Vendee Financing Program. Heard of it?

Today as I was surfing the web looking for an image I was going to need for my next flyer, I came across an article that really caught my eye. When this happens my husband calls it “the bunny” meaning that I am focused on one task then I shoot off in another direction because it’s caught my eye… I call it A.D.D. LOL

Anyway, there is no avoiding the fact that the Veterans have also been affected by the economy and have homes in foreclosure.

Here’s a little background on VA loans. Only a Veteran may obtain one if they have a valid VA certificate. When they sell the house the buyer may purchase the home using any method they choose to finance it, but in order to assume the payments on a VA financed home only another veteran can do so without going through LOTS and LOTS of red tape and LOADS of reviews and approvals. (much like today’s short sales) This is because the home is financially backed by the Veterans Association and not by a public bank/lender.

When homes purchased with conventional loans go into foreclosure, they may be put back on the market with reduced prices, offering buyers a way to get more home for less money, but what happens when the VA loan goes into foreclosure?

There’s a company called BAC Loan Servicing that lists and sells these properties now owned by the VA…. ok… so if the VA owns the home and only veterans or active duty member can get loans to purchase VA owned properties, how does this help the general public? Through a program called Vendee financing.

Veterans, active duty and non-military buyers may qualify for this type of financing. So how does it work?  Although it’s a lot like a typical VA loan, there is no appraisal needed on the home and your credit isn’t the qualifying factor; it’s really unique because it doesn’t have an “owner/occupant” requirement. Unlike a traditional VA loan where the buyer has to live in the home as their primary residence, with the Vendee, they do not. There are of course other stipulations when you plan to rent it out, like 5% down, and 75% of the anticipated rent may be used to offset the mortgage payment, so on and so forth.

Here’s a link to a PDF  that talks about the Vendee program, what its all about and how to obtain the financing…. This may be just what some of your buyers need to purchase a home.  As of the date of this post there are 108 listings in all of North Carolina. It’s slim pickings, but sometimes you can find that needle in the haystack.

5 Months Positive Pending Home Sales

The National Association of Realtors released today the statistics for Pending Home Sales over the US.

I’m very pleased to say that over the past 5 months there have been gains! This has not happened since July 2003… Way before my time as a Realtor so this is pretty exciting news to me.

Now… contracts are being signed, but can the banks handle the workload to process them? This is MY biggest concern.  I believe Abagail Jennings, Relator and president of Lake Norman Realty, Inc., who sits on the board of directors of Blueharbor Bank has the right idea to get things moving again so our SALES index shows gains like the PENDING index does. Her position brought her in contact with the NC Commissioner of Banks, Joe Smith. She explained the length of time it’s taking banks to respond to offers on Short Sales, and he asked her to do soemthing about it.

So… She has come up with 3 points she wants passed in Legislation.

1. Require Banks to respond to offers within a specified timeline
2. Mandate automatic acceptance of offers within a certain percentage of the loan
3. Provide an incentive for banks to keep loans out of foreclosure

So in the meantime while all this is going on there is an on line complaint form for Buyers and Sellers who are frustrated when a bank doesn’t respond in a timely manor. After the complaint is filed on the NCCOB web site, and the complaint type “foreclosure” is selected, the banks have to reply in 7 days.

Read the whole story here.

Can an S Corporation save a Realtor Money?

I came across this blog post quite by accident the other day and found it so helpful and so clearly written that I was compelled to write to the author and ask for permission to re-blog. She was wonderful and agreed.

Her name is Helen Maynard and she is a financial planner and founder of Affine Fianancial Svcs located in North Reading Massachusetts. Not too far from my hometown in NH.

So enjoy what you read and please contact her if you need further advise.

 

 

With the economy in the doldrums, many folks are starting businesses to bring in a little side money.  If you decide this is for you, there are a few important steps to take in forming your new venture.

I’ve written before about the importance of forming a limited liability company (LLC) to protect your personal assets.  Today, I’d like to discuss the advantages (and disadvantages) of forming an S corporation.

Self-employment tax

Whenever you earn money not as an employee, you owe self-employment tax, in addition to income tax. It doesn’t matter whether you’ve formally incorporated, filed as an LLC, or are just going door-to-door peddling homemade soap; it’s income, and you need to pay Uncle Sam his share.  The self-employment tax is 15.3% of income (revenue less expenses), which is a hefty bite.  Unlike income tax, the self-employment tax rate is fixed — not progressive — the smallest street vendor pays the same rate as a high-end attorney.

Self-employment tax pays for Social Security (12.4% — up to the first $106,800 (2009)) and Medicare (2.9% — no income limit). If you are an employee, you and your employer each pay half of this amount; as a self-employed person, you get to pay it all.

The advantage of an S corporation:  Pay less self-employment tax

To reduce your self-employment tax bill, you can create an S corporation and hire yourself as an employee.  You pay the employee (you) a reasonable wage for the work done.  If there is profit left over at the end of the year, the partners (that’s you again) split the earnings. Self-employment tax is only paid on wages — not on the company profit.

An example:  Pat and Alex run similar web-design businesses.  Pat organized his business as a sole proprietor, and Alex organized his as an S corporation.  At the end of the year, they each made $50,000, after expenses.  As a sole proprietor, Pat will pay 15.3% of the entire $50,000, or $7,650 in self-employment tax.  Alex researched other web-design firms and found that it was reasonable to assess a $40,000 wage for the work that he did that year.  Alex will pay 15.3% on $40,000, or $6120, saving himself $1,530.

So far, sounds good.  What’s the hitch?

The disadvantages of an S corporation

You have to decide what is a “reasonable wage.”  The IRS doesn’t define it any further than that.  Obviously, you don’t want to pay yourself only $1.  Uncle would call that tax evasion — not avoidance.  You need to do a little research to back up the value used for your assessment.  If you can document it, you should be able to pass an audit.  Another approach I heard tossed around was to make a 60%/40% split (60% of earnings taxed as wage), but I didn’t find any substantiation for that number.  It’s probably better to do your homework and determine a reasonable wage.

You are now an employee.  Hopefully you’ll get along with the boss.

You are now an employer.  You must now file taxes for your employee, and you must withhold employee earnings for taxes and submit these to the proper revenue authorities.  You must now pay federal unemployment tax (FUTA) (6.2% of the first $7,000 in earnings), which you do not have to pay as a sole proprietor.  The FUTA tax reduces Alex’s tax advantage from $1,530 to $1,096.  Depending on state regulations, you may also be required to pay state unemployment and disability insurance, too.  You must generate a W-2 for your employee, too.  The additional paperwork is sufficient hassle that some folks end up hiring a payroll contractor, similar to ADP or Paychex, or more likely, your local small-business accountant.  If you’re the DIY type, QuickBooks can help you track payroll transactions.

You must form a corporation.  The paperwork is a bit more complicated than for an LLC.  It varies by state, but the Articles of Incorporation can be sufficiently complex that you’ll need to see an attorney to understand if you’re really doing the right thing.  The Articles of Incorporation for an LLC are usually quite straightforward.

You may have to deal with other state requirements.  For example, Massachusetts now requires all employers to provide health insurance to employees.  Many self-employed persons rely on their spouse’s health insurance.  So even if you’re covered by your spouse’s policy (fulfilling the requirements for the Massachusetts Form 1 Schedule HC), you may need to file additional paperwork with the state to demonstrate that all of your employees have health care coverage.

How to create an S corporation

You create an S corporation by first creating a corporation (technically, a C corporation).  You then notify the IRS that you want to have your corporation taxed under the S corporation rules by filing Form 2553: Election by a Small-Business Corporation.  This form must be filed by March 15th; otherwise, you have to wait until the next year.

How to file taxes as an S coporation

S corporations, like partnerships, are separate entities and require their own tax return.  (Sole-proprietorships are pass-throughs, and the income is reported on the owner’s 1040 Schedule C or C-EZ).  The tax form is 1120S:  US Income Tax for an S Corporation, and it is due on March 15th (A month earlier than our usual deadline — just to keep you on your toes).  On your 1040, your wages are reported on line 7, and the business income is reported on line 17.

Spreadsheet example

I put together a spreadsheet comparing Pat’s and Alex’s taxes in Excel and pdf form.  In the Excel version, you can modify the revenue, expenses, and tax rates to test your own situation.  I added a few other considerations, such as the fact that a sole proprietor can deduct one-half of the self-employment tax.  Please have a look at the details, if you’re interested.

The bottom line:  Is an S corporation right for me?

Answer:  It depends.  Your business situation is unique.  You should seek advice from your accountant, attorney, or other financial professional.  The S corporation option is preferred (relative to a sole proprietorship) when the business is relatively large — the greater the income, the more you’ll save by forming an S corporation; therefore, the more likely it’s worth the additional paperwork.

Re-blog with permission. Click HERE for the original post