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The Biggest Factors in Determining the Price of a Mortgage

February 21, 2020 by chorton Leave a Comment

Price of a Mortgage Interest Rates – What You Need to Know

The biggest factors in determining the price of a mortgage. There are certain terms that you need to understand at this point. One is the principal. It refers to the amount of money that you are actually borrowing in order to pay for the price of your home. On top of paying the principal off, there is also a need to pay the interest. This extra amount is an additional earning to the lender. These rates usually come in the form of a percentage from the principal that is left to be paid. This is added to the monthly payments.

The trust of the lender in your capability to pay off the loan determines the interest rate. Because of the fact that interest rates are added to the overall price of the home, it is as important to take into consideration the way in which your financial situation may have an impact on the interest rates, as well as the actual amount that you pay.

How Are Interest Rates Determined for the Price of a Mortgage

In general, there are three factors that affect the way in which interest rates are determined.

  • Credit Scores

Put yourself in the shoes of a lender. How will you be able to know that you can trust someone who is borrowing money from you? One of the best ways in which you can do so is by looking at the credit scores of a potential borrower. The credit score refers to the number that determines your credit history. Each time you purchase real estate, open a financial account or take out a loan, the credit score of a lender may be affected.

Buyers who have higher credit scores often have better credibility, and as such, can get lower interest rates compared to buyers with lower credit scores. Your capacity to pay off your mortgage will also have an impact on the overall credit score, which is why it is essential to choose a mortgage option with an affordable interest rate.

  • Down Payment

The mortgage loan will pay the total price of the home, and you can remove a big piece of this price by paying a bigger down payment. A bigger down payment also provides you with the opportunity to pay less interest. For example, if you pay 20% down payment on your home, you can expect a significantly lower interest rate compared to actual buyers who are only paying 5% or 10% down.

The reason behind this? If a buyer is equipped with enough financial resources to pay a bigger down payment, it is more likely that lenders can give the trust that they will pay the rest of the house better. This means a lower level of risk, which merits buyers with a lower interest rate.

  • Economic Status

The general life of a mortgage loan is 30 years. Within this period, a lot of things may change in the economy, including your capacity to pay. A good economic status at the present may suddenly shift in the next few years. In order to be guided accordingly, discussing your options with a financial advisor can help. The discussion can include deciding on the best time in which you can take out a mortgage loan.

Tips on Getting a Better Interest Rate

The following are some tips in which you can get a better interest rate:

  • Look around for options on various offers.
  • Pay a bigger down payment for your home.
  • Observe and wait for the interest rates to go down in your area.
  • Make sure that you improve your credit standing and score. This means paying off debts, paying bills on time, and taking care of your credit card obligations.
  • If possible, get a mortgage rate that is adjustable. The interest rate may go up through time, but it usually starts at a lower rate compared to fixed-rate mortgages.
  • Provide evidence that you are trustworthy enough. This proof may include a detailed employment history.

Other Potential Factors that Determines Mortgage Rates

Aside from the interest rate, there are other possible factors that determine mortgage rates. This includes the following:

  • Price of the Home

The price of your home usually has a huge impact on the price of the mortgage. On top of that, renovation plans and property taxes also affect your mortgage. Extra loans or payments may also have an impact on your capacity to make payments monthly.

  • Terms of the Loan

You will end up paying more in a mortgage loan that lasts for 30 years. True, you will only have to pay less every month, but for every month that you are paying off the mortgage, more interest is accumulated. On the other hand, a 15-year fixed rate mortgage may end up with you paying more, but more of the loan will be completed every month.

Another factor which may increase the mortgage price is adjustable-rate loans. They increase the interest rate through time. These rates may also change depending on the adjustment periods covering the loan, including the conditions in the market.

With all of these factors taken into consideration, it is often best to select the best loan that comes with the best interest rate. If you are planning to get a mortgage loan soon, it is recommended to prepare accordingly. You may discuss your options with a lender in order to see the coverage, as well as other factors which may affect the overall price of the mortgage.

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Filed Under: Blog, Buying a home, Homes for Sale, Selling Your Home Tagged With: buying a home, buying homes, comanche texas, home for sale, homeowner tips, homes for sale, mortgage, mortgage programs, mortgages, real estate, real estate advice, real estate tips, selling, selling a home, stephenville tx

Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

November 19, 2019 by chorton Leave a Comment

Are You A First-Time Home Buyer? Be Aware Of These Mortgage Programs

Image result for did you know? even if you previously owned a home you still qualify for first time home buyer

If you are shopping for a mortgage, you have probably seen all sorts of offers and advertisements aimed at first-time home buyers and wondered if these are really as good as they sound. In some cases, “first-time” programs are little more than attention-getting marketing messages from lenders, while in others they are actual assistance programs for people who may otherwise face challenges qualifying for a home mortgage or finding a home loan at an affordable interest rate. With this in mind, it is important to understand the difference between mortgage lender marketing programs, actual loan programs, and financial assistance programs.

You can be a first-time home buyer more than once

First of all, even if you have previously owned a home, you (or your spouse) may still qualify as a first-time home buyer. According to the U.S. Department of Housing and Urban Development, first-time home buyer status is not limited to people who have never owned a home before (although that criterion obviously applies). For lending purposes, a first-time home buyer includes anyone who fits one or more of these conditions:

  • An individual or a spouse who has not owned a primary residence for at least three years. This means married couples may qualify as first-time buyers even if only one of them meets this test.
  • A single parent who previously only owned a home with a spouse while they were married.
  • Someone who has only owned a primary residence that was not attached to a permanent foundation (e.g., a mobile home) in accordance with applicable regulations.
  • Displaced homemakers whose only previous ownership was with a spouse.
  • Someone who only owned property that was not in compliance with local building code ordinances and which cannot be improved to meet building code standards for less than the cost of constructing a new residence.

Types of programs

First-time home buyer programs can be broadly categorized as either loan programs or financial assistance programs. Both types of programs can be helpful to first-time home buyers. Loan programs, such as those backed by the Federal Housing Administration (FHA), are available to all borrowers through various commercial lenders, but they have features that may be particularly attractive to first-time buyers with lower credit scores or little in the way of cash savings. Private lenders may also offer attractive loan rates and terms for first-time home buyers with good credit and the ability to make larger down payments on a home purchase. Financial support programs for home buyers typically come from state and local government entities, although the federal government sometimes steps in to provide additional assistance during difficult economic times.

Loan programs

Mortgage loans are made by commercial lenders, such as banks, credit unions, or mortgage companies. These loans may be guaranteed by various organizations, to protect lenders against borrower defaults and also to make loans more affordable for borrowers.

  • FHA. The Federal Housing Administration does not make loans, although they do insure loans made by commercial lenders to protect lenders if borrowers default on loan payments. FHA loans are available to all qualified buyers, and they can be particularly attractive to first-time home buyers because the qualifications are easier. For example, a potential home buyer with a credit score of at least 580 may qualify for an FHA loan with as little as 3.5% of the purchase price for a down payment. Lower credit scores between 500 and 579 may also qualify with a larger down payment of 10%, though the interest rate on the mortgage loan will be higher.
  • VA. The Veteran’s Administration (VA) also guarantees portions of home loans provided by private banks or mortgage companies to active duty service members, veterans, and eligible surviving spouses. A home purchase loan guaranteed by the VA can help military vets and spouses purchase homes at competitive interest rates without the need to also make a down payment or purchase private mortgage insurance. Applicants must have satisfactory credit scores, along with sufficient income to meet expected monthly loan payments.
  • USDA Single Family Housing Guaranteed Loan Program. Similar to loan programs provided by FHA and VA, the United States Department of Agriculture (USDA) also provides loan guarantees to mortgage lenders so they can help borrowers with low and moderate incomes purchase homes in rural areas. The USDA program guarantees 90% of mortgage loan amounts for approved lenders to help offset the risk of offering 100% loans to eligible rural home buyers.
  • Freddie Mac Home Possible® Mortgages. The Federal Home Loan Mortgage Corporation (also known as “Freddie Mac”) makes it possible for lenders to offer home loans to buyers with down payments as small as 3% through the Home Possible® Although this program is not limited to first-time home buyers, first-timers must first participate in a borrower education program.

Home Buying Financial Assistance

Financial assistance programs exist across all levels of government: city, state, and federal. These programs may provide assistance with funds for down payments, closing costs, or other expenses tied to the home purchase process.

  • Fannie Mae’s HomePath Ready Buyer Program. In 2015 the Federal National Mortgage Association (FNMA or “Fannie Mae”) launched the HomePath Ready Buyer program, which provides first-time home buyers up to 3% of the home’s purchase price in the form of a rebate to assist with closing costs. Participants must complete an online home buyer education course in order to receive the 3% rebate.
  • State-by-state home buyer programs. Many individual states sponsor a variety of home buyer programs designed to help first-time home buyers and others qualify for home mortgages. Visit your state’s housing website to find details for your area. For example, first-time home buyers with low or moderate incomes are eligible for the Texas Mortgage Credit Certificate Program as a way to convert mortgage interest into a federal income tax credit. New York state home buyers can take advantage of the Conventional Plus Program for down-payment assistance up to 3% of the home’s purchase price.
  • City & county home buyer programs. Individual cities and municipalities can also offer assistance with home financing. For example, Miami/Dade County in Florida makes home financing assistance available to first-time home buyers through a loan program facilitated between Miami-Dade County Public Housing and Community Development and local mortgage lenders. Similarly, the Mayor’s Office of Housing and Community Development in San Francisco provides loan assistance programs for first-time home buyers. Consult with your city or county government offices for availability of similar programs.

As you review and evaluate the financial assistance or loan programs that may be a good fit for you, it is also a good idea to take inventory of your personal financial situation, such as checking your credit report (www.annualcreditreport.com), paying off credit cards and personal loans, and stashing more cash into your emergency fund. These tips and more are also available in this article: 5 Steps to Buying a Home.

Filed Under: Blog, Investing, Real Estate Advice Tagged With: advice, mortgage, mortgage programs, mortgages, real estate advice, tips

12 Low Down Payment Mortgages, Including Some With Low Or No Mortgage Insurance

November 19, 2019 by chorton Leave a Comment

12 Low Down Payment Mortgages, Including Some With Low Or No Mortgage Insurance

This Tuesday, May 16, 2017, photo shows a sign indicating an existing home is under contract, in... [+] Roswell, Ga.

The soaring home prices all around the country have made it more difficult for buyers to come up with enough money for a down payment. But lenders have caught on to the idea that there are plenty of buyers out there who aren’t in danger of defaulting on their loans, they just need a little wiggle room when it comes to the hard cash they have to bring to closing.

That means we can all say hello to the low down payment mortgage option and its many variations. (Below I’ve listed 12 national-level programs, but thanks to readers I’ve also compiled a list of 47 programs by state, including 30 with no mortgage insurance requirements).

The most common type of low down payment mortgage is the government-backed Federal Housing Authority or FHA loan. Even though they usually require only a minimum of 3.5% down, they come with the huge downside of requiring mortgage insurance for the life of the loan for anyone who puts down less than 20%. Yep, that means if you get to the point of having paid off enough of the mortgage to reach 20% equity you are still required to pay the mortgage insurance. The purpose of the insurance is to protect the lender in case you default on your loan and the only way to get out of it is to refinance once you paid enough down to cross the 20% threshold. For FHA loans the standard rate for mortgage insurance is 0.8% annually (usually divided in to twelve payments). Though with private lenders it can vary from 0.5% to 1.5% (sometimes even higher). I’ve listed 12 programs below that either don’t come with the insurance requirement, have reduced rates, or some other benefit that might make it worthwhile.

It’s important to keep in mind that just because a mortgage has a low down payment option that doesn’t necessarily mean it is a wise financial move. You can end up being charged a higher interest rate over the life of the loan or have extra fees added on to the initial amount in many cases. I made sure to list ones here that don’t do that to buyers. They are open to most types of buyers but largely cater to first-timers so they have lower minimum credit requirements while still providing competitive interest rates.

So what are the interest rates on the list? Alas, that is the one factor I can’t include simply because it is the variable lenders won’t commit to until they have seen the entire financial picture of an applicant. There is one exception, NACA, that charges the same rates regardless of credit score so check them out if you’re at the lower end of the FICO spectrum.

Whether you are a first-time buyer or a move-up buyer there are still plenty of options for getting a mortgage that doesn’t come with the same stringent requirements home loans used to have five or more years ago. Lenders are coming up with safe ways to get buyers a home even if they don’t have a lot of cash and they aren’t charging outrageous rates to make it happen. You could be a homeowner sooner than you thought possible.

Bank of America: Their Affordable Loan Solution is a fixed-rate product geared toward first time homebuyers or those without a large down payment option. They also work with down payment assistance programs in each state which may be a way to get you an even bigger amount to put down.

  • Minimum credit score: 640
  • Down payment as low as 3%
  • No PMI
  • Cannot own another property at time of purchase
  • Homeowner education may be required for first-time buyers (no charge)
  • A $200 bonus possible if you apply before November 30, 2018.

Flagstar: One of their mortgage options is the Professional Loan which is designed for buyers who are on the cusp of having a higher earning potential—such as those who have just finished school or are just starting in their career. They look at each individual situation to determine eligibility and credit requirements but if you have a score of 720 or higher you could qualify for a zero down mortgage.

  • Minimum credit score varies by situation
  • As low as zero down, with a 720 credit score
  • No PMI
  • Applies to mortgage balances up to $850,000
  • Student loan debt may be excluded from payment ratios

Suntrust: Their Agency Affordable Financing product is in conjunction with the Fannie Mae HomeReady and Freddie Mac Home Possible programs but according to their website buyers may be eligible for reduced insurance rates. You have to complete an online homebuyer education course.

  • As low as 3% down
  • All of the down payment can come from gifts or seller contributions
  • Reduced insurance costs
  • Closing costs can be exchanged for a higher rate on a fixed-rate loan

Costco: If it isn’t gallon-sized bottles of ketchup that you need, but a mortgage then Costco Mortgage Services could be a good place to get your home loan. While they aren’t a lender themselves, they facilitate loans with approved lenders and according to their website over 105,000 loans have been funded via their mortgage program. One unique piece of their program is the low origination fees for Costco members that can’t go higher than $350 or Executive level members or $650 for Gold Star members.  

  • Minimum credit score : 620
  • As low as 5% down for a conventional loan
  • Low origination fees for Costco members. Capped at $350 for Executive level members and $650 for Gold Star level members

Rocket Mortgage: Under the auspices of Quicken Loans, Rocket Mortgage is the company that promises to streamline the mortgage process and provide quick turnaround for both approving a loan and getting the money in your hands. They have several options for people with very low credit scores. They can also underwrite a loan before you decide on a property. In a competitive market this can help you stand out from other buyers because it shows you won’t have issues with financing.  

  • Minimum credit score: 580
  • As low as zero down (for qualified buyers)
  • Can underwrite loan before you decide on a house
  • Many options have no pre-payment penalty

NACA: The Neighborhood Assistance Corporation of America is a community advocacy organization with a very grassroots mission of making homeownership accessible. They look at each case individually to determine eligibility and are not strictly bound by the usual requirements for credit scores or down payment amounts. Your credit score does not impact the interest rate. 

  • No minimum credit score
  • No PMI
  • No closing costs
  • No points/fees
  • Zero money down options
  • Borrower can’t own another home at time of closing

Carrington Mortgage Services: Even though Carrington is a smaller lender they provide mortgages in all fifty states and D.C. For low down payment options they provide FHA loans but they have lower minimum credit scores than most of the larger lenders. They also don’t charge an application fee.

  • Minimum credit score:
  • 550 for 10% down
  • 580 for 3.5% down
  • 640 for 5% down with a conventional loan
  • No application fee

SoFi: The non-bank lending institution that made a splash a few years ago is still offering their SoFi mortgages and shows no sign of slowing down. They do have a non-borrower paid PMI option for lower down payments but that usually that means the interest rate is higher. If you only plan to be in the home for a short time it may make financial sense to go with that option.

  • Minimum credit score: 660 (680 for jumbo loans)
  • As low as 10% down
  • No origination fees
  • No pre-payment penalties
  • No borrower-paid PMI
  • Property needs to be your primary or secondary home for at least twelve months
  • If you have another loan with SoFi (such as a student loan refinance) you can be eligible for a .125% rate discount on your mortgage

Chase: The Chase DreaMaker product has a slightly lower minimum credit score but can come with reduced insurance rates for qualified buyers. It also has the possibility of a $500 credit if you complete a homebuyer education course (there is no charge for the course). To find out more info go to the Chase mortgages page and scroll to the bottom. (This has been updated to reflect the minimum credit score is 620, not 680 as we were originally told).

  • Minimum credit score: 620
  • As low as 3% down payment
  • Entire down payment can come from outside sources (such as gifts or grants)
  • Reduced insurance compared to standard PMI rates
  • May be eligible to receive $500 if you complete a homebuyer education course. 

CitiMortgage: Their HomeRun product has similar rules to most other low down payment mortgages but comes with an extra requirement of needing to have one month’s mortgage payment in reserve in the account you use for your monthly payment. If you have an excellent credit score this may be able to be waived.

  • Minimum credit score: 640
  • No PMI
  • One month’s mortgage payment in reserve required
  • Not available in every market
  • Single family home as low as 3% down up to jumbo loan limit ($453,100)
  • Condo or co-op as low as 5% down up to jumbo loan limit ($453,100)
  • As low as 5% down for markets that qualify for the higher jumbo loan limit ($679,650) 

Wells Fargo: Even though it is called the yourFirst Mortgage product you don’t necessarily have to be a first time buyer to qualify, but it is geared for people who are early in their real estate buying years. Also, in some situations—such as family or roommates—they’ll count the income of other residents in the home as part of the household income even they aren’t borrowers on the loan.

  • Min credit score: 620 (suggested)
  • Willing to accept lower credit scores if higher down payment or other
  • As low as 3% down payment
  • Use gift funds and down payment assistance
  • No area median income requirements

New American Funding: Another of the lenders that can write loans for low credit scores, New American Funding can also adjust the payment amounts according to the length of time you want the mortgage to last. If your job or retirement plans means you’ll be in a house for a known amount of time this could work out to be better than the standard 15, 20, or 30 year timeframes. 

  • Minimum credit score: 580
  • As low as 3% down
  • Can qualify for a reduced mortgage insurance rate
  • No pre payment penalty
  • Not tied to 15, 20, or 30 year time frame

Filed Under: Blog Tagged With: mortgages, real estate, real estate advice

Thanks to mortgage rates, buying a home is the most affordable it’s been in almost three years

November 1, 2019 by chorton Leave a Comment

Thanks to mortgage rates, buying a home is the most affordable it’s been in almost three years.

Despite fewer homes and higher prices, affordable housing persists

Home prices have moderated in some markets, but they continue to climb in others. And inventory remains low.

Yet research suggests that housing has actually become more affordable this year, despite market hurdles. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

But the affordability trend may not continue for long. That’s why it pays to hunt for homes and mortgage rates now. Waiting too long could prove costly.

Learn what you can afford. Shop around for homes in desirable locations. And lock a rate soon before low mortgage rates become a thing of the past.

What the latest numbers reveal

A new study by Black Knight shows that housing affordability hit nearly a three-year high in September. That’s when mortgage rates briefly dipped below 3.5%. Other findings from the report include:

  • The drop in mortgage rates since November has been enough to amp up buying power by $46,000 while keeping monthly principal and interest (P&I) payments the same
  • The monthly P&I needed to buy an average-priced home is $1,122. That’s down about $124 a month from November 2018, when interest rates were near 5%
  • Monthly P&I payments now require only 20.7% of the national median income. That marks the second-lowest national payment-to-income ratio in 20 months

That last point may be the most important. For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last three years.

Consider that mortgage companies cap the total amount you can pay in debts each month compared to your income. This is called the debt-to-income ratio (DTI).

The traditional DTI limit for all monthly debts (including auto, student and personal loans) is usually capped around 43%.

With a mortgage taking up a smaller percentage of the average buyer’s income than it did even a year ago, people are more likely to qualify for financing.

Black Knight Mortgage Monitor report from October 2019 shows homes at their most affordable in years

Image: Black Knight

That might mean you’re able to qualify for a better, more expensive home than you would have before.

If you have a lot of other monthly debts, a lower monthly payment could make all the difference in qualifying for a mortgage at all.

Why housing is more affordable right now than in recent years

Lawrence Yun is the chief economist for the National Association of Realtors. He says it’s encouraging that lower mortgage rates right now are helping to offset higher home prices.

“Assuming you put down 20% on a median-priced home, your monthly mortgage payment would be $1,070 at this time last year. That’s assuming a 4.7% mortgage rate at that time,” he says.

Today, your monthly payment on that same home could be down to $990 — $80 less — even though you would have paid more for the home thanks to rising real estate prices.

But lower rates don’t tell the whole story

“The job market is also the best it’s been in most people’s lifetimes,” says Ralph DeFranco, global chief economist at Arch Mortgage Insurance.

Strong employment, higher wages, and low interest rates all add up to greater purchasing power.

Related: Low rates mean big purchasing power. See how much house you could afford

Also, “now more than ever, borrowers have access to hundreds of loan products,” notes Seth Feinman, vice president of Silver Fun Capital Group, LLC.

“So for those who couldn’t qualify for a loan several years ago, they now have options to obtain financing that didn’t exist before.”

For example:

  • An FHA loan can require as little as a 3.5 percent down payment
  • A Freddie Mac Home Possible mortgage requires as little as 3 percent down
  • A Veterans Administration (VA) loan requires as little as zero down
  • A United States Department of Agriculture (USDA) loan requires zero down

“Qualifying rules have been eased, too,” says Anna DeSimone, author of “Housing Finance 2020.”

“That means borrowers with no credit scores, limited credit histories, or income earned from nontraditional sources may now be eligible for a mortgage loan.”

Will the affordable housing trend continue?

Ask Yun and he’ll tell you that mortgage rates will likely remain attractive through 2020.

“But then they will rise, which will knock off many buyers from the pool of eligible purchasers,” predicts Yun.

“Affordability is about the best it can be compared to what it is likely to be over the next few years. So, in that sense, it’s a good time to buy right now if you have the financial means.”

“Affordability is about the best it can be compared to what it is likely to be over the next few years. So, in that sense, it’s a good time to buy right now if you have the financial means.” –Lawrence Yun, Chief Economist, National Association of Realtors

DeFranco agrees.

“I expect home prices will continue to rise from coast-to-coast. So it would be better to buy now than to wait,” recommends DeFranco.

“If mortgage rates fall in the future, you can always refinance to a lower rate,” he continues. “Many people are overly haunted by what happened 10 years ago. But given the current shortage of housing in most cities and strict lending rules, the risk of serious price declines is far less than most people think.”

Feinman also foresees affordability lingering—but not forever.

“As long as there continues to be volatility in the market and rates stay low, home affordability should continue for the near future.”

“Jobs are an important factor,” adds Feinman. “If people are making more money and have access to higher-paying jobs, spending will increase, too.”

DeSimone expects the current housing affordability trend to only last another year or two max.

“If you’re thinking about buying, lock in soon at a low interest rate for the long term if you can afford it,” she says.

Action steps you can take

Your best bet? Shop around for homes and mortgage rates carefully.

“Contact a mortgage professional who has many options to offer. An expert can help you figure out the right product for you,” Feinman suggests.

Also, be prepared for stronger competition from other buyers.

“Talk with local expert Realtors to determine your best strategy,” says Yun.

Lastly, stay within your budget.

“Don’t overstretch your affordability to get your dream home. Buy a home that makes financial sense today. You can trade up later to a better home after building up some equity,” adds Yun.

What are today’s mortgage rates?

Your mortgage rate makes a huge difference in your housing budget. Shop around to see which lender can offer you the lowest interest rate — and therefore, the most home-buying power.

 

 

Filed Under: Blog Tagged With: mortgage, mortgage programs, mortgages

Are Closing Costs Tax Deductible Under the New Tax Law?

September 23, 2019 by chorton Leave a Comment

Are Closing Costs Tax Deductible Under the New Tax Law?

Here’s the scoop on what’s tax deductible when buying a house.

Dotted lines and arrows against brown background

Are closing costs tax deductible? What about mortgage interest? Or property taxes? The answer is, maddeningly, “It depends.”

Basically, you’ll want to itemize if you have deductions totaling more than the standard deduction, which is $12,000 for single people and $24,000 for married couples filing jointly. Every taxpayer gets this deduction, homeowner or not. And most people take it because their actual itemized deductions are less than the standard amount.

But should you take it?

To decide, you need to know what’s tax deductible when buying or owning a house. Here’s the list of possible deductions:

Closing Costs

The one-time home purchase costs that are tax deductible as closing costs are real estate taxes charged to you when you closed, mortgage interest paid when you settled, and some loan origination fees (a.k.a. points) applicable to a mortgage of $750,000 or less.

But you’ll only want to itemize them if all your deductions total more than the standard deduction.

Costs of closing on a home that aren’t tax deductible include:

  • Real estate commissions
  • Appraisals
  • Home inspections
  • Attorney fees
  • Title fees
  • Transfer taxes
  • Mortgage refi fees

Mortgage interest and property taxes are annual expenses of owning a home that may or may not be deductible. Continue reading to learn more about those.

Mortgage Interest

Yearly, you can write off the interest you pay on up to $750,000 of mortgage debt. Most homeowners don’t have mortgages large enough to hit the cap, says Evan Liddiard, CPA, director of federal tax policy for the National Association of REALTORS®. But people who live in pricey places like San Francisco and Manhattan, or homeowners anywhere with hefty mortgages, will likely maximize the mortgage interest deduction.

Note: The $750,000 cap affects loans taken out after Dec. 17, 2017. If you have an loan older than that and you itemize, you can keep deducting your mortgage interest debt up to $1 million. But if you re-fi that loan, you can only deduct the interest on the amount up to the balance on the day you refinanced – you can’t take extra cash and deduct the interest on the excess.

Home Equity Loan Interest

You can deduct the interest on a home equity loan or a second mortgage. But — and this is a big but — only if you use the proceeds to substantially improve your house, and only if the loan, combined with your first mortgage, doesn’t add up to more than the magic number of $750,000 (or $1 million if the loans were existing as of Dec. 15, 2017).

If you use a home equity loan to pay medical bills, go to Paris, or for anything but home improvement, you can’t write off the interest on your taxes.

State and Local Taxes

You can deduct state and local taxes you paid, including property, sales, and income taxes, up to $10,000. That’s a low cap for people who live in places where state and local taxes are high, says Liddiard. To give you an idea of how low: The average amount New Yorkers have taken in state and local tax deductions in past years is about $22,000.

Loss From a Disaster

You can write off the cost of damage to your home if it’s caused by an event in a federally declared disaster zone, like areas in Florida after Hurricane Michael or Shasta County, Calif., after a rash of wildfires.

This means standard-variety disasters like a busted water pipe while you’re on vacation or a fire caused because you left the toaster on aren’t deductible.

Moving Expenses

This deduction is also only for some. You can deduct moving expenses if you’re an active member of the armed forces moving to a new station.

And by the way, no matter who you are, if your employer pays your moving expenses, you’ll have to pay taxes on the reimbursement. “This will be a real hardship to many because it’s non-cash income,” says Liddiard.  Some employers may up the gross to provide cash to pay the tax, but many likely will not.

Home Office

This is a deduction you don’t have to itemize. You can take it on top of the standard deduction, but only if you’re self-employed. If you are an employee and your boss lets you telecommute a day or two a week, you can’t write off home office expenses. You claim it on Schedule C.

Student Loans

Anyone paying a mortgage and a student loan payment will be happy to hear that the interest on your education loan is tax-deductible on top of the standard deduction (no need to itemize). And you can deduct as much as $2,500 in interest per year, depending on your modified adjusted gross income.

Ways to Increase Your Eligible Deductions

There are some other itemize-able costs not related to being a homeowner that could bump you up over the standard deduction. This might allow you to write off your mortgage interest. Charitable contributions and some medical expenses are itemize-able, although medical expenses must exceed 7.5% of your adjusted gross income.

So if you’ve have had a hospital stay or are generous, you could be in itemized-deduction land.

Also, if you’re a single homeowner, it could be easier for you to exceed the standard deduction, Liddiard says. The itemized deductions on your house will probably more quickly break the $12,000 standard deduction threshold than a couple’s similar house will break their $24,000 threshold.

Tax-Savvy Home-Buying Ideas

If you’re a prospective homeowner with an eye to making the most efficient use of your tax benefits, here are a few ways to buy smart:

  • Especially in expensive areas, buy a less expensive home so you don’t hit the cap on mortgage debt and local and property taxes, says Lisa Greene-Lewis, a CPA and tax expert for TurboTax.
  • If you’re buying a higher price home, make a bigger down payment so your original mortgage doesn’t exceed the $750,000 cap.

How to Decide If You Should Itemize

To see whether you should consider itemizing, plug your numbers into this clever tool from TurboTax, and you’ll get their recommendation in just a few seconds.

Though every homeowner’s tax benefits will be a little different, in the end, you’re building equity, you’ll likely make money when you sell, and you have the freedom to paint your walls any color you want and get a dog.

 

Filed Under: Blog, Real Estate Advice Tagged With: advice, closing costs, mortgage, mortgages, tips

“I Need 20% Down” and Other Home-Buying Myths About Mortgages

September 15, 2019 by chorton Leave a Comment

“I Need 20% Down” and Other Home-Buying Myths About Mortgages

Tips for shopping around for a mortgage — even if you think you don’t qualify.

Illustration of man with megaphone shouting numbers at woman

Think you’re not ready to unlock home ownership yet? That the financial hurdles are too high? You may be short-changing yourself. Many of the things renters believe about home-buying are myths.

Here’s the real deal.

Myth: I Have to Put Down 20%. 🙁

Saving 20% of the price of a home in many places isn’t just a challenge; it’s a roadblock. And it’s not a must-do. In fact, the median down payment for first time buyers is 7%.

How can you become part of the less-than-20 club?

The Real Deal on Less Than 20% Down

While being in the less-than-20 club saves you up front, your lender may require a monthly fee called private mortgage insurance, or PMI. But you’ll start building equity sooner, and you can ask to stop it after you’ve accrued 20% equity in your home.

  • FHA Loans: The Federal Housing Association (FHA) is an old friend to first-time buyers and others who are ready to become homeowners with less than a 20% down payment. If you qualify, you may be able to get a loan with as little as 3.5% down.
  • DownpaymentResource.com and NeighborWorks: Some local and state agencies sponsor down-payment assistance programs that help prospective home buyers in different ways. Follow the links to find out if any are available near you.
  • VA, USDA, and Navy Federal Credit Union loans: Three government-related lenders offer mortgages with as little as zero down. The VA is for veterans and family members; the USDA is for buyers in qualifying locations (typically rural); and Navy Federal Credit Union is for the military, family members, and some government employees.
  • Gift Funds: Sixteen percent of buyers ask friends or relatives to help jump-start their home ownership with a gift. Talk to your lender first, though. There may be limits to the amount of gifted funds they’ll accept, and they may require your benefactor to sign some paperwork.

Myth: My Low Credit Score Means I Can’t Buy a Home

So, your credit could use a tune-up. That doesn’t mean you have to forgo your home-buying dreams. Here are some options for those with a less-than-stellar credit score.

  • FHA loan: With a credit score of 500, you can apply for an FHA loan, but you’ll need a 10% down payment to offset the risk. If your score is a tick better (580), you can participate in their down-payment assistance program, requiring only 3.5%.
  • A higher down payment: On the off-chance you have enough cash on hand to put down more than 20%, the higher down payment can help those with lower credit scores be less risky for lenders.
  • A co-signer. Find someone with better credit to co-sign the loan – but understand that if you don’t make the payments, the cosigner will be financially responsible (and their credit will also suffer).
  • Check your credit report. Maybe your credit isn’t that low after all. Order a copy of your report from all three reporting agencies (Equifax, TransUnion, and Experian). If you find inaccurate or old information, ask the agencies to correct it. (You can order a free report from each of the bureaus once a year at annualcreditreport.com

Myth: I Can’t Afford the Agent’s Commission

Here’s one you can immediately mark off your worry list. Typically, the commission is paid from the proceeds of the sale via the seller.

This is one of many reasons to contract with a buyer’s agent. The seller’s agent doesn’t work for you, and you need a pro in your corner.

Myth: My Bank Will Give Me the Best Mortgage

There are a lot of positive things to say about working with your local bank, but assuming they’ll give you the best mortgage is a mistake.

Banks are only one type of home-loan lender. Others include credit unions and mortgage companies. Mortgage rates aren’t the same across the board, so contact several institutions to ensure you’re getting the best price.

Or, if you prefer to let the lenders come to you, consider getting a loan through a mortgage broker. Brokers have access to several lenders, and they’ll shop their market, getting you a wider selection of loans. But unless you contract with one, brokers aren’t obligated to find the best deal for you. So you’ll want to shop around for a broker, just as you would for a lender.

Myth: I Was Pre-Approved. I Got The Loan!

Well . . . no. Don’t order that couch from West Elm or pack away your tax documents just yet.

You don’t get the loan until:

(a) The seller accepts your offer

(b) Your lender approves the loan (which you’ll need those tax docs for)

(c) You sign the loan papers 

Between (a) and (c), the lender will have the home appraised to ensure its value is in line with the purchase price, check your credit again, and ask you for more documents than you ever knew existed.

So what does “pre-approved” mean for a loan? It tells sellers you’re eligible for a loan and shows them you’re a serious, qualified buyer. This gives them confidence in your offer, increasing your chances of (a), (b), and (c) actually happening.

Myth: The Interest Rate Is What Matters Most

A low interest rate is important, but it’s not the only thing to consider. When shopping around for a loan, check the annual percentage rate (APR). It includes all loan costs, such as origination and processing fees that can vary widely from lender to lender, in addition to the interest rate.

One loan may have a lower interest rate, but the up-front fees cost more than you’d save in interest. The APR lets you compare apples to apples.

Before you sign the loan, your lender will give you a loan estimate, a line-by-line estimate of fees. You’ll find the APR there. Use that rate to compare the loans you’re considering.

How about that? You may be closer to home ownership than you thought. Happy house hunting!

 

 

 

 

Filed Under: Blog, Real Estate Advice Tagged With: mortgage, mortgage programs, mortgages

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