5 things buyers should know about low down payment options (Remember: Cash is ALWAYS King)

Many homebuyers confide in real estate agents and loan officers to find them the best price. But 95% agents don’t understand the value of knowing about all of the low down payment options available to their clients, says Gauri Nerurkar, Realtor DC Metro Homes Team of RE/MAX.

In fact, in a recent post for mortgage industry blog, MGIC Connects, that out of the most recent NAR Profile of Buyers and Sellers states, 40% of repeat buyers, and 66% of first-time home buyers, are putting less than 10% down. Understanding all of the low down payment mortgage options available to borrowers and leveraging this information to help them save money has the potential to positively impact your business growth.

Here are 5 reasons why we believe buyers need to know about low-down payment mortgage loans.

1. FHA IS MORTGAGE INSURANCE

Many people think that the Federal Housing Administration (FHA) provides a service that is markedly different than the service private mortgage insurers provide. The reality is both FHA and PMI provide the exact same service, but with some key differences.

2. PMI ALLOWS A BORROWER TO PUT LESS MONEY DOWN

A conventional loan with private mortgage insurance allows for slightly less money for a down payment (as little as 3% down), whereas FHA requires a 3.5% down payment. The ability to use gift funds is another low-down-payment option for borrowers. Many don’t realize that conventional loans with PMI do allow for the use of 100% gift funds.

3. FHA CAN LEAD TO MORE BORROWER DEBT

Even though a borrower may put less down using a conventional loan with private mortgage insurance, they still end up with less debt than borrowers who take out FHA loans. This is because FHA charges an upfront premium along with the monthly mortgage insurance amount. That upfront premium is most often financed into the loan, increasing the total amount borrowed. Keep this in mind when discussing low-down-payment options with borrowers who have higher credit scores, since they stand to gain more by going conventional.

4. CREDIT SCORE MAKES A DIFFERENCE

Most PMI premiums are based on credit scores, meaning the higher the borrower’s credit score, the lower the premium. FHA does not base its premiums on credit score, so borrowers with lower credit scores often find FHA a lower-cost option whereas borrowers with higher scores would save more money by going conventional.

5. FHA MORTGAGE INSURANCE CAN’T BE TERMINATED

One of the biggest concerns for low-down-payment borrowers relying on government mortgage insurance through FHA is that unless the borrowers put at least 10% down, they won’t be able to cancel their FHA mortgage insurance. One of the advantages private mortgage insurance offers is that it is a short-term solution. It is automatically dropped when the loan reaches 78% loan-to-value. Additionally, the borrower can request the private mortgage insurance to be cancelled once the loan reaches 80% of the original value, based on either the actual payments made, or the initial amortization schedule (for fixed rate loans) or current amortization schedule (adjustable rate loans), irrespective of the actual loan balance.

When you know as much as possible about borrowers’ low-down-payment options, you can discuss them with your Realtor and/or your Loan Officer and choose the best option.

Many first time buyers have no idea that going out and buying a car after applying for a home mortgage could end up costing them their dream home!

 

Advertisements

Eight Tax Breaks for Homeowners

Taxes are due April 15, which means it’s time to start gathering your W2s, 1099s, child care receipts and bank statements.

But before you sit down with your accountant, it’s important for you to know that merely owning a home could mean you qualify for tax breaks. In most cases, you need to itemize your taxes in order to take advantage of these deductions. Yes, it makes the tax-filing process seem impenetrable, but the benefits may outweigh the complications.

Here are a few of the tax breaks you’ll want to investigate:

Mortgage interest paid at settlement

Take a look at your closing statement; one item that’s generally listed there is home mortgage interest. On a mortgage of up to $1 million, you can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender.

Points

Did you pay points in order to obtain your home mortgage? These fees are included on the income tax deductions list and can be deducted as long as they are associated with the purchase of a home. If you refinanced your home, these points are still deductible, but it must be done over the life of the mortgage.

Taxes are due April 15, which means it’s time to start gathering your W2s, 1099s, child care receipts and bank statements.

But before you sit down with your accountant, it’s important for you to know that merely owning a home could mean you qualify for tax breaks. In most cases, you need to itemize your taxes in order to take advantage of these deductions. Yes, it makes the tax-filing process seem impenetrable, but the benefits may outweigh the complications.

Here are a few of the tax breaks you’ll want to investigate:

Mortgage interest paid at settlement

Take a look at your closing statement; one item that’s generally listed there is home mortgage interest. On a mortgage of up to $1 million, you can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender.

Points

Did you pay points in order to obtain your home mortgage? These fees are included on the income tax deductions list and can be deducted as long as they are associated with the purchase of a home. If you refinanced your home, these points are still deductible, but it must be done over the life of the mortgage.

Property taxes

As long as they are based on the assessed value of the real property, you can deduct your state and local property taxes. However, if your money is being held in escrow for the purpose of paying property taxes, you cannot claim this deduction until the money is actually taken out of escrow and paid. If you do this, check your Form 1098 for the amount you may deduct. Be aware that if you receive a partial refund of your property tax, the amount of the deduction you can claim will be reduced.

Selling costs

If you sold a home in the past year, you may be able to reduce your income tax by the amount of your selling costs. These costs can include things such as repairs, title insurance, advertising expenses and broker’s fees. The IRS only allows the deduction of repair costs associated with selling if the repairs were made within 90 days of the sale. It’s also crucial that the repairs were made with the intent of improving your home’s marketability. Selling costs are deducted from your gain on the sale.

Home office

If you use a portion of your home exclusively for the purpose of an office for your small business, you may be able to claim a deduction on your taxes for costs related to insurance, repairs and depreciation. You may only claim this deduction if the space within your home is used exclusively and regularly as either your principal place of business or a place where you meet and deal with customers or patients. You may also be able to take advantage of this deduction if a portion of your home routinely is used for storing items (product samples, inventory, etc.) used in your business.

In tax year 2010 (the most recent year for which figures are available) nearly 3.4 million taxpayers claimed the home office deduction.

Mortgage insurance premiums

You may be able to deduct the premiums paid for private mortgage insurance for your principal residence and for a non-rental second home.

The deduction begins to phase out once your adjusted gross income reaches $100,000 ($50,000 for married filing separately). In general, you can deduct the premiums paid for the current tax year only. A qualified tax adviser can provide information about rules for mortgage insurance provided by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service.

Home improvement loan interest

If you’ve taken out a loan to make improvements on your home, you may be able to deduct the interest on this loan. Qualifying loans are those taken out to add “capital improvements” to your home, meaning the improvement must increase your home’s value, adapt it to new uses or extend its life. New carpeting or painting are not considered capital improvements, while adding a garage, installing a water heater or building a deck are all examples of capital improvements.

Construction loan interest

If you take out a construction loan to build a home, you may qualify to deduct the interest. The IRS only allows a deduction for mortgage interest if the loan relates to a “qualified” home, which means it must either be your principal residence or a vacation home that you will use for personal purposes. You can only use this deduction for the first 24 months of the loan, even if the actual construction takes longer.

Tax codes can be confusing. You may want to consult the IRS website for information concerning deductions and credits. Additionally, consider meeting with a professional to ensure you’re not missing any deductions for which you’re eligible.

As long as they are based on the assessed value of the real property, you can deduct your state and local property taxes. However, if your money is being held in escrow for the purpose of paying property taxes, you cannot claim this deduction until the money is actually taken out of escrow and paid. If you do this, check your Form 1098 for the amount you may deduct. Be aware that if you receive a partial refund of your property tax, the amount of the deduction you can claim will be reduced.

Selling costs

If you sold a home in the past year, you may be able to reduce your income tax by the amount of your selling costs. These costs can include things such as repairs, title insurance, advertising expenses and broker’s fees. The IRS only allows the deduction of repair costs associated with selling if the repairs were made within 90 days of the sale. It’s also crucial that the repairs were made with the intent of improving your home’s marketability. Selling costs are deducted from your gain on the sale.

Home office

If you use a portion of your home exclusively for the purpose of an office for your small business, you may be able to claim a deduction on your taxes for costs related to insurance, repairs and depreciation. You may only claim this deduction if the space within your home is used exclusively and regularly as either your principal place of business or a place where you meet and deal with customers or patients. You may also be able to take advantage of this deduction if a portion of your home routinely is used for storing items (product samples, inventory, etc.) used in your business.

In tax year 2010 (the most recent year for which figures are available) nearly 3.4 million taxpayers claimed the home office deduction.

Mortgage insurance premiums

You may be able to deduct the premiums paid for private mortgage insurance for your principal residence and for a non-rental second home.

The deduction begins to phase out once your adjusted gross income reaches $100,000 ($50,000 for married filing separately). In general, you can deduct the premiums paid for the current tax year only. A qualified tax adviser can provide information about rules for mortgage insurance provided by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service.

Home improvement loan interest

If you’ve taken out a loan to make improvements on your home, you may be able to deduct the interest on this loan. Qualifying loans are those taken out to add “capital improvements” to your home, meaning the improvement must increase your home’s value, adapt it to new uses or extend its life. New carpeting or painting are not considered capital improvements, while adding a garage, installing a water heater or building a deck are all examples of capital improvements.

Construction loan interest

If you take out a construction loan to build a home, you may qualify to deduct the interest. The IRS only allows a deduction for mortgage interest if the loan relates to a “qualified” home, which means it must either be your principal residence or a vacation home that you will use for personal purposes. You can only use this deduction for the first 24 months of the loan, even if the actual construction takes longer.

Tax codes can be confusing. You may want to consult the IRS website for information concerning deductions and credits. Additionally, consider meeting with a professional to ensure you’re not missing any deductions for which you’re eligible.

6 Simple Fixes for Wet Basement

Do you dread going into the cellar during a hard rain? You just know you’re going to see puddles on the floor or get a sneezing fit from the musty air. A wet basement – a problem that plagues about 60% of homeowners, according to the American Society of Home Inspectors – is not a situation to ignore.

Even intermittent leaks can rot your house’s structure, attract termites and carpenter ants, and
cause noxious molds to flourish. Any of those could require costly repairs or sink your property
value (you know, when people start buying houses again). But you can usually stem the tide with a
few simple fixes that don’t cost a bundle.
Start outside.

If you notice recurring dampness or puddles in a particular part of your basement, head outdoors. Walk along your house to the spot closest to where the leak is occurring. Look up. Chances are the problem is one of three things: a bent, clogged or missing gutter that’s dropping roof runoff near the foundation; a down-spout that’s releasing its load too close to the house; or an underground collection pipe that has become clogged or broken. A handyman can fix any of these problems for as little as $200 by, for example, replacing the gutter or adding an aboveground discharge pipe that extends at least three feet from the house.

Cover the windows.

Is your leak under a basement window? Blame the “well” – the exterior dugout that permits the window to sit below grade. It’s funneling rainwater against the foundation, where the water is finding a crack or seam to get in. The easiest fix is a clear plastic well cover (cost: $35 to $45 at home centers) that keeps the water out but lets the sun shine through. If you can’t find the right size or shape at the store, go to windowbubble.com.

Plug cracks and holes.

Watch for water entering through seams between concrete blocks, cracks in old concrete or holes where pipes penetrate the foundation. If you find such gaps, fill them with hydraulic cement (cost: $10 for a 10-pound container – probably more than enough – at any hardware store). Just mix water with this powder to get the consistency of toothpaste and press as much of it as you can into the opening after you brush out any loose debris. It will harden into a watertight seam.

Seal damp walls.

Sometimes water seeps right through the pores of a foundation wall or floor, leaving a telltale white powder behind when it dries. Sure, you could fix the problem by having the exterior of your foundation waterproofed, but that would mean excavating the yard – and paying $5,000 to $15,000. Treat the interior surface instead by painting on Xypex, a professional-grade brush-on sealant (cost: about $130 for enough to cover one wall). It’s not available at home stores, but you can get it by calling 800-363-2002.

Dry the air.

Even if you don’t have any leaks, high humidity is all that mold needs to take root on organic materials such as wood, wallboard and even dust. So if your basement air smells musty, pick up the largest Energy Star-rated, digitally controlled dehumidifier you can find (cost: about $300). Forget about the built-in collection bucket – there’s no way you’ll empty it every day – and instead use a plastic hose to discharge the water into a utility sink or floor drain. Some water-proofers advise setting the controls to 50% humidity, which is too dry for mold.

Bring in the big guns.

If you’re getting full-scale floods or see water entering between the wall and the floor, call a basement waterproofing company. Go to the website of the National Association of Waterproofing and Structural Repair Contractors (nawsrc.org), find a few local companies and ask for a free assessment. They will probably recommend a sump pump, an in-floor machine that removes water under your cellar and costs about $2,000 installed. (Aboveground pumps are meant for emergencies, not long-term use.) The best units have a second pump for extreme rainstorms and a battery-operated third in case of a power outage.
The company may also recommend adding an in-floor gutter (cost: $3,000 to $5,000) around the perimeter of your basement floor to collect water and deliver it to the pump. Make sure that the firm you choose provides a warranty that your basement will remain dry for the life of the building. You’ll never be afraid to head downstairs again.