The Lending Coach

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Category: Mortgage (Page 41 of 60)

Tax Advantages of Home Ownership

March 4, 2018 /

Owning a home has become synonymous with building wealth.

For most Americans, it’s one of, if not the largest investment they will make over the course of their life. Many financial experts agree that it’s the single best way to grow your “nest egg” over time.

But building home equity is only part of the story. There are a number of tax benefits to home ownership and home purchasing.

Of course, please do contact your tax advisor or CPA to talk about the specifics of how the tax laws apply to you and your circumstances. Make sure you are eligible for these individual deductions!

Mortgage Interest

Home-owners are allowed to deduct the interest of your monthly mortgage payment. Best of all, it’s available for the entire term of the loan! There are new limits on the amount that can be deducted, but the average home owner will not even get near that number.

Home Office Deduction

If you work out of your house, your home office can provide additional tax deductions annually. Homeowners who have an office in their home are actually allowed to deduct the amount of monthly mortgage paid based on the square footage of that office. They can even expense a portion of the utility bills, including heat, electricity, and internet service.

Property Taxes

Part of being a homeowner means that you are subject to property taxes. Those are paid to the county, city and state – and are tax deductible. Again, new laws limit the amount that can be deducted, so contact your advisor for the specifics.

Moving Costs

If you are required to relocate for work, there are specific deductions available for expenses connected with moving your family, your things, and even your cars.

Discount Points

If you utilized “points” to lower the interest rate of your loan, you can actually deduct the cost of those fees the year you purchase the property. This happens quite often – say a borrower uses 1 point to lower their interest rate from 5% to 4.75%. This would lower their monthly payment over the life of the loan AND help you in the tax year you make that purchase.

Mortgage Interest Credit

If your income meets certain thresholds, you might be eligible for the mortgage interest tax credit. It’s there to make paying for your new home a bit easier – but you do have to have a mortgage credit certificate. Those can be provided by the state or local government agency.

There are other potential deductions for environmental and health related home improvements out there too, so make sure you contact your CPA or tax advisor to find out more!

March 4, 2018 /

The Mortgage Pre-Qualification Letter – Questions to Ask

Every real estate agent, at one time or another, has run into the situation where the buyer/borrower was issued some sort of pre-approval letter that didn’t hold water under further scrutiny.

How can an agent really test the validity of a borrower’s pre-approval?

 

What Are the Findings?

This really should be the number one question asked by agents, as this is where the rubber meets the road – and where the majority of lenders have not completed the task.

First, nearly all the residential loans being originated to Fannie Mae’s or Freddie Mac’s standards must pass automated underwriting through Desktop Underwriter (DU for short) or Loan Prospector (LP).

Each loan is carefully run through an automated underwriting system whether the borrower is looking for a conventional mortgage, FHA mortgage or even a jumbo mortgage. If their loan does not pass automated underwriting, it’s more than likely the potential borrower’s loan won’t move forward.

It’s absolutely critical in the information-gathering stage – that lenders run and then receive an automated underwriting approval to make sure their loan will get the green light.

Make sure you know the automated underwriting findings!

Is This a Pre-Approval or Pre-Qualification

The pre-approval process is not a 15-minute conversation.  If you supply me with all the documents necessary for a full document (full doc in industry jargon) review, I need time to read them, do the analysis, load the data into systems, and run the analyticd…more than 15 minutes.  Giving your lender time to process the information helps to secure a reliable pre-qualification.

If your borrower’s lender is offering you a super speedy pre-approval, you as the agent need to question the choice of your borrower’s loan officer.  Obvious mortgage killers, un-seasoned bankruptcy, late payments, etc, are the exception. Mortgage killers take only a minute or two to disqualify the credit approval.

A true pre-qualification, on the other hand, is where the lender has done the appropriate analysis of the potential borrower’s income, assets, and credit and has received either Fannie Mae’s or Freddie Mac’s underwriting authorization (more on that to follow).

What Documentation Did You Obtain?

This list may vary from borrower to borrower (as some might be self employed or others might be utilizing commissionable income), but here is a standard issue checklist:

Copies of Driver’s Licenses/Social Security Cards – copies of driver’s licenses are typically required for all buyers that are going to be on the loan – and social security card verifies your US identity. These are important documents for buyer verification and fraud detection.

House search for you design

Mortgage Statement/Coupons For All Real Estate Loans – if your buyer currently owns a home, whether they plan on selling it to buy a step-up home or plan on renting it out to live in another home, they will need to show their lender exactly how much they are paying monthly for their current home.

Most Recent Bank Statements – mortgage lenders need to see the most recent bank statements (all pages, and all accounts) from any buyers going on the loan. We will examine the debits and credits thoroughly.

Pay Stubs/ W-2 Forms for the Past Two Years (or 1099) – the past 30-60 days of pay stubs are required to prove and document their income, as well as W-2 statements for the last 2 years.

Retirement/Investment Account Statements – if a borrower has a retirement or investment account, they should provide one or two monthly statements to the lender. Even if they don’t plan on using these funds to buy your home, it may help prove that they are qualified. In some cases, the underwriter will need to see that the borrower has a certain amount of money in reserves.

Tax Returns (1040) – the past two years of borrower tax returns shows the mortgage lender your income, employer, address, verify your social security number and more.

Profit and Loss Statements –  if the borrower is self-employed or owns their own business, he/she will need to show two years’ worth of profit and loss statements. The lender may request additional items such as business bank statements as well.

In Conclusion

Much time can be saved and grief avoided if true pre-qualifications were given the time and effort they truly require. Make sure the lenders you deal with follow this process thoroughly – and don’t hesitate to contact me, as it would be my privilege to help!

The New Tax Law: What Are The Changes for Home Owners?

February 17, 2018 /

The new tax bill signed passed by Congress in late December of 2017 makes some changes to the Internal Revenue Code.

Its design was to reduce overall tax rates for the majority of Americans – and makes changes to deductions for individuals and businesses.

Some of the tax law changes have already taken place and will continue through 2018.

You can find out more here from the Wall St. Journal.

Of course, please do contact your tax advisor or CPA to talk about the specifics of how the tax laws apply to you and your circumstances.

As a homeowner or potential home buyer, here are some highlights of the changes:

Mortgage Interest

If you purchased a house prior to December 16, 2017, you will be allowed an itemized deduction for the mortgage interest you pay up to $1 million.

For purchases after December 16, 2017, that amount has been lowered to $750,000.

Refinancing of mortgages that were acquired prior to December 16, 2017, can retain the deduction limits, but not beyond the original mortgage’s term and amount.

Second Homes

An itemized deduction can be made for both a principal and second residence mortgage up to a combined total of $750,000  (or up to $1 million if grandfathered prior to December 16, 2017).

So, the interest you pay on your loan for a second home, only if the above loan limits are exceeded, will not be deductible in 2018.

If, however, you rent your vacation home, you can write off the costs associated with that activity, which would include a portion of mortgage interest and property taxes.

Home-equity Debt

Interest paid on home-equity loans will no longer be deductible beginning in 2018.

Exception: interest may be deductible on home equity loans (or second mortgages) if the proceeds are used to acquire or substantially improve the residence and can be documented.

Exclusion of Gain on Sale of a Principal Residence

There are no changes to current tax law. Taxpayers will continue to be able to exclude up to $500,000 ($250,000 for single filers) from capital gains taxation when they sell their home, as long as they have lived there for two of the previous five years.

Property taxes

Property, state and local income taxes face a combined $10,000 deduction limit.

What does this mean for today’s buyers?

If you are thinking of purchasing a home today, you may be wondering what these tax law changes mean for your future purchasing plans. There are always multiple factors to consider when you are looking to make that decision.

Purchasing a home is still a fantastic investment opportunity and gives you the best chance of building long-term wealth.

It would be my pleasure to help you determine if now is the time to purchase. Do contact me for more information!

This information does not provide customized investment advice or offer legal, tax, regulatory or accounting guidance. Please contact your CPA or tax advisor for details and more information.

February 5, 2018 /

5 Key Things to Know When Buying a Home

So, you have decided that it’s time to take that big step and are ready to buy a home. Good for you! But what’s next?

Before you hit the web and attempt to navigate all of those home listing websites, there are a few things you need to do first.

Here are five things you should know…so you don’t end up saying “I wish I would have known that before buying a home.” 

Know your credit score

Don’t rely on many of the free websites – they don’t use the same metrics to measure your FICO score. Contact your mortgage lender to help you with this step.

The credit score is a direct reflection of your credit history, which is a financial inventory of things you’ve paid for. Credit cards, past loans, government information are all sources that make up your history.

Other information includes the number of credit cards and loans you have and if you pay your bills on time.

Your chosen mortgage lender will help you understand what you need to work on to boost that credit score, if necessary – and in the end, land a more favorable loan.

Obtain a pre-approval

A pre-approval on a loan will give you an advantage when you start to look for that ideal home. You will know the exact loan amount for which you qualify, what your monthly payment will look like and how much taxes and insurance will be.

With a pre-qualification, the loan process will be smoother and your offer will be much stronger.

When pre-approved, your lender provides you with a letter confirming the specific loan amount you can expect to receive. Showing that pre-approval letter along with your offer when you find the home of your dreams will allow you to make the strongest possible offer.

Know the value of a real estate agent

Some home buyers may decide they want to enter the housing market without a real estate agent. They soon find that there is a lot that goes into the house hunting process – from the research, to the paperwork, to the negotiations, it is a long, tedious process.

A good real estate agent has a keen understanding about neighborhoods, recent sales and listings, trends, crime rates and schools. A real estate agent will find listings tailored to your needs and will understand the lending environment.

Most importantly, real estate agents will help you with price negotiations in the current market and protect you by looking out for your financial interest during the process.

It can’t be stressed enough how important the right agent can be!

Research your down payment options

The down payment hurdle you have to clear may be quite a bit lower than you think. Traditionally, lenders have asked for 20% down, but there are many, many low down payment options are available, especially to first-time buyers.

Mortgages guaranteed by the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture can be “no-to-low” down payment loans.

In fact, mortgages backed by the VA and the USDA — for those who qualify — usually don’t require a down payment at all. A funding fee is charged on VA loans, but even that can be rolled into your monthly loan payment.

FHA-backed loans are available with as little as 3.5% down. With that said, buyers will have to pay mortgage insurance to help lenders defray the costs of loans that default.

Conventional loans, which aren’t backed by the government, also offer low down payment programs to first-time buyers. In, fact, down payments of just 3% are common, especially if you are a first-time buyer.  Again, buyers really should reach out to lenders that understand these programs and how they work.

Do your home inspection early

Consider getting inspections on the home you are interested in done early after escrow starts to find out if there are repairs needed. This can be beneficial when trying to get a 30-day close.

Once the inspection has been competed, there is less chance at any delays later in the closing process. Many real estate agents are working with their buyers to get those inspections done earlier and earlier to avoid delays.

In Conclusion

Purchasing a new home isn’t necessarily an easy to understand or intuitive process….there really is a lot to wrap your head around when buying a home. Make sure you are aware of these things so you are prepared. And if you have questions, don’t hesitate to contact me!

February 4, 2018 /

Use Your Tax Return as a Down Payment

While most people dread tax time, if you are getting a tax refund, this time of year can seem almost as rewarding as end-of-the-year bonus season.

Whether you are receiving a refund of a few hundred dollars or several thousand dollars, if you’re contemplating buying your first home, you may want to deposit your refund into an account dedicated to your down payment fund.

Coming up with a down payment to buy a home is one of the biggest obstacles that renters and first-time buyers stumble on when they want to become homeowners. That’s why during tax season, many first-time homebuyers turn to their tax refunds as a down payment option.

With that said, there may be no better time to qualify for a new home!  Please do contact me at your earliest convenience and we can get started.

Quite often a tax refund may actually cover the whole down payment on a home purchase.  Furthermore, these tax refunds may be used as assets or down payment right away.

Can I Apply Now for a Mortgage Even Though I Do Not Have my Refund Yet?

It is perfectly fine to apply for a mortgage loan when you don’t have your refund yet.  At application we can just assume the amount that you will be receiving.  As long as we can prove receipt of the funds in your account prior to the final underwriting approval.

Pay closing costs or earnest funds

Many first time home buyers underestimate the cost of buying a home. In addition to a down payment and enough money to rent a moving truck, you may need to pay closing costs or pay an earnest deposit (money paid to the seller as evidence of your intention to purchase the property).

Buy down your interest rate

Paying a small amount of money up front can save you tens of thousands of dollars in interest over the life of the loan. One point – or one percent of your loan – generally buys you a discount of one eighth (.125) or up to one quarter (.25) of a percent. Meaning, you could move your monthly payment and interest rate downward (from say, 4.5% to 4.25%) by bringing in some cash.

How to Handle Your Tax Refund

If you plan to use your tax refund for a down payment, you have to follow very strict procedures. If you miss a step, a lender might not be able to use the funds. They have to have a paper trail.

In order to have a trail, you have to deposit the refund in the account you plan to use for your down payment. If this is your checking account, then deposit the entire check in this account. You should not deposit a part of the check and take cash the rest. You should also not deposit it and then withdraw it as cash. Essentially, deposit it and leave it alone.

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