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Vanneste Blog
  • Shorter Term - More Savings

    Whether you’re refinancing your current home or buying a new one, something worth considering is a 15-year loan rather than a 30-year term. The payments will be a little higher but you’ll get a lower interest rate and you’ll build equity much faster.30348233-250.jpg

    Let’s look at an example of a $300,000 mortgage with the choice of a 30-year term with a 3.92% rate compared to a 15-year term with a 3.2% rate. The payments would be $682.28 higher on the shorter term but the equity would be considerably higher even after you adjust for the higher payments.

    Another benefit is that the shorter-term loan creates a forced savings situation where the savings on longer term loan might end up being spent rather than being saved and invested.  A conscious decision to pay more in payments could pay big dividends in the future.

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  • Home Energy Aware

    After the mortgage payment, the largest homeowner expense is for utilities and the major component is energy.  Contributing factors include air leaks, insulation, heating and cooling equipment, water heaters and lighting.Where does my money go.png

    Computers, monitors, TVs, cable and satellite boxes, DVRs and power adapters are spinning your electric meter even when they’re not being used. Even though they only represent a small percentage of a home’s total energy consumption, about 3/4 of the electricity is used when the products are turned off.

    Unplugging devices can actually make a difference in the size of your electric bill. Plugging several of these offenders into a power strip with a single on/off switch may make the task easier. Most computers have options to put them into sleep mode or even turn when not in use.

    The Department of Energy has an Energy Saver Guide and do-it-yourself suggestions.


  • Home Safe Home

    Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our safety. Here are a few tips to consider:Home Safe Home.png

    • Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.
      • Always lock outside doors and windows even if you’re only gone for a brief time.
      • Lock gates and fences.
      • Leave lights on when you leave; consider timers to automatically control the lights.
      • Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
      • Suspend your mail and newspaper delivery when you’re out of town or get a neighbor to pick it up for you.
    • Posting that you’re out of town or away from home on social networks is like advertising your home is unprotected.
    • Equally dangerous could be allowing certain social network sites to track your location.
    • Don’t leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
    • Trim the shrubs from around your home; don’t give criminals a place to hide.
    • Use exterior motion detectors and yard lighting.
    • Have an alarm system and use it when you leave home and go to bed.
    • Put 3 ½” deck screws in door plates and door hinges.
    • Have good deadbolts on all exterior doors.
    • Exterior doors should be solid core.

  • Other People's Money for College

    Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.”26458431-250.jpg

    A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.

    The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.

    With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.

    Leverage is just one of the many benefits that make rental real estate the IDEAL investment. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive because homeowners have a better understanding than many other investments and self-management is a possibility.


  • Assumptions are an Alternative

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    In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.

    Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.

    FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.

    1. Interest rate won't change for the qualified buyer
    2. Lower interest rate means lower payments
    3. Lower closing costs than originating a new mortgage
    4. Easier to qualify for an assumption than a new loan
    5. Lower interest rate loans amortize faster than higher ones
    6. Equity grows faster because loan is further along the amortization schedule
    7. Assumable mortgage could make the home more marketable
    An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.
  • Family & Friends Mortgage

    Anytime a lender and borrower can agree on rates and terms, it can be a good match but IRS has specific rules that govern the transaction especially when the parties are family or friends.26614035-250.jpg

    The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien to allow the interest deduction.

    Sometimes, a friends and family situation might have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. For July 2017, the rate is 2.57% for terms over nine years.

    The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.  A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments.

    Your tax professional can guide the transaction whether you’re a buyer or a seller and your real estate professional can help arrange to have the documents drawn and filed.


  • Down Payment Problem - Are You Sure?

    There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph.  Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages.down payment graph.png

    Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions.

    Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%.

    There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment.

    There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relative. Interestingly, a son or daughter can borrow against their retirement to benefit their parents.

    In some respects, having good credit and sufficient income is more important than the down payment. Don’t rely on “common knowledge.” Get expert advice and counsel to see if there is a way to advance your dream of owning a home.


  • Don't Have a CLUE?

    If you haven’t heard of a CLUE report, it has nothing to do with the table game searching for a murderer. It is a report showing the insurance claims on your home and car for the past five to seven years.10340976-250.jpg

    This database is used by insurance companies to evaluate risks and determine rates. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange. Rates can be increased not only due to legitimate claims but data entry errors also. Sometimes, simply asking a question without filing a claim can be logged as a claim.

    For that reason, similar to verifying the accuracy of your credit report, it is important to check out the CLUE report on your home and car. The reports are free and there is a process for correcting mistakes.

    An interesting and sometimes costly surprise occurs during the home buying process. The claim experience of the prior seller could impact the price of the premium of the new buyer. For that reason, you can ask for a copy of the CLUE report on the home you’re interested in buying prior to writing a contract.


  • Emergency Kit for the Car

    Mickey Mantle said “If I knew I was going to live this long, I’d have taken better care of myself.”

    Similarly, if people planning their summer travel knew they were going to have an emergency, they would have the right things available. Only 5% of drivers carry all recommended emergency supplies in their cars.9111296-250.jpg

    The Federal Emergency Management Agency (FEMA) recommends that all Americans have some basic supplies on hand in order to survive for at least three days if an emergency occurs. Some of these things would be more important if you lived or traveled in remote areas.

    • Reflective hazard triangle or road flares
    • Spare tire
    • Jumper cables
    • First-aid kit
    • Flashlight and extra batteries
    • Cell phone and charger
    • Crucial medications
    • Emergency radio with batteries
    • Bottled water for each person and pet in your car
    • Non-perishable, high-calorie food
    • Distress signal flag
    • Matches or lighter

    During cold weather, additional items are recommended:

    • Windshield scraper and brush
    • Blankets and extra warm clothing
    • Road salt or cat litter to help with tire traction
    • Tarp for working outside in weather

    It is recommended that emergency supplies should be checked at least twice a year to see that all of the items are in working order and in good condition. It is important that items are replaced if any of them are used during the year.

    The American Red Cross is among many sources where emergency preparedness kits and supplies can be purchased.


  • What Can You Expect?

    Businesses must treat customers fairly if they expect to do business with them again or get recommendations to their friends. Customers of stores like Nordstrom’s understand that a salesperson is an employee and represents the company.13959026-250.jpg

    The line becomes less clear in some industries, especially ones that involve real estate. Agency is a legal relationship authorizing a person to act for or in the place of another. It involves responsibilities that exceed treating a person fairly.

    The duties a buyer or seller can expect to receive from a real estate salesperson or broker include but are not limited to honesty, accountability, full disclosure, representation and reasonable skill and care. Buyers and sellers might additionally expect obedience, loyalty and confidentiality.  State laws can differ on specific duties.

    Mortgage and title officers are limited in their duties to the buyer to honesty and accountability and specific requirements under the federal Real Estate Settlement and Procedures Act.

    A special relationship with a real estate agent makes it advantageous to have them coordinate efforts with the other professionals in the home buying process. Since most buyers’ and sellers’ transactions are infrequent, the agent can bring valuable experience to the transaction.

    Every buyer and seller should discuss the level of service they expect from the real estate professional they work with. Another good question is what happens if the purchase and sale are within the same company.


  • Hands-Only CPR

    Hands-only CPR can save lives.  The American Heart Association states that "Almost 90% of people who suffer out-of-hospital cardiac arrests die.  CPR, especially if performed in the first few minutes of cardiac arrest, can double or triple a person's chance of survival."  Most people who survive a cardiac emergency are helped by a bystander.   

    1. Check for responsiveness – shake the person and shout “Are you OK?”11700251-250.jpg
    2. Call 9-1-1 – either tell someone to call or make the call yourself
    3. Compress - Push hard and fast in the center of the chest at a rate of 100 per minute.

    The victim should be flat on their back preferably on the floor. Place the heel of one hand on the center of the victim’s chest and place the heel on top of the other hand lacing your fingers together. Lock your elbows and compress the chest forcefully; make sure you lift enough to let the chest recoil.

    Chest compressions should be continued until the person shows obvious life-like breathing, the scene becomes unsafe, an AED (automatic external defibrillator) becomes available, or a trained responder takes over the emergency treatment.

    Alternating mouth-to-mouth breaths is not necessary using this method. Compressions are adequate except in drowning or drug overdose situations where 30 chest compressions are followed by two mouth-to-mouth breaths.

    Watch this two-minute video and consider taking instructions from the Red Cross or other qualified provider. Every household should have at least one person trained in life-saving skills.


  • Must Be This Tall to Ride

    Surely, you remember being a child at an amusement park when after having stood in line with your friends and family, waiting to get on a terrific ride, you discovered the sign that read, “you must be this tall to ride.”This Tall3.png

    Not only was it disappointing, it was slightly embarrassing. You never want to go through that again.

    A remarkably similar situation occurs when people are buying a home. After finding the right home and negotiating the contract, they find out that they don’t measure up financially.  It’s not something that anyone wants to go through if they have a choice.

    Regardless of what you think you know, if you’re buying a home with a loan, you need to physically visit with a trusted mortgage professional before you get serious.

    • You’ll find out your credit score which will directly affect the mortgage rate you’ll pay.
    • You might discover blemishes on your credit that possibly can be corrected.
    • You’ll even get a pre-approval letter that you can submit with an offer which could dramatically affect your negotiations in the current competitive market.

    Some rides don't turn out to be as good as you thought they were going to be.  A person certainly doesn’t want that disappointment with a lender. Contact me for a recommendation of trusted mortgage professional.


  • Would-be Buyers with Student Debt

    59% of non-owners are not comfortable taking on a mortgage with their student debt according to the Aspiring Home Buyers 2017 survey. It is estimated that the college graduates have an average of $37,172 in student debt.16522219-250.jpg

    Fannie Mae, who has loan programs with as little as three to five percent down payments, has announced changes to how student loan debt is treated that could make the difference in qualifying for a mortgage.

    For the 5 million borrowers who participate in the reduced payment plans, actual payments are considered for calculating debt-to-income ratio rather than maximum payment amount.

    Non-mortgage debts paid by another party for at least 12 months won’t be included in calculating debt-to-income ratio.  For example, payments being made on a student loan by the parents would not be counted against the DTI ratio for the student.

    These changes can make it possible for would-be buyers with student debt to get a home now instead of waiting for years. Being pre-approved by a trusted mortgage professional is the best way to confirm that these changes apply to your situation. Call today for a recommendation of a trusted mortgage professional.


  • Good Info - Good Decisions

    While low inventory is certainly challenging buyers, not having a clear understanding of mortgage financing is also causing issues. By having good information, they are able to make better decisions as well as compete favorably.Mortgage Rate History0517.png

    Most buyers don’t realize how the mortgage rate is determined for a borrower. While annual income is important, a good credit score, low debt-to-income ratio, loan-to-value ratio and ability to repay the loan are vital concerns.

    A variety of myths seem to permeate the market such as rates are set and released once a day; FHA loans are for first-time buyers only; pre-qualification commits the lender; lender fees are not negotiable and adjustable rate mortgages always go up.

    Misunderstanding of actual mortgage practices may be a contributing factor to why more buyers are not taking advantage of what are still historically low mortgage rates.

    While getting solid information about mortgages and being pre-approved from a lender are very important, it is only one step in the home buying process. Success in buying a home in today’s market should begin with a real estate professional who will coordinate all the different parts of the transaction including mortgage, title, insurance, inspections.


  • Reasons to Refinance

    Regardless of the reason to refinance a home, the basic question to ask is: “Do you plan to live in the home long enough to recapture the cost of refinancing?” There are always expenses involved in refinancing which can be paid in cash or rolled into the new mortgage.

    From a strictly financial standpoint, the break-even point is achieved when the cost of refinancing has been recaptured by the monthly savings. It would take approximately 23 months to recapture $4,000 of refinance costs with a lower payment of $175 a month.22683914-250.jpg

    1. Lower the rate
    2. Shorten the term so that the loan will build equity faster and be paid off sooner.
    3. Lower your payment to reduce your monthly cost of housing.
    4. Convert an ARM to a FRM to stabilize your payment due to concern of rising interest rates.
    5. Cash out equity to be able to use the money for another purpose.
    6. Combine a first and second mortgage.
    7. Consolidate personal debt so the interest is tax deductible.
    8. Payoff higher cost debt such as credit cards, student debt, etc.
    9. Remove a person from a loan as in the case of a divorce.

    Points paid to purchase a principal residence are tax deductible completely in the year paid. However, the points must be spread over the life of the mortgage on a refinance. For that reason, consider getting a “par” value loan with no points. It may have a slightly higher rate but the interest will be fully deductible and it will lower the cost of refinancing.

    Determine the break-even point on your situation by using the Refinance Analysis . Call for a recommendation of a trusted mortgage professional.


  • Indecision May Cost More

    “More has been lost due to indecision than was ever lost to making the wrong decision.” Interest rates have as much effect on housing costs as price and when they are both trending upward, it can be very expensive to wait. 25787590cropped.jpg

    There can be some legitimate reasons for postponing a purchase such as needing to save the down payment, improve your credit or waiting to find out about a possible transfer. The problem is that prices and interest rates could, and very likely will, go up in the future.

    If the price of $250,000 home went up 5% and the interest rate went from 4.5% to 5.25%, the payments would increase by $176.42. The additional cost over a seven-year period would be close to $15,000.

    The questions that indecisive buyers need to ask themselves is “how am I going to feel knowing that if I had not waited, I could have been living in the home for less money?” and “What would I have spent the money on if I didn’t have to make the larger payment?”

    Use the Cost of Waiting to Buy calculator to find out how much indecision may be costing you.


  • Would-be to Should-be

    Some would-be buyers have emotional reasons to own a home like having a place of their own where they can raise a family, feel safe and secure and enjoy their friends’ company. Other buyers’ dominant reasons might be financial in nature such as building equity or lowering their cost of housing.52407681-250.jpg

    Regardless of what might be motivating people to want their own home, it is easy to justify that now is a good time to purchase. Let’s look at a $250,000 example using a FHA loan.

    The total payment will be about $1,835 dollars a month. If the payment is lower than the rent a person is paying, that should encourage a person to continue investigating.

    In this example, when you consider the monthly principal reduction, the monthly appreciation and the tax savings, even with money added for monthly maintenance, the net cost of housing is less than half the total house payment.

    Considering all those advantages, the would-be buyer is spending over $1,100 per month more to rent than it would be to own. In a year’s time, they would lose close to $14,000 which is more than the down payment of $8,750 required on this price home.

    Most would-be buyers understand that a home is a big investment but they may not understand the advantage of the leverage caused by the low down payment mortgage. The benefits extend beyond a return on the down payment but to the value of the home.

    In this example, the $8,750 down payment grows to an equity of $73,546 in seven years based on 2% annual appreciation and normal amortization on a 30-year loan. If you calculated that as a rate of return, you’d be challenged to find anything that could compare with it.

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    To see what your numbers might look like, check out this Rent vs. Own. If you need any help or have any questions, contact us. Part of our greatest satisfaction is helping would-be buyers understand why they should-be.


  • An Alternative to Paying Tax Today

    The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later. exchange.png

    The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future.

    The property to be exchanged must be like-kind which means real estate for real estate.   Rental property can be exchanged for other rental or investment property.  Personal-use properties like a first or second home are not eligible for exchanges.

    There are some critical dates that restrict the validity of the exchange. The investor must identify the replacement property within 45 days of the sale of the relinquished property. The replacement property must be closed within 180 days of the sale of the relinquished property.

    • The replacement property must be equal to or greater in value, equity and debt than the one being relinquished.
    • All net proceeds must be used in acquiring the replacement property.

    There are specific rules involved in constructing a valid tax-deferred exchange. There are three professionals that should be involved: a tax advisor, a real estate professional and a qualified intermediary who will assist in the acquisition and transfer of both the relinquished property and the replacement property. Additional information can be found in IRS Publication 544.


  • Lower the Rate - Deduct the Interest

    Credit card debt in America is back to levels prior to the recession. The average credit card APR is just under 16% according to CreditCards.com Weekly Credit Card Report.  33967393-250.jpgHomeowners have an advantage over renters when it comes to getting their arms around debt issues.

    Basic money management suggests that higher rate debt be replaced with lower rate debt. Credit cards, personal cars, boats, motor vehicles and other personal property, typically have interest rates higher than that of real estate loans.

    Borrowing against a person’s home usually provides the lowest rate of financing. Refinancing a home mortgage to take cash out to retire personal debt is one option. Another would be to secure a home equity or HELOC, home equity line of credit.

    An alternative advantage of borrowing against one’s home is that the interest may be tax deductible unlike the interest on most personal debt. Qualified mortgage interest includes acquisition debt which can only be used to buy, build or improve a principal residence and up to $100,000 of home equity debt which can be used for any purpose.

    Managing money is a critical life skill that people need to master. While the goal may be to become debt-free, paying the least amount of interest possible can be a good first step. Owning a home provides an asset that allows for options not available to tenants. Seek professional advice to determine your best course of action.


  • Rentals are IDEAL

    Rental homes are the IDEAL investment because they offer a higher rate of return than other investments without the volatility of the stock market. With certificates of deposit and bonds at less than 2%, people need an alternative investment that they understand and with a reasonable amount of control.

    In this case, IDEAL is an acronym identifying the advantages of rental properties.Ideal Investment-2.png

    • Income from the monthly rent contributes to paying the expenses and a return on the investment.
    • Depreciation is a non-cash deduction that shelters income for some investors.
    • Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term.
    • Appreciation is achieved as the value of the property goes up.
    • Leverage can increase the return on investment by using borrowed funds to control a larger asset.

    These individual benefits working together make rental real estate a good investment for today’s economy. Increased rents, high rental demand, good values and low, non-owner occupied mortgage rates contribute to positive cash flows and very favorable rates of return. 

    To find out more about how rentals might complement your current investment plans, contact your real estate professional.


  • Save the Cost of Mortgage Insurance

    During the banking crisis in the Great Recession, certain types of mortgages were unavailable that are once again being offered. Fortunately, the 80-10-10 mortgage is one of those making a reappearance and it can save borrowers a considerable amount of money. 80-10-10.png

    The objective of an 80-10-10 mortgage is to avoid the expense of mortgage insurance for buyers wanting a 90% loan. A buyer can obtain an 80% first mortgage and a 10% second mortgage with a 10% down payment and not be required to have private mortgage insurance.

    For example, a buyer could put $30,000 down on a home priced at $300,000 and get an 80% first mortgage without mortgage insurance. The borrower could get a second mortgage, either through the same lender or a third party.

    In the example, the 80-10-10 would save a buyer $193.71 per month which can be a considerable amount of money over a ten-year period. The interest rate on the second loan will be higher than the first because there is more risk.

    Helping buyers make better choices is a valuable service real estate professionals can provide. Having the right tools and information can make the decisions easier to understand. Using an 80-10-10 calculator, you can see what the savings might be for your situation.


  • Important Estate Documents

    An estate plan is a collection of documents to ensure that your wishes are carried out because of death or incapacity to make decisions for yourself. Spouses, minor children, adult children, property and investments can all be factors that should motivate a person to undergo the process.12902925-250.jpg

    Will – this document specifies the way a person wants to manage and distribute his/her assets after their death. When a person dies without a will, the laws of the state where the person resided will determine the distribution of the property.

    Durable Power of Attorney – this document grants to a designated person the authority to act on behalf of the principal in in legal affairs should the principal become incapacitated. Among other things, this would allow the attorney-in-fact to buy and sell property on the behalf of the principal.

    Healthcare Proxy – this document grants that a designated person can legally make healthcare decisions on behalf of the principal when they are incapable of making and executing specific decisions stated in the proxy.

    Living Will – this document directs physicians with respect to life-prolonging medical treatments in case they become unable to communicate their decisions.

    Hippa Release – this document allows heath care providers to release your health care information to a designated person. Otherwise, they are required by federal law to protect the privacy of your health information.

    Letter of Instruction – This document contains information and instructions about a person’s wishes upon death. It is intended to offer details on whom to contact and where to find important documents about personal and financial matters.

    Requirements of these documents can vary from state to state and legal advice should be obtained. If you need a current estimate of value on real estate that may be involved, usually a price opinion from a licensed real estate professional will suffice. It would be my privilege to assist you with this at no cost or obligation.


  • Tax Benefits of Home Ownership

    U.S. taxpayers have enjoyed specific tax benefits for home ownership since personal income tax was introduced by the 16th amendment in 1913. While these benefits may not be the primary reason that motivates a person to buy a home, they are still tangible and not available to tenants.26005238-266.jpg

    The exclusion of capital gains tax on the profit made from a home is unique from other investments and provides homeowners significant savings. Single taxpayers can exclude up to $250,000 gain and married taxpayers up to $500,000 gain. During the five-year period ending on the date of sale, a taxpayer must have: owned the home for at least two years; lived in the home as their main home for at least two years; and, ownership and use do not have to be continuous nor occur at the same time.

    Gain on the sale of a principal residence in excess of the allowed exclusion are taxed at the lower long-term capital gain rate of the owner.

    A homeowner may take the standard deduction or itemized deductions in any tax year based on which will create the largest deduction. Property taxes and qualified mortgage interest are allowable itemized deductions.

    Qualified mortgage interest is acquisition debt plus home equity debt not to exceed the maximum amounts. Acquisition debt is the amount of debt incurred to buy, build or improve a first and second home up to $1,000,000. Home equity debt is limited to $100,000 over the current acquisition debt on the combination of a first and second home and may be used for any purpose.

    For more information, see your tax advisor or see IRS Publications 523, Selling Your Home and 936, Home Mortgage Interest Deduction.


  • Before You Pay Cash for a Home

    The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.50441319-250.jpg

    Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future.  It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.

    Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.

    Paying cash certainly seems like a simple decision but it may limit a homeowner’s ability to deduct interest on a future mortgage. You can get more information about this from IRS Publication 936 or from your tax professional.


  • Not Available for All Buyers

    Lenders regularly publish mortgage rates but they may not be available for all buyers. 59607784-250.jpg

    Imagine that the mortgage payment based on an advertised rate influenced a buyer to make an offer on a home. After negotiating a binding contract, this buyer makes a loan application and finds out that for any number of possible reasons, that rate isn’t available.

    Even if the person does financially qualify for a loan at a higher interest rate, it will not be the payment that the buyer expected when the contract was negotiated.

    Lenders evaluate several factors such as the borrower’s credit score, debt-to-income and loan-to-value ratios. These variables are used to assess the risk associated with the repayment of the loan.

    While mortgage money is a commodity, it isn’t priced the same way items are that involve cash for goods. The lender puts up the money today based on a promise from the borrower to repay over a long term, possibly up to thirty years.

    The simple solution to avoid surprises such as the one described here is to get pre-approved at the beginning of the home search process. Since pre-qualification does not mean the same thing to all lenders, call if you’d like a recommendation of a trusted mortgage professional.