Tax Benefits of Homeownership

Everyone has heard about the tax benefits of home ownership, but few new home buyers fully understand the significance of this benefit.  I want to take a moment to break it down for you.  As a home owner you are eligible to take  a tax deduction of mortgage interest, loan points paid (purchase year only), and property taxes.  These deductions reduce your taxable income and greatly increase the financial benefits of homeownership. Here’s how it works.

Assume:

$9,877 = Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)
$2,700 = Property taxes (at 1.5 percent on $180,000 assessed value) 

______
$12,577 = Total deduction

Multiply your total deduction by your tax rate.

For example, at a 28 percent tax rate: 12,577 x 0.28 = $3,521.56

$3,521.56 = Amount you have lowered your federal income tax (assuming a 28% tax rate)

Note: Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.

As always, seek the advise of a tax professional for questions regarding your specific situation.

Author: Randall Filbert, MPA  http://www.MyBoiseHomeLoans.com  www.FamilyGuideToFinances.com www.BuyandSellinIdaho.com

This blog’s intention is to provide inspirational stories as well as historical accounts and insight into matters concerning the mortgage and real estate markets. These are my opinions and should not be regarded as factual data.

Homeowners who agree to a short sale with their lender do far less damage to their credit rating than those who go through foreclosure.

While in both short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.

Short sales show up on a credit report as a “pre-foreclosure in redemption” status and can typically result in a credit score reduction of 100 points or so. After the sale, the mortgage may show up as “discharged.” For people who successfully complete a short sale it is possible to qualify for a mortgage at a reasonable interest rate in as little as 18-24 months.

Bottom line is… if buying a home is a future goal, then a short sale is the better option for many.

As real estate professionals, we should educate our clients about these distinctions and encourage them to consider a short sale over a foreclosure.

 Author: Randall Filbert, MPA  www.LendingIdaho.com  www.FamilyGuideToFinances.com http://www.MyBoiseHomeLoans.com  http://www.BuyandSellinIdaho.com

This blog’s intention is to provide inspirational stories as well as historical accounts and insight into matters concerning the mortgage and real estate markets. These are my opinions and should not be regarded as factual data.

Running out of time to benefit from the First Time Home Buyer Tax Credit! 

Potential homebuyers are running out of time to benefit from the American Recovery and Reinvestment Act of 2009’s First Time Home Buyer Tax Credit. Will Congress allow the $8,000 tax credit for first-time purchasers to expire as scheduled on April 30^th?  Or will the tax credit get a second life and be extended, thus allowing the struggling housing market additional time to recover.

 This is of particular concern if you are a buyer just starting to shop and you see entry-level prices bottoming out or rebounding in your local market. The tax credit statute requires buyers to enter into a purchase agreement by April 30 2010. This doesn’t leave a lot of time left for people who haven’t yet decided on a house, have not obtained mortgage financing, or who are in the process of repairing their credit in order to qualify for a mortgage.  Buyers considering the purchase of a short sale property may still have many weeks or months worth of bank bureaucracy to muddle thru before they can close on a property. 

According to economists at the National Association of Realtors, between 300,000 and 350,000 additional sales of houses will be stimulated this year by the tax credit across the country. Some economists estimate that each home sale additionally generates approximately $63,000 in new sales of items like appliances, tools, landscaping, building materials, furnishings, moving expenses, etcetera. 

Assuming these estimates are accurate (and even if they are grossly overstated), this means that the housing tax credit provides an immediate and significant benefit to the overall American economy. In fact, housing represents a significant percentage of the National GDP.  Failure to extend what may be one of the most effective pieces of the Obama administration’s 2009 stimulus legislation would cost jobs, economic growth and lost tax revenues.

 In an effort to put pressure on lawmakers the National Association of Realtors and the National Association of Home Builders have initiated intense grass roots campaigns to make the case for extending the credit, and perhaps even expanding it. However, a tax credit extension would cost billions of dollars in lost federal revenues thus contributing to an already historically profound deficit.

 With the rapidly approaching deadline, the likelihood that Congress will extend the tax credit remains uncertain.  Congress is stretched thin with focus on two wars, health care reform, climate change and energy concerns, financial system regulatory reform and a new Consumer Financial Protection Agency, among others.  There is currently very little chatter among congressional leaders and economic experts which would suggest an extension.  Therefore, an extension is unlikely. 

Bottom line:  I believe that given the political and economic importance of the housing tax credit, its significant influence upon the housing sector’s ability to recover, and the aggressive lobbying in Washington, some sort of extension is likely.  However, don’t count on a bigger credit.  If I were buying my first house, I would not wait to see what’s going to happen…I’d be buying a house NOW! 

 Author: Randall Filbert, MPA

This blog’s intention is to provide inspirational stories as well as historical accounts and insight into matters concerning the mortgage and real estate markets. These are my opinions and should not be regarded as factual data.

As the availability of credit continues to be tight (it could get tighter!) having a good credit score is now more important than it has ever been and having a low credit score will carry with it a variety of costs both tangible and intangible. Think about it from the bank’s perspective, many people want to borrow money from you and you have limited funds to lend so you are going to choose to loan your money to people who demonstrate lower risk variables (ie. those with a longer history of responsible repayment and thus maintain higher credit scores).
Of course there is the tangible cost of obtaining credit that costs you, the borrower more because of the higher interest rates and fees associated with these loans. On a home purchase, this can amount to 10′s of thousands of dollars over the life of the loan.
There are also less tangible costs like ‘opportunity costs’. Simply not being able to purchase a home in this favorable buyer’s market because your credit score does not make the grade could potentially cost you the ‘opportunity’ to own a home and thus benefit from all of the advantages of being a homeowner. This missed opportunity could also equal 10′s of thousands of dollars over your lifetime. Missed appreciation, fewer tax credits, etc.
The credit crisis is expected to last for some time and recovery will be slow. This means that borrowers with less than good credit scores (those below about 680-700) will continue to have a more difficult, more expensive time obtaining the credit that they need.

Focus on building your credit folks….it’ll cost you big time if you don’t!

Author: Randall Filbert, MPA

Home Loans in Eagle Idaho

Boise Home Loans

www.FamilyGuideToFinances.com

Financial strategies evolve with the direction of the economy. Back in the early 90′s it was considered a good financial strategy to prepay your home mortgage. Many financial experts considered it a good return on your cash – to pay down a mortgage that may be as high as 10%, rather than invest in more volatile equities. Afterall, the certainty of saving 10% by prepaying your mortgage is just as good (perhaps even better) as earning 10% on a stock and comes without the volatility of the stockmarket or the capital gains taxes.
However, with many home loan rates at historical lows (most range between 4.5% and 5.5% these days) there are now better places to stash your cash. The best places to start are with your credit-card debt and by feeding your retirement account. By paying down your higher rate credit card debt you are, in essence, earning a higher return on your cash than by prepaying your mortgage. The fact is, that if you have a credit card that charges you 19% (these rates have been going up) and by re-allocating excess cash flow towards paying the balance off, you avoid paying that interest and therefore are essentially ‘earning’ 19% on your money. I’ll take a 19% return over a 5.5% return any day!
Depending on the amount of consumer debt that you carry and your availability to excess cash, the process of paying down debt can take quite some time. It may be worthwhile for you to consider simultaneously starting a savings plan that will help prevent you from falling back into the credit card cesspool.
Once you’ve conquered your debt, build a rainy-day fund and then buy enough disability and life insurance to protect your family from unforeseeable health set backs. Then it’s time to look at the mortgage. Got a fixed 6.5 percent rate? You could probably do better, in the long term, in a low-cost diversified mutual fund. Finally, if you got trapped in one of those variable-rate, interest-only, negative amortization mortgages that were being pushed in the early part of this decade, prepay as soon as possible by refinancing to a more stable loan and reallocating your excess cash elsewhere.
Consult a qualified Financial Advisor to discuss your specific situation.

Author: Randall Filbert, MPA
Boise Home Loans