About Bellevue's Downtown

The lack of available financing for home purchases is a headline that seems to be inundating real estate media outlets. While there have certainly been a number of changes in the qualification standards for home buyers, the hurdles to home buying, in many ways, have also been exaggerated. While I'm not a mortgage lender, I think there are some basic facts that consumers aren't hearing often enough from the lending industry (consult with your lender for specifics on interest rates, down payments, credit requirements, etc.). There are a handful of important factors in qualifying for a home mortgage, and for many Americans, their loan approval process today will be very similar to the process they encountered five years ago, before the downturn in the market.

Income

Let's get the obvious issues out of the way. There are no more "stated income", "no income", NINA, SISA, SIVA, or similar-type loans available these days. They were clearly questionable lending practices when they were in use, and they have appropriately been removed.

You need to show evidence of income to your lender. This should be a no-brainer, but the real estate boom certainly lobotomized some banks for a few years. Salaried employees will need to qualify with their paystubs and W2s. Self-employed workers will need to qualify based on their tax returns. This is more onerous on the self-employed, as their tax deductions are usually negated from their calculated income for lending purposes (a practice that should probably be changed). In both cases, borrowers should easily be able to come up with the documentation.

Debt ratio requirements may be more stringent than in previous years, but remember that interest rates have taken most of the bite out of that change. Today's lower interest rates can take 20%-40% off the mortgage payment of a buyer this year vs. a few years ago, allowing them to qualify at the lower debt-to-income ratios that banks are requiring today.

Credit

You cannot buy a home 30 days out of bankruptcy. You cannot buy a home 30 days out of foreclosure. We shouldn't have allowed those purchases in the past, and this change in lending standards was another that seems obvious today and was well warranted.

Credit score requirements have become more stringent along with income requirements, but they are not particularly burdensome. Credit reporting agencies routinely pin the average credit score for Americans significantly over 700, many times near 750. While credit score requirements vary by lender and program, the numbers show that many programs allow scores under 700, and the majority of Americans can qualify based on their credit history. Those who can't, need to take the time to build a record of making credit payments on time. This is reasonable and effective.

Down Payments

Down payment requirements have actually not increased by a lot. There are far fewer No-Money-Down loans, but the number of 3.5% down FHA loans has increased significantly in recent years. VA and USDA loans are still available at 100% LTV, but only in certain areas and to certain borrowers.

3.5% is not a particularly large down payment for most buyers. While it can be a significant amount of money in a high-cost market, most of the research has shown that the amount of money a buyer puts down has a very minimal effect on their likelihood of default. Income and credit history far outweigh down payments when correlating these factors to the likelihood of foreclosure.

Buyers, in many cases, are having home sellers pay for their closing costs with a credit through their purchase contract, so their only need for cash out-of-pocket is the 3.5% down payment for FHA, or 5% down for a conventional loan.

"Responsible" Hurdles

If we're frank about our lending standards in the U.S., we made a lot of big mistakes during the real estate boom. We don't need to overcorrect and hinder lending to well-qualified borrowers. We do, however, need to keep in place the sensible hurdles to real estate financing that assure us that the buyers are able to afford their homes and we don't create another wave of foreclosures.

Potential home buyers should understand that if they have a steady, long-term job, verifiable income, a good history of repaying their debts, and a reasonable down payment, getting a mortgage is not particularly difficult. Banks do want to lend--it's where they make their profits. There will be more paperwork and verification than in the past, but quality loan applicants can and are buying homes every day. 14,000 people bought homes yesterday, and the same number will buy homes today.

A little-known IRS provision lets you extend your real estate purchasing with tax-deferred dollars.

Are stock market woes preventing you from building wealth in your retirement account? If so, you might be interested in a small, but growing, trend among individual retirement account owners—investing their retirement funds in real estate.

How It Works
If the option of using tax-deferred funds to purchase property sounds appealing, you’ll need to locate an independent IRA custodian that allows real estate investments and work with that company to set up an IRA account. Most banks and brokerage companies—the most common IRA account options—limit your choices to certificates of deposit, stocks, mutual funds, annuities, and similar financial instruments. But Section 408 of the Internal Revenue Code permits individuals to purchase land, commercial property, condominiums, residential property, trust deeds, or real estate contracts with funds held in many common forms of IRAs, including a traditional IRA, a Roth IRA , and a Simplified Employee Pension plan, or SEP-IRA.

To find a custodian that specializes in real estate, search under terms such as “real estate IRA” or “self-directed IRA.” This latter term was coined by the financial industry in the 1980s to distinguish the self-directed IRA from other IRAs that focus on stocks and bonds. The IRA account holder can’t serve as the custodian of his or her own account. However, it’s important to select a custodian knowledgeable about the types of investment you’re interested in, because the custodian holds title to the real estate. Do your homework, and understand what you’re getting into.

Fees can vary widely among custodians, as can the flexibility of the services provided for account holders. If the custodian holds real estate on your behalf, but does not service it (collect the rent, etc.), you may have to contract with other providers. However, be sure that all rents are paid into the IRA and that all taxes are paid by the IRA.

Purchasing the Property
Most IRA custodians that hold real estate will usually allow you to purchase raw or vacant land, residential properties, or commercial buildings for your portfolio. In addition, some custodians may permit foreign property or leveraged property.

Since buying a property may require more funds than you currently have available in your IRA, you also can have your IRA purchase an interest in the property in conjunction with other individuals, such as a spouse, business associate, or friend. Also keep in mind that if the property is leveraged, the debt must be a non-recourse promissory note.

Unfortunately, Internal Revenue Service regulations will not let you use the real estate owned by your IRA as your residence or vacation home. Nor can your business lease space in your IRA-held property. The underlying premise for any real estate investment purchased with IRA funds is that you can’t have any personal use or benefit of the property. To do so may cost you plenty in taxes and penalties.

There are a few other IRS limitations as well. You cannot place a real estate property that you already own into your IRA. Your spouse, your parents, or your children also couldn’t have owned the property before it was purchased by your IRA. Property owned by siblings may be allowed, since the Internal Revenue Code (section 4975) specifies that only “lineal descendants” be disqualified.

Once you’ve chosen a property, your IRA custodian—not you personally—must actually purchase it. The title will reflect the name of your IRA custodian for your benefit (such as Silver Trust Co., Custodian FBO John Doe IRA). In addition, if you put up earnest money with your personal funds, you’ll need to make sure you include that amount in the total due so that the title company can reimburse you upon closing.

Operating an IRA-held Property
Because all property expenses, including taxes, insurance, and repairs, must be paid from funds in your IRA, you’ll need liquid funds available in your account. Of course, all income generated from the property will be deposited in your IRA account so you can use that money to cover your costs. You also can make annual contributions within federal guidelines.
Currently, you can contribute $3,000 annually to a traditional or Roth IRA ($3,500 if you’re age 50 or older) and as much as 15 percent of your annual compensation, up to $40,000, if you’re a self-employed individual with a SEP-IRA. If your account doesn’t have funds to cover property expenses, you will have to withdraw the property from your IRA and pay taxes on the value of the property, as well as possible penalties for early withdrawal.

It’s also possible to sell properties while they are held by your IRA, so long as the purchaser is not a family member. Once a deal closes, your IRA account now holds the cash proceeds—ready for you to make your next investment. An alternative is to sell an IRA-held property with seller financing so that all payments made by the buyers are paid to the IRA.

Distributing Your Property
You can withdraw real estate from your IRA and use it as a residence or second home when you reach retirement age (age 59½ or older for a penalty-free withdrawal). At that time, you can elect either to have the IRA sell the property or take an in-kind distribution of the property. Under that arrangement, your IRA custodian assigns the title to the property to you. You will then have to pay income taxes on the current value of the property if it’s been held in a traditional IRA. If the property was held in a Roth IRA, you won’t owe taxes at distribution. This makes a Roth IRA extremely attractive if you anticipate that your real estate investments will appreciate over time.

Whether your retirement strategy is to hold properties or buy and sell for gain, real estate investing through your IRA can yield extraordinary returns toward your future retirement.

IRA Options
While any form of IRA allows for real estate investment, there are other pluses and minuses to consider when choosing the account type that’s best for you:

• A traditional IRA lets you deduct annual contributions (currently set at $3,000, or $3,500 if you’re age 50 or older) from your income. However, once you begin withdrawing money, those funds will be taxed as regular income.
• A Roth IRA gives you no deduction on your current contributions (again $3,000), but does allow you to withdraw funds tax-free. If you expect to buy a real estate investment in an IRA and hold it for a long period, this is probably your best option, particularly if the property increases in value over that period.
• A SEP-IRA is designed for self-employed individuals and small companies. You can contribute up to 25 percent of your compensation, or $40,000, whichever is less. However, keep in mind that if you have employees, you must make contributions for them as well. This option is a great alternative for real estate practitioners who can make the higher contributions because they can build up funds more rapidly to purchase properties. Withdrawals from a SEP-IRA are treated like those of a traditional IRA for tax purposes.
  

Written by Kelli Click, VP of Sale & Marketing, Sterling Trust Co.

This year we decided to stay home and enjoy what Bellevue has to offer over the July 4th weekend, heading into a promising forecast. It was sunny, but not warm enough to leave the blankets in the car when we walked the last way into Bellevue Downtown Park with our four foldable camping chairs. It didn't surprise me to find the sidewalks full of people doing exactly the same thing, heading into the huge park where the Fireworks display was going to start promptly at 10:09 pm. Bellevue really comes together on weekends like this, and the Bellevue Arts and Crafts Fair. You discover just how multi-cultural Bellevue has become, truly we have become an international city.

Characteristically the Bellevue Family Fourth celebration is accompanied by the Bellevue Philharmonic Orchestra playing their repertoire, all of which evoked pride in Bellevue's grand style, but further in our country and the freedoms we enjoy here. Right to the last minute, they played until the appointed time arrived, and we were led in a countdown by the emcee 10, 9, 8... until the last second when the skies literally exploded with fireworks.

This year the fireworks display was sponsored by Symmetra and the Bellevue Club--we THANK YOU for doing us proud. As a Belleuve Club member, I can say they have really set a tough act to follow, with the Bellevue Club Hotel underpinning the financial health of the Club itself. Symmetra has also been a big support in the community for years.

Everywhere around us in Bellevue Downtown Parkwere shrieks of joy as the sky lit up time after time with colorful sprays of red, green, yellow, and white fireworks, punctuated by the loud booms if not each time because it was mezmerizing to say the least. My wife brought along our Canon Powershot 790 camera to provide these photos.

Sometimes in large crowds there are instances of somebody or some group of people getting roudy or obnoxious. In all the years of coming here, I have only been surrounded by people who are respectful, kind, and there's nobody showboating, just enjoying. This year was no exception, and I think it says something about who Bellevue attracts. You will like it here!

Homes For Sale in Downtown Bellevue

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