How Do Employee Stock Options Work?

Perhaps you’ve been offered a job package with a combination of salary, benefits, and employee stock options. In order to make an informed decision, it helps to know how employee stock options (ESOs) work. Knowing the basics can be especially important if you’re considering taking a lower salary offer in exchange for ESOs.

Or maybe your current employer has already given you employee stock options, but you’re still not clear on how to exercise them. This is an incentive that could be valuable—so you probably don’t want to ignore it.

Employee stock options have the potential to make an employee some extra money, depending on the market, which may be a nice perk. Stock options can also give employees a sense of ownership (and, to a degree, actual ownership) in the company they work for.

Here is everything you need to know about ESOs—from how they work to the different types, and all the details in between.

What Are Employee Stock Options?

Employee stock options give an employee the chance to purchase a set number of shares in the company at a set price—often called the exercise price—over a set amount of time. Typically, the exercise price is a way to lock in a lower price for the stock.

This gives an employee the chance to exercise their ESOs at a point when the exercise price is lower than the market price—with the potential to make a profit on the shares.

Sometimes, an employer may offer both ESOs and restricted stock units (RSUs)—RSUs are different in that they are basically a promise of stock at a later date.

Employee Stock Option Basics

When talking about stock options, there are some essential terms to know in order to understand how options work. For investors who know their way around options trading, some of these terms may be familiar.

•  Exercise price/grant price/strike price: This is the given set price at which employees can purchase the stock options.
•  Market price: This is the current price of the stock on the market (which may be lower or higher than the exercise price). Typically an employee would only choose to exercise and purchase the options if the market price is higher than the grant price.
•  Issue date: This is the date on which you’re given the options.
•  Vesting date: This is the date after which you can exercise your options per the original terms
•  Exercise date: This is the date you actually choose to exercise your options.
•  Expiration date: This is the date on which your ability to exercise your options expires.

How Do Employee Stock Options Work?

When you’re given employee stock options, that means you have the option, or right, to buy stock in the company at the established grant price. You don’t have to exercise options, but you can if it makes sense to you.

Exercising your ESOs means choosing to actually purchase the stock at the given grant price, after a predetermined waiting period. If you don’t purchase the stock, then the option will eventually expire.

ESO Vesting Periods

Typically, employee stock options come with a vesting period, which is basically a waiting period after which you can exercise them. This means you must stay at the company a certain amount of time before you can cash out.

The stock options you’re offered may be fully vested on a certain date or just partially vested over multiple years, meaning some of the options can be exercised at one date and some more at a later date.

ESO Example

For example, imagine you were issued employee stock options on Jan. 1 of this year with the option of buying 100 shares of the company at $10/share. You can exercise this option starting on Jan. 1, 2021 (the vesting date) for 10 years, until Jan. 1, 2031 (the expiration date).

If you choose not to exercise these options by Jan. 1, 2031, they would expire and you would no longer have the option to buy stock at $10/share.

Now, let’s say the market price of shares in the company goes up to $20 at some point after they’ve vested on Jan. 1, 2021, and you decide to exercise your options.

This means you decide to buy 100 shares at $10/share for $1,000 total—while the market value of those shares is actually $2,000.

Exercising Employee Stock Options

You don’t have to exercise your options unless it makes sense for you. That may depend on your financial situation, the forecasted value of the company, and what you expect to do with the shares after you purchase them.

If you do plan to exercise your ESOs, there are a few different ways to do so. It’s worth noting that some companies have specifications about when the shares can be sold, because they don’t want you to just exercise your options and then sell off all your stock in the company immediately.

Buy and Hold

Once you own shares in the company, you can choose to hold onto them. To continue the example above, you could just buy the 100 shares with $1,000 cash and you would then own that amount of stock in the company—until you decide to sell your shares (if you do).

Cashless Exercise

Another way to exercise your ESOs is with a cashless exercise, which means you sell off enough of the shares at the market price to pay for the total purchase.

For example, you would sell off 50 of your purchased shares at $20/share to cover the $1,000 that exercising the options cost you. You would be left with 50 shares.) Most brokerages will do this buying and selling simultaneously.

Stock Swap

A third way to exercise options works if you already own shares. A stock swap allows you to swap in existing shares of the company at the market price of those shares and trade for shares at the exercise price.

For example, you might trade in 50 shares that you already own, worth $1,000 at the market price, and then purchase 100 shares at $10/share.

When the market price is higher than the exercise price—often referred to as options being “in the money”—you may be able to gain value for those shares because they’re worth more than you pay for them.

Why Do Companies Offer Stock Options?

The idea is simple: If employees are financially invested in the success of the company, then they’re more likely to be emotionally invested in its success as well and it can increase employee productivity.

From an employee’s point of view, stock options offer a way to share in the financial benefit of their own hard work. In theory, if the company is successful, then the market stock price will rise and your stock options will be worth more.

A stock is simply a fractional share of ownership in a company, which can be bought or sold or traded on a market.

The financial prospects of the company influence whether people want to buy or sell shares in that company, but there are a number of factors that can determine stock price, including investor behavior, company news, world events, and primary and secondary markets.

Tax Implications of Employee Stock Options

There are two main kinds of employee stock options: qualified and non-qualified, each of which has different tax implications. These are also known as incentive stock options (ISOs) and non-qualified stock options (NSOs or NQSOs).

Incentive Stock Options (ISO)

When you buy shares in a company below the market price, you could be taxed on the difference between what you pay and what the market price is. ISOs are “qualified” for preferential tax treatment, meaning no taxes are due at the time you exercise your options—unless you’re subject to an alternative minimum tax.

Instead, taxes are due at the time you sell the stock and make a profit. If you sell the stock more than one year after you exercise the option and two years after they were granted, then you will likely only be subject to capital gains tax.

If you sell the shares prior to meeting that holding period, you will likely pay additional taxes on the difference between the price you paid and the market price as if your company had just given you that amount outright. For this reason, it is often financially beneficial to hold onto ESO shares for at least one year after exercising and two years after your exercise date.

Non-qualified Stock Options (NSOs or NQSOs)

NSOs do not qualify for preferential tax treatment. That means that exercising stock options subjects them to ordinary income tax on the difference between the exercise price and the market price at the time you purchase the stock. Unlike ISOs, NSOs will always be taxed as ordinary income.

Taxes may be specific to your individual circumstances and vary based on how the company has set up its employee stock option program, so it’s always a good idea to consult a tax advisor for specifics.

Should You Exercise Employee Stock Options?

While it’s impossible to know if the market price of the shares will go up or down in the future, there are a number of things to consider when deciding if you should exercise options:

•  the type of option—ISO or NSO—and related tax implications
•  the financial prospects of the company
•  your own portfolio and how these company shares would fit into your goals

You also might want to consider how many shares are being made available, to whom, and on what timeline—especially when weighing what stock options are worth to you as part of a job offer. For example, if you’re offered shares worth 1% of the company, but then the next year more shares are made available, you could find your ownership diluted and the stock would then be worth less.

The Takeaway

Employee stock options may be an enticing incentive that companies can offer their employees: the chance to invest in the company directly, and possibly profit from doing so. There are certain rules around ESOs, including timing of exercising the options, as well as different tax implications depending on the type of ESO a company offers its employees.

For some investors, owning shares in their employer company may be just one aspect of a diversified portfolio. With SoFi Invest®, members can participate in upcoming IPOs, trade stocks, ETFs, and crypto—or start automated investing—as a way to diversify their portfolios based on their personal goals, risk tolerance, and other preferences.

Find out how to get started with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SOIN19125

Source: sofi.com

FHA Short Refinance Program Has Resulted in Only 15 Refis

Last updated on January 25th, 2018

15

The FHA Short Refinance program, made available to loan servicers in June but formally launched in October, has resulted in just 15 refinances as of December 31, according to Congressional testimony from the Special Inspector General, Neil M. Barofsky.

A short refinance is a transaction in which a mortgage lender agrees to pay off a borrower’s existing mortgage and replace it with new a loan with a reduced balance in order to prevent foreclosure.

In a quarterly report to Congress, Barofsky slammed efforts made by the Treasury to halt foreclosures and improve the housing outlook.

He noted that just 522,000 permanent loan modifications were active under the Making Home Affordable program as of year-end, with approximately 238,000 funded via TARP and the rest by the GSEs, Fannie Mae and Freddie Mac.

But a combined 792,000 permanent and trial loan mods have also been cancelled, and more than 152,000 trial mods are still “in limbo.”

“These permanent modification numbers pale in comparison not only to foreclosure filings, but also to Treasury’s initial prediction that HAMP would “help up to 3 to 4 million at-risk homeowners avoid foreclosure” “by reducing monthly payments to sustainable levels,”” said Barofsky.

Last month, the Congressional Oversight Panel said only about 700,000 foreclosures would be prevented via HAMP, but Barofsky expects that total to be even lower, given the soft number as of late.

Meanwhile, RealtyTrac expects foreclosure filings to surpass the three million mark in 2011, increasing 20 percent from the 2.9 million seen last year.

The Treasury also wasn’t able to produce any numbers tied to HAMP’s Principal Reduction Alternative program, which was also formally launched in October to help underwater homeowners.

In other words, expect more foreclosures and lower home prices.

Does the Hope for Homeowners program helping just one borrower back in 2009 ring a bell?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Four Percent Mortgage Proposed to Solve Crisis

Last updated on February 2nd, 2018

four

As expected, the recent spike in mortgage rates has led to wild new proposals to solve the ongoing mortgage crisis.

The latest proposal comes from Arizona businessman Kenneth Wm. Parker, owner of Parker Properties/Parker Development, who has introduced the so-called “4/40 for Freedom Loan.”

It’s essentially a government-backed mortgage set at a four percent interest rate with a 40-year amortization.

“Americans are begging for relief,” said Parker, founder of 4/40 for Freedom, in a statement. “The program benefits are immediate; lower mortgages means increased disposable income, which translates to available cash to stimulate the economy through investments and product and service purchases.”

“We have received enthusiastic support from the financial and business community regarding the program,” he added.

Expected savings from the program are 33-38 percent per month per household, which would certainly ease pressure on struggling homeowners and move much needed money back into the economy.

“If each homeowner saves an estimated $250 a month on their mortgage, all of a sudden they can make additional purchases and the effect on the economy will be tremendous,” Parker said.

Once passed by Congress, the program would be available for one year to both new and existing homeowners; those with a mortgage would receive loan modifications without a credit check or any other qualification (sounds great).

Jumbo loans would also be offered up to loan amounts of $3.5 million.

“As the economy improves and home values go up, homeowners will refinance with conventional mortgage programs and the U.S. backed real estate interest loan debt will be repaid, resulting in additional economic capital,” the release said.

You can read more about the program over at their site. It’s clearly a bit over the top, but I wouldn’t be surprised if we see subsidized mortgage rates soon if the government isn’t able to rein them in.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Amazon Subscribe & Save – 9 Ways to Save the Most Money on Deals

If you’re trying to save money on a tight budget, signing up for subscription services is probably the last thing on your mind. After all, things like cutting your cable subscription or canceling underused subscriptions are quick ways to lower your monthly bills.

But subscription services aren’t necessarily bad for your wallet. While subscription boxes aren’t always worth it, e-commerce giants like Amazon have created a new way to save time and money when ordering everyday essentials.

With Amazon Subscribe & Save, you can simplify your life and save up to 15% on thousands of Amazon products. If you’re tired of overpaying for daily necessities and want to spend less time shopping in stores, Subscribe & Save is definitely worth trying.

How Amazon Subscribe & Save Works

It’s already easy to save money by shopping on Amazon. Between competitive prices and free shipping on thousands of products through Amazon Prime, it’s clear why Amazon dominates e-commerce sales in the United States and much of the world.

Amazon Subscribe & Save is simply another program in Amazon’s money-saving toolkit, albeit an incredibly powerful one. With Subscribe & Save, you save money by subscribing to regular Amazon deliveries for thousands of different products. Household items, grocery store products, cleaning supplies, pet food, and personal care products are popular categories, and getting started with the program takes only four steps:

  1. Select Products. Shop for eligible Subscribe & Save products from the subscriptions page. Eligible items also have a Subscribe & Save option on their product detail page that you can select when browsing Amazon.
  2. Choose Quantity and Schedule. Select the product quantity and shipping schedule for every product you add to your subscription. Your auto-delivery options range from two weeks to six months.
  3. Create Subscription. Confirm your subscription and delivery address. Each product indicates its delivery date so you know when to expect your first order.
  4. Manage Existing Subscriptions. Amazon sends a reminder email in advance of their next delivery. This email outlines the products you’re subscribing to, their current prices, and any price changes since your last order. You can change delivery frequency, remove products, skip deliveries, and change delivery location as long as you make changes before your next order ships.

Almost every Subscribe & Save product saves at least 5% for creating a subscription. Plus, shipping is always free for Prime members, though non-Prime customers may pay shipping costs for their first delivery (but not subsequent deliveries). Whether you’re a Prime member or not, there aren’t any cancellation fees for ending your subscription.

However, Subscribe & Save truly shines when you get serious and add more products. If you add at least five products to an order for a single address, you save 15% on everything. When you consider how affordable Amazon is alongside these savings, Subscribe & Save is an effective way to save money on household products and other essentials.

As with other Amazon products, prices fluctuate. If you check your subscription reminder email and don’t think the extra savings are worth it, you can always swap products or skip your upcoming subscription.


How to Save Even More Money With Subscribe & Save

Adding at least five products to save 15% is the best feature of Subscribe & Save. However, truly frugal shoppers can also make use of other strategies to cut costs.

1. Join Amazon Prime

An Amazon Prime membership is already a worthwhile investment for avid Amazon shoppers since it provides free shipping on thousands of products and exclusive deals. Additionally, your Prime membership can help you save money on baby expenses through the Amazon Family program.

Prime members who order at least five products are eligible for 20% off diapers, baby food, and a range of vitamins and supplements. Having a baby is expensive, so a 20% discount on child care essentials certainly lessens the financial strain.

You don’t have to order five baby products to get 20% off. As long as your total Subscribe & Save order has five products, products eligible for 20% off get that discount. If you don’t need enough available baby products, you can subscribe to filler items you’d buy anyway, like paper towels or toothpaste, or grocery products you might normally buy in the store to maximize your discount.

2. Clip Coupons

If you’re a fan of coupon apps or extreme couponing, you can get similar savings by clipping Subscribe & Save coupons directly on Amazon.

Subscribe & Save coupons provide discounts on your order that go beyond regular savings. Many Amazon coupons offer 20% to 40% off your first order or $5 to $10 off regular pricing the first time you order a product. Plus, coupons are available for a range of products, including:

  • Batteries
  • Cleaning supplies
  • Supplements
  • Beauty products
  • Detergent
  • Pet supplies
  • Food and kitchen products

Once you select “clip coupon,” your discount automatically applies when you add the product to your Subscribe & Save order and check out. Coupons stack with existing Subscribe & Save deals, meaning you can save an impressive amount.

3. Use the Amazon Prime Rewards Visa

Another way to make the most of Subscribe & Save is to shop with the Amazon Prime Rewards Visa Signature card. This cash-back credit card has various Amazon-specific perks, making it a must-have for any regular Amazon shopper. Cardholder benefits include:

  • 3% cash back at Amazon and Whole Foods
  • 2% cash back at restaurants, gas stations, and drugstores
  • 1% cash back on utilities, rideshares, and all other purchases
  • A $50 Amazon gift card sign-up bonus

There’s no annual fee, although you must be an Amazon Prime member to become a cardholder. However, the $50 free Amazon gift card already covers a significant portion of your annual Prime membership, and it’s a strong cash-back credit card overall for anyone who regularly shops on Amazon.

4. Get Creative for 5 Products

If you don’t add five products to your Subscribe & Save order, you’re missing out on a lot of savings. However, you can get creative to reach five products and get the most benefit from the program.

Start by reviewing your weekly shopping list and then check Subscribe & Save for those products. Toilet paper, grocery items, paper towels, cleaning supplies, and garbage bags are examples of eligible products, so adding these products to your subscription is a straightforward way to reach five products.

You can also add things you need to replace on a specific schedule, like air conditioner filters or toothbrushes. Putting them on Subscribe & Save acts as a reminder to change them out.

Subscribe & Save has thousands of eligible products, so reaching five products isn’t a challenge for most. In fact, surpassing five products in your subscription is likely once you get used to ordering online since Amazon is both affordable and convenient.

If you’re still at a loss, you can create an order for yourself and a family member, close friend, or neighbor. Subscribe & Save orders must ship to the same address to get the full discount. But if you regularly see the other person, you can simply hand off their products and have them transfer money to you.

Finally, if you’re a business owner or plan to start your own business, check out eligible office products to reach your five items. That’s a simple way to cut costs for your business and maximize Subscribe & Save’s potential.

5. Always Read Subscribe & Save Emails

Amazon emails you before every upcoming delivery, listing the products in your order and their prices. It’s crucial to read the email to confirm you need to replenish the products in your order. Additionally, Amazon prices are dynamic, and the last thing you want is to overpay because you skipped an email. That also means it pays to keep track of what your local brick-and-mortars charge for the products on your list.

It’s free to skip or modify your order if you’re fully stocked or dissatisfied with the price. Keep stock of essentials you’re running low on, and regularly check Subscribe & Save to see if there are more affordable alternatives. It takes an order or two to get your delivery frequency right, but the savings are worth it.

6. Compare Different Quantities

You can select a two-week delivery window for Subscribe & Save. But it’s often cost-effective to buy in bulk and have less frequent deliveries.

For example, categories like pet food, toilet paper, and batteries often become cheaper the more you buy. While spending more upfront is unpleasant, if you know you’re going to use the products and they won’t go to waste, bulk shopping can save more money. Plus, you can always update your delivery dates and quantities if you start running low on something or decide bulk shopping isn’t for you. Just make sure you have the space to store everything you buy.

7. Don’t Stop Deal Shopping

One risk of subscription services is that you end up paying for something you don’t use. Subscribe & Save is different in this regard since it focuses on everyday essentials. But that doesn’t mean you should become complacent.

Amazon prices are generally competitive, but there are other ways to save money on everyday purchases. For example, shopping in bulk at warehouse stores like Costco and Sam’s Club might rival some of your Subscribe & Save products in price and quality. Alternatively, for some essentials, local or online dollar stores might be a cheaper option.

There are also plenty of shopping sites with free shipping and perks that can rival Amazon. For example, both Walmart and Target offer fast and free shipping on orders over $35. Walmart also offers Walmart+, a membership program that grants free delivery, free shipping, and faster in-store checkout. And customers who use the Target REDcard also receive free two-day shipping. (Though neither has a subscription program if that’s what you’re looking for.)

Ultimately, think of Subscribe & Save as one of many platforms to help cut down on spending, not your only shopping option.

8. Use Shopping Browser Extensions

There’s no excuse for not using a shopping browser extension to find deals and save money if you shop online.

That’s also true for Subscribe & Save, and there are several browser extensions you can use to maximize savings:

  • Honey. Honey automatically adds coupon codes when you check out at thousands of online stores. On Amazon, Honey also compares prices between products you’re considering to ensure you find the best deal. You can also create price-drop alerts to receive an email when Amazon products you’re interested in drop in price. Read our Honey review.
  • Capital One Shopping: Like Honey, Capital One Shopping also automatically applies coupon codes to save time and money when shopping online. You can also shop at Capital One partners to earn credits, which are redeemable for various free gift cards. If you have a specific product in mind, the product search feature finds the best online price, so you can check whether Amazon is the most affordable option. Read our Capital One Shopping review.
  • CamelCamelCamel: If you want to time your shopping trip to buy products when they’re at historically low prices, CamelCamelCamel is a powerful research tool you need to try. This Amazon price tracker displays price history charts for millions of Amazon products and lets you create price-drop alerts. While it’s difficult to time your shopping for Subscribe & Save orders, CamelCamelCamel is an effective way to reference price history to avoid scheduling at historically peak price windows.

Capital One Shopping compensates us when you get the browser extension using the links provided.

9. Try Cash-Back Rewards Websites

Another simple way to save more with Subscribe & Save is to earn cash-back rewards for your online shopping. Websites like Rakuten and TopCashback partner with thousands of online retailers and pay you cash back for shopping. Both platforms are free, and you can also earn a $10 sign-up bonus for joining Rakuten to kickstart your savings.

Amazon discounts aren’t always available on these platforms. However, if you can time a Subscribe & Save order with a cash-back bonus, you’re looking at even more savings. Plus, Rakuten and TopCashback work with thousands of other online retailers, so they’re worth trying even if Amazon savings aren’t currently available.

Rakuten pays out cash back quarterly through PayPal or check as long as you have more than $5 in your account. TopCashback lets you withdraw any time through PayPal or free gift cards. You can also install the Rakuten extension and TopCashback extension to receive notifications when the website you’re shopping on is eligible for cash-back rewards.


Final Word

When you consider how affordable and convenient shopping on Amazon is, it’s easy to understand why this e-commerce giant is so popular.

Subscribe & Save is yet another Amazon feature that rewards you for your loyalty. At the very least, you can save 5% on products you use regularly and cut down on gas costs by shopping in person less frequently. At best, you can save 20% or more on everyday essentials and simplify your life without committing to expensive subscription terms or locking yourself into a contract.

The only caution is to avoid buying products you don’t need or overstocking on perishable goods. It might take time to get your delivery frequency and products right, and you have to be diligent with reading order emails. But once you get into a rhythm, there’s no reason to pay full price for most of your daily necessities thanks to Amazon.

Source: moneycrashers.com

FHA Short Refinance Option Coming Soon

short

A new option that should be available by fall of this year will allow borrowers current on their mortgages to execute short refinances into FHA loans, assuming the original loan is not FHA-insured.

In fact, the new loan must NOT be owned or guaranteed by the FHA, VA, or the USDA. So essentially only those with conventional loans need apply.

Loans eligible for refinancing via the FHA short refinance program include Alt-A loans, subprime loans, fixed-rate loans, ARMs, and loans of all documentation types.

The new FHA loan must have a balance no greater than 97.75 percent of the value of the home, and the total loan-to-value (including any second mortgages) cannot exceed 115 percent after the refinancing.

At the same time, the minimum write-down by the mortgage lender must be 10 percent of the unpaid balance of the original loan.

For manually underwritten loans, the total monthly payment, including any second mortgages, must not be greater than 31/50 or 35/48 debt-to-income, though the borrower should benefit from both a reduced balance and a reduced interest rate thanks to the current low-rate environment.

Borrowers who choose the FHA short refinance option can go with a fixed-rate mortgage or an ARM.

Homeowner eligibility for the FHA short refinance program is as follows:

– Homeowners must be current on existing mortgage payment (unless the borrower successfully completes a 3-month trial payment plan)
– Homeowner must occupy the home as a primary residence
– Homeowner must be underwater on existing mortgage(s)
– Homeowner must have a FICO score of at least 500
– Homeowner must meet standard FHA underwriting requirements
– Existing lenders/investors must agree to a principal write-down
– Condos and 1-4 unit properties are eligible
– Not eligible if convicted of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage/real estate transaction within last 10 years

Borrowers who execute an FHA short refinance should expect to see their credit score negatively impacted as with any other loan forgiveness.

And the standard FHA mortgage insurance premium structure will apply to the new FHA loans.

To increase lender participation, incentives for immediate write-downs of underwater second mortgages will be offered, based on the loan-to-value.

To fund the program, up to $14 billion in TARP funds will be used – FHA will publish data on the number of short refinance loans, the average percentage written down, and the quantity of principal reduced quarterly.

If interested, contact your existing lender/servicer or any FHA-approved lender for more information. The program is expected to be offered until December 31, 2014.

Tip: If you already have an FHA loan, you can refinance an underwater mortgage via the FHA streamline refinance program.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Moving for a Job: Tax-Deductible Expenses & Relocation Assistance

Did you move to take a new job this year, or are you considering moving for work soon?

According to the U.S. Census Bureau, just over 12% of the more than 32 million people who relocated in 2019 did so because of a new job or job transfer. If you’re one of them, you may have heard moving expenses are tax-deductible and want to know how you can benefit.

Unfortunately, thanks to the Tax Cuts and Jobs Act (TCJA) of 2017, moving expenses are no longer deductible for most people. However, the deduction is still available for some taxpayers, and there are other ways to offset the cost of moving. But how you offset your expenses depends on whether you’re filing under the old rules or new rules.

Deducting Moving Expenses: The Old Rules

For 2017 and prior, taxpayers can deduct moving expenses if they meet the following requirements:

  • Related to the Start of Work. The move must be related both in time and place to the start of work in a new location. Relocating expenses incurred within one year from the date you report to work are generally considered to be related in time. Expenses are related in place if the distance from your new home to your new job is not greater than the distance from your old home to your new place of employment.
  • Distance Test. Your new job location must be at least 50 miles farther from your former home than the distance from your former home to your former job. If you did not have a job, then the new place of employment must be at least 50 miles from your former home.
  • Time Test. There are different time tests if you’re an employee versus self-employed. If you’re an employee, you must work full-time for 39 weeks in the first 12 months following your arrival in the area of your new job. If you’re self-employed, you must work 39 weeks in the first 12 months and 78 weeks in the first 24 months following your arrival in the area of your new work location.

Note: If you’re married and filing a joint return, either you or your spouse can meet the time test, but you cannot meet the test by adding your weeks of employment to your spouse’s weeks of employment.

Exceptions to the Time Test

There are several situations in which you do not need to meet the time test, including:

  • Your primary job location was outside the U.S., and you moved to the U.S. because you retired.
  • You are the survivor of someone who worked abroad at the time of their death, and you moved to the U.S.
  • Your job in the new location ends because of death or disability.
  • Your employer transfers you for their own benefit or terminates your employment for a reason other than willful misconduct as long as you were working full time and expected to be employed long enough to meet the time test.
  • You are in the U.S. armed forces, and you moved because of a permanent change of station. A permanent change of station includes moving from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S. This definition applies whether military members buy or rent a home.

Deductions You Can Take Under the Old Rules

For moves in 2017 and earlier, if you met the above tests, you can deduct the following expenses:

  • Moving your household goods and personal effects, including packing, crating, and transporting as well as in-transit storage
  • Connecting or disconnecting utilities
  • Shipping your car or pet
  • Traveling (transportation and lodging, but not meals) to your new home (as long as you travel by the most direct route). The IRS doesn’t consider side trips for sightseeing or visiting relatives or friends part of the move. If you drive your own car, you can deduct either actual expenses (if you keep an accurate record) or a standard mileage rate. For 2017, that rate is 17 cents per mile driven. With either method, you can also deduct tolls and parking expenses. You cannot deduct general auto repairs or maintenance, insurance, or depreciation.

If your employer reimburses any of the above expenses and does not include the reimbursement as taxable income on your W-2, you cannot deduct those expenses on your return. Similarly, if your employer reimbursement is greater than the cost of your move, you must include the excess in your taxable income.


Deducting Moving Expenses: The New Rules

The TCJA suspended moving expense deductions for tax years 2018 through 2025 for all nonmilitary taxpayers. Active-duty military members who move due to a permanent change of duty station can still deduct moving expenses. A permanent change of station includes a move from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S. If you use your own car to drive yourself, members of your household, or your personal effects to your new home, you can either deduct actual expenses or a standard mileage rate of 17 cents per mile (for 2020 moves).

If you qualify, use Form 3903 to calculate your moving expense deduction. If you need help determining whether you can deduct your moving expenses, check out the IRS moving expenses deduction tool.

Also, while the federal government has suspended the deduction for moving expenses, some states still allow taxpayers to claim a deduction on their state income tax returns, so check the state tax laws where you live. The American Institute of Certified Public Accountants maintains a list of each state’s department of revenue.


Employer Reimbursements for Moving Expenses

Some employers offer relocation assistance to help existing employees relocate to a new city for work or to woo talent from outside their geographic area. However, this form of employee benefit is not very common.

According to the Society for Human Resources Management, only 34% of employers offered a lump-sum payment toward moving expenses to employees in 2019. And only 18% reimbursed the cost of shipping an employee’s household goods.

Before 2018, an employer could pay for or reimburse an employee’s qualified moving expenses. The payment was a tax-free fringe benefit, meaning they didn’t include it in the employee’s taxable income for the year. However, under the TCJA, employers must now include all moving expenses in an employee’s wages, and the payments are subject to income and employment taxes. Members of the U.S. armed forces can still exclude qualified moving expense reimbursements from their income if:

  • They are on active duty
  • They move pursuant to a military order and incident to a permanent change of station
  • Their moving expenses would qualify as a deduction if they didn’t get a reimbursement

In light of the deduction changes, it’s a smart move to negotiate a relocation package from your employer whenever possible. According to HomeAdvisor, a cross-country move typically costs anywhere from $2,417 to $6,211, depending on the size of your home and how far you’re moving. It can cost even more if you hire a moving company to handle everything from packing and cleaning to unpacking boxes in your new home.

If your employer is willing to reimburse those costs, you’ll pay income and payroll taxes on the reimbursement, but you’ll still be better off than you would be if you covered the entire cost out of your own pocket.

Plus, some employers will “gross up” their moving expense reimbursements to counteract the fact that reimbursements are now taxable — meaning they’ll give an employee more money than necessary for the move to cover the added taxes.


Final Word

Moving is a hassle, and with moving expenses no longer providing a tax break for most taxpayers, there’s less incentive to relocate for a new job — at least for now. However, both the moving expense deduction and the moving expense reimbursement exclusion are set to return as of Jan. 1, 2026, as long as Congress doesn’t decide to make the change permanent.

In the meantime, you can still take steps to save on your move by doing most of the work yourself and shopping around to compare prices. And don’t forget to negotiate a relocation package from your employer. That’s money in your pocket, even if the government takes a cut.

For more tax advice, check out our complete tax filing guide.

Did you move to take a new job this year? Did your employer offer relocation assistance, or did you cover the costs on your own?

Source: moneycrashers.com