Posted: Jun 4, 2010

By: G. M. Filisko

Most potential homebuyers are a smidge daunted by the fact that they’re about to agree to a hefty mortgage that they’ll be paying for the next few decades. The best way to relieve that anxiety is to be confident you’re purchasing the best home at a price you can afford with the most favorable financing. These seven steps will help you make smart decisions about your biggest purchase.

1. Decide how much home you can afford

Generally, you can afford a home priced 2 to 3 times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children.

2. Develop your home wish list

Be honest about which features you must have and which you’d like to have. Handicap accessibility for an aging parent or special needs child is a must. Granite countertops and stainless steel appliances are in the bonus category. Come up with your top-five must-haves and top-five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3. Select where you want to live

Make a list of your top-five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR® to help you identify three to four target neighborhoods based on your priorities.

4. Start saving

Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 5% down. A small downpayment preserves your savings for emergencies.

However, the lower your downpayment, the higher the loan amount you’ll need to qualify for, and if you still qualify, the higher your monthly payment. Your downpayment size can also influence your interest rate and the type of loan you can get.

Finally, if your downpayment is less than 20%, you’ll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and downpayment assistance programs for first-time buyers.

5. Ask about all the costs before you sign

A downpayment is just one homebuying cost. Your REALTOR® can tell you what other costs buyers commonly pay in your area—including home inspections, attorneys’ fees, and transfer fees of 2% to 7% of the home price. Tally up the extras you’ll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6. Get your credit in order

A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Most require a minimum credit score of 620 for a home mortgage.

You’re entitled to free copies of your credit reports annually from the major credit bureaus: Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn’t up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

7. Get prequalified

Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you’re self-employed, you’ll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.

Posted: Jun 4, 2010

Common Property Tax Exemptions
Posted: Apr 20, 2010

By: Barbara Eisner Bayer

Published: September 28, 2009

Property tax exemptions are available to many homeowners, but you’ll need to do some legwork to find them and lower your property tax bill.

Depending on where you live, you may quality for tax exemptions when you fix up a residential property. Image: Veer

Nobody likes paying a dime extra in taxes. Yet when it comes to property tax bills, some homeowners pay too much simply because they aren’t aware of the common property tax exemptions that exist in most communities.

Many exemptions aren’t automatic. You’ll need to determine for yourself what they are and whether you qualify. Contact your local tax assessor. Property tax exemptions vary not just by state, but by jurisdictions within each state. Research and paperwork might require four hours, but the effort could lower your tax bill noticeably.
Homesteads

Many states offer a homestead exemption to homeowners who occupy their homes as primary residences for a majority of the year. Some states require a minimum term of residency before you can apply. In Maine, for example, it’s 12 months; in Alabama, you can qualify in two to six weeks. The exemption may lower a home’s assessed value by a percentage, say 15%, or a dollar amount such as $25,000. Some states tie the homestead exemption to other criteria such as age or income level. Each locality has its own rules and time frames for filing. Some even require homeowners to re-apply each year.
Seniors and the disabled

Many states offer generous property tax exemptions to both older homeowners and the disabled. South Dakota, for example, has multiple relief programs that allow both groups to seek property tax refunds and reductions in real estate assessments. There are age, income, and residency restrictions. Read the fine print. A homestead exemption aimed at the elderly may only defer property taxes until the home is sold. And don’t assume exemptions for seniors kick in at 65. Some may start at 60 years old, while others begin at 70. Disabled homeowners may be required to show proof, such as eligibility for Social Security disability benefits.
Military veterans

Service to your country abroad may grant you property tax relief at home. Exemptions are generally available for veterans who own a home (primary residence), served during wartime, and were honorably discharged. Some states offer them to all veterans; some, like Pennsylvania, to disabled vets. To qualify, you’ll probably need to provide proof of service. You may also have to meet length of residency requirements and income restrictions. Frequently, this exclusion is eligible for the spouses of veterans who lost their lives in war, and sometimes it’s available to parents of the deceased as well.
Renovations

If you like to renovate, you’ll love these tax breaks. In the North Dakota cities of Bismarck and Fargo, fixing up a residential property that’s more than 25 years old can earn you a five-year exemption from paying property taxes on the value the remodeling added to your home. In Pierce County, Wash., you can get a three-year exemption for home improvements. Check with your tax assessor’s office before tearing anything down, however, because applications may need to be approved before work begins. Renovations of historic properties may also be eligible for property tax breaks.
Energy incentives

Installing renewable energy systems in your house could pay off on your property tax bill as well as your energy bill. Many states are excluding the value of certain green improvements from a home’s real estate assessment. Eligible upgrades may include the installation of solar water heaters, geothermal heat pumps, or photovoltaics. Look for information on state and local property tax breaks for renewable energy systems on the Database of State Incentives for Renewables & Efficiency, or DSIRE for short. Click your state on the interactive map, then follow any links listed under Property Tax Exemptions.
Other exemptions

A visit to your local tax assessor’s office may turn up other less common property tax exemptions. Maine Township, Ill., offers a long-time occupant exemption for people who’ve owned their homes continuously for 10 years and earn less than $75,000 annually. Some counties in New York State reduce the assessed value of the homes of volunteer firefighters. Many states offer widow/widower exemptions. It doesn’t hurt to ask.
Are exemptions worth the effort?

In 2008 the U.S. median property tax paid was $1,897 annually, or 0.96% of the median home value of $197,600. The highest median property tax was paid in Westchester County, N.Y.: $8,890; the lowest, St. Landry Parish, La., at $140. Savings from exemptions will vary widely depending where you live, the value of your home, and what you qualify for. A $15,000 exemption on the U.S. median home value of $197,600 would result in annual savings of about $144. A 15% exemption would save about $285.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Barbara Eisner Bayer has written about mortgages and personal finance for the past 15 years for Motley Fool, Daily Plan-It, and Nurse Village, and is the former Managing Editor of Mortgageloan.com and Credit-land.com. She splits time between a beachfront condo and a mountain retreat, which leaves her with double the pleasure and double the headaches of home ownership.

Posted: Mar 17, 2010

Tax Tips for Homeowners Preparing 2009 Returns

By: Mike DeSenne
Schedule L, a new form from the IRS, allows homeowners to itemize returns so they can deduct real estate taxes and certain disaster-related losses. Image: Andersen Ross/Blend Images/Getty Images

You’ve heard it before: Your home is probably the biggest investment you’ll ever make. It’s also probably the biggest tax write-off you’ll ever have. Follow these tax tips for homeowners to ensure that you receive all of the tax deductions and tax credits to which you’re entitled for the 2009 tax year.

Home-related tax deductions, from mortgage interest to real estate taxes, can add up. If you’re married filing jointly with taxable income of $100,000, an extra $5,000 in deductions would lower your tax bill by $1,250. Tax credits, for such things as energy efficiency and homebuying, are even more valuable because they increase your refund (or decrease what you owe) dollar for dollar.

Give yourself a day to organize paperwork and fill out tax forms. Need help? IRS Publication 17, “Your Federal Income Tax,” has the answer to just about any question you can think of, and it’s free. Basic tax software starts at $29.95, and H&R Block charges $187, on average, to prepare a tax return. Full-service accountants charge more, depending on the complexity of a return.
Tax deductions for non-itemizing homeowners

The last thing taxpayers want to hear is that the IRS has come out with yet another form. But this time the news is good, especially for homeowners. The new Schedule L allows homeowners who don’t use Schedule A to itemize returns to deduct real estate taxes and certain disaster-related losses. Only about one-third of filers itemize, according to the IRS.

Non-itemizers are usually entitled to a standard deduction, which for 2009 is $11,400 for married couples filing jointly ($5,700 for singles). Schedule L allows homeowners to increase the standard deduction by as much as $1,000 ($500 for singles and married filing separately) to account for any state or local real estate taxes paid during the year.

Losses from federally declared disasters can also be added to the standard deduction. First, affected homeowners need to complete Form 4684 to determine the amount of the net disaster loss. Then, the amount of the loss needs to be reported on Schedule L to determine the new standard deduction. Only losses from official federally declared disasters, as opposed to ordinary casualty losses suffered during non-declared disasters, can be added to the standard deduction.
Mortgage-related deductions

Generally, the interest you pay on the mortgage for your main home and a second home is tax deductible. To qualify for the mortgage interest deduction, the loan must be secured by a qualified home, and you must itemize your tax return. Even a house trailer or boat can count as a qualified home, as long as there are sleeping, cooking, and toilet facilities.

The interest you pay on second mortgages, home equity loans, and home equity lines of credit (HELOCs) can also be deducted. Generally, you can deduct the interest on up to $1 million—$500,000 if you’re married filing separately—in home loans used to buy, build, or improve a home. If a home loan was used for other purposes, such as buying a car or paying tuition, you can only deduct interest on the first $100,000 ($50,000 for married filing separately). Read IRS Publication 936.

“Points,” certain fees paid to a lender to obtain a home loan, might be deductible too. The general rule for points that you pay on refinanced loans is that those points aren’t deductible in full immediately, but are spread across the life of the new loan. In limited circumstances, if you pay the full amount of those points at the refinancing closing, you might be able to deduct the points in full immediately. The mortgage insurance premiums you pay on loans issued or refinanced after 2006 also can be deducted, though income limits apply.
Energy-efficiency tax credits

Home improvements made during 2009 aimed at lowering your energy bills could lower your tax bill as well. Uncle Sam is offering energy-efficiency tax credits equal to 30% of the cost of qualifying projects. Claim your residential energy tax credits on IRS Form 5695.

The tax credit for some energy-efficiency improvements, such as new windows and insulation, is capped at $1,500. More ambitious projects, such as solar panels and geothermal heat pumps, have no upper limit on the amount of the credit. Restrictions apply to both capped and uncapped credits—second homes may or may not qualify, and labor costs are excluded in some cases—so be sure to familiarize yourself with the energy tax credit rules.
Homebuyer tax credits

If you bought a home in 2009, you might be eligible for a homebuyer tax credit. First-time buyers who made a purchase between Jan. 1 and Nov. 6, 2009, can get a tax credit worth up to $8,000. Income restrictions apply. Purchases made after Nov. 6 are subject to more generous income limits as well as an $800,000 cap on home prices. A first-time buyer is defined as someone who didn’t own a home for three years prior to purchase.

The tax credit isn’t limited to first-time buyers. Longtime homeowners who’ve lived in their principal residences for five consecutive years out of the last eight can qualify too. This tax credit, worth up to $6,500, is good on home purchases made after Nov. 6. There are income and price restrictions.

Claim your homebuyer tax credits on IRS Form 5405. Because the IRS requires additional paperwork to verify the home purchase, you can’t file electronically. The homebuyer tax credits were extended into 2010. A signed contract needs to be in place by April 30, and settlement needs to occur before July 1. Credits earned in 2010 can be taken on 2009 or 2010 returns.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

Mike DeSenne is Online Managing Editor for taxes, finances, and insurance at HouseLogic.com, and the former Executive Editor of SmartMoney.com. He likes to do his taxes by hand, much to the dismay of his accountant.

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Buying A Short Sale Home
Posted: Nov 3, 2009

The messages are mixed concerning our economy and the   housing market. Doubtless, in some areas home sales are rising along with prices. Regrettably, many areas are still experiencing the housing bust. Conversely, prices are not likely to go much lower. It will be a trade off if you are selling a home as you can expect to sell at a lower price as well. Unfortunately, many people bought at the top and are selling at the bottom. Families are losing their homes due to unemployment, inflation, and over extended credit lines. This is sad news for a lot of people, and, when it becomes personal, it is even more tragic. Nevertheless, some people are benefiting from the market today. Many families are able to purchase a home by taking advantage of a recessed market and tax credits extended by the national government. When a family realizes their dream, one cannot help but share their joy. One strategy that is helpful to both over encumbered homeowners and budget conscience buyers is a short sale.

A short sale is when the lender agrees to accept less than the existing mortgage. To begin, sellers make a hardship case to the lender. Hardships include job loss, catastrophic illness, death, divorce, and bankruptcy. Remember banks have a bottom line, and it may not make sense from their standpoint to settle for less money. Payment history, mortgage vs. equity, and area comps are considered. Depending on the owner’s financial statement, lenders may expect the difference to be paid from personal funds. Sellers must secure a buyer, buyers have to be qualified, and the process can take many months. The lengthy period often results in foreclosure, and it’s common for buyers to ‘fall out’.

A short sale will affect a seller’s credit report. Experts agree that before deciding on a short sale, you should seek legal advice from a competent real-estate lawyer or an accountant. A short sale may not be as detrimental to your credit standing as a foreclosure, but there are ramifications. For buyers the process is rife with loopholes and complications. Banks may wait for multiple offers before accepting an offer, and buyers won’t know the number of offers being considered or the amounts bid.

A short sale is not without problems for both sellers and buyers; however, it can be the best solution to a dilemma many families face today.