more on big-ticket outdoor items, from barbecue grills to patio furniture and power lawn mowers, as stores clear floor space for autumn and holiday-related stuff.
If you feel like indulging, shopping experts at the bargain-hunting website FatWallet.com note that several big-box and home-improvement stores are offering 20- to 30-percent savings on above-ground pools.
Labor Day, and the days immediately preceding and following it, also is renowned for its deep discounts on mattresses, appliances and indoor furniture. Again, look for price cuts of 50 percent or more.
David W. Myers’ column is distributed by Cowles Syndicate Inc.