Tax Credits and Deductions for Homeowners

Written on December 5, 2011 at 9:48 am, by admin

The following article by Stephen Fishman of AOL Real Estate News discusses several tax credits and deductions for homeowners.

There are several tax credits and deductions set to expire at the end of the year, and given the federal deficit problem, there’s a good chance they won’t be extended. If you want to take advantage of them, you need to act before Jan. 1, 2012.

Mortgage Insurance Premium Deduction

If you itemize deductions, you may deduct the premiums you pay for mortgage insurance, just like you do mortgage interest. However, this deduction is phased out if your income exceeds certain levels. To qualify for the full deduction, a couple or a single taxpayer must have an adjusted gross income of $100,000 or less. The deduction is phased out completely if AGI exceeds $109,000.

This deduction, which was first enacted for 2007, is scheduled to expire at the end of 2011. Thus, your payments are deductible only if you pay them during 2011; a payment after 2011 is not deductible.

Education Expenses Deduction

A deduction of up to $4,000 for qualified education expenses is available for 2011. All or part of the amount you pay can be for classes beginning in 2012. But you must make your payments during 2011, because the deduction expires at the end of the year. This deduction is not available if your modified adjusted gross income is more than $80,000 ($160,000 if filing a joint return). Nor is it available if any of education tax credits are claimed.

Home Energy Credit

First, any homeowner may qualify for an energy credit of up to $500. You can qualify for the credit if you purchase during 2011 solar panels to generate electricity or for water heating, or install wind energy equipment, a geothermal heat pump, or certain types of fuel cells to generate electricity. The credit is up to 30 percent of the amount you spend, up to the $500 limit. This credit is not available for purchases in 2012.

Sales Tax Deduction

If you itemize, you can deduct either your state and local taxes or your sales taxes paid during the year. This deduction is a boon for people who live in states with no or low income taxes. However, the deduction for sales and use taxes instead of state income taxes is scheduled to expire at the end of 2011. To maximize this deduction, you should make any large purchases before the end of the year.

Adoption Credit

A tax credit for adoption expenses (adoption fees, court costs, attorney fees, travel, etc.) has been available for many years. However, an enhanced adoption credit is available for adoptions finalized before 2012. The credit is up to $13,360 of adoption expenses. For 2011, this is a nonrefundable credit, meaning you qualify for it even if it exceeds the amount of your 2011 tax liability. This means that you could qualify for a tax refund even if you did not have federal income tax withheld.

Tips For Home Sellers

Written on June 30, 2011 at 8:05 am, by admin

The following tips for home sellers comes from AOL Real Estate News.

Haggling has become the norm in real estate transactions. And while price may be the brass ring we all try to grab, there are often lesser “prizes” within our reach that ultimately can amount to substantial amounts of money.

Here are some things to consider in your negotiations besides the sales price you settle on:

1. Seller financing

Chances are you aren’t one of those investor-buyers who will be paying cash. You need a loan to finance this purchase. With lenders being essentially unwilling to part with money these days and setting the bar too high for many credit-worthy borrowers, there is a huge value for a buyer to have a seller willing to hold a loan. It could actually mean the difference between homeownership or not.

Having the seller hold paper on the loan will save the buyer traditional loan closing costs, which can include points on the loan — usually 1 percent of the loan amount — and the cost of an appraisal. Seller-financing is usually offered at slightly higher than the going rate and is traditionally capped at a few years, at which time the buyer will need to find financing in the open market.

For sellers who own their homes outright, financing the sale of their homes privately has several risks — but some advantages as well. Many times, getting a regular monthly payment is actually financially preferable to paying capital gains taxes on a sale that deposits one fat check in their savings account.

What protection does the seller have if the buyer defaults? For one, they can — and should — insist on a substantial down payment that is theirs to keep. And should the buyer stop making house payments, the seller would get his house back, same as the bank would. Since the foreclosure and eviction process is cumbersome and time-consuming, seller-financing is a gamble. Follow the banks’ lead here and vet the buyer thoroughly. You might even require the buyer to take out insurance in the event that he loses his job or becomes unable to work because of illness.

2. Flexible closing date

Not having to move before you are ready to — say you’d like to wait until your kids finish the school year — has monetary value. Do you really want to rent a place for three months so that they can graduate with their friends and, essentially, you have to pack and move twice? Moving is expensive. You have to turn on utilities, leave deposits, find a short-term rental, store your furniture; it all adds up. Having an understanding buyer who is in a position to delay closing or agree to rent the home back to you for a few months is a reason to rejoice.

3. Agent commissions

This is the taboo topic. When you sign a listing agreement, you legally agreed to pay a certain percentage of the sales price to the agents who listed and sold your home. Then along comes an offer that is less than what you hoped for — less than your listing agent told you that you could expect.

Should you ask your agent to reduce his or her commission, to take less to keep the deal together? Isn’t 2 percent of $500,000 better than 3 percent of nothing, which is what he or she will get if you don’t agree to the lower offer?

Opinions are split on the topic. Some believe that smart agents would rather take less and make the deal work than watch the deal fall apart. Others believe that commission-cutting (technically speaking, they give you a credit back at closing) is a bad precedent and will have no part of it.

We can tell you this: People ask all the time when they get a low offer. Some agents agree and others don’t.

4. Trades/bonus gifts as part of the sale

My camel for your bag of spices and some silk? Some see adding unrelated items into the negotiations pot as just muddying the deal. There was a great story line in last season’s “Million Dollar Listing” on Bravo where agent Madison Hildebrand’s buyer wanted the seller’s rare sports car included in the purchase price. Ultimately, it was a deal-breaker.

Buyers have a legitimate right to ask for items that are built-in and/or even custom-made for the house. Draperies, window-treatments, outdoor kitchen appliances are all fair game. Sports cars? A gray area at best.

But there are circumstances in which some deals need to be sweetened. Sellers have been known to offer a week’s vacation in Hawaii to the buyer at the close of escrow. Other sellers throw in a time-share ownership (that they also wanted to unload) and even a brand-new car. Think about it: A house is selling for $500,000 and the seller will walk away with $300,000 in escrow. What’s the big deal, throwing in a $5,000 trip to New York?

It behooves the agents involved to be a little creative and see what can make things more palatable. For any deal to be successful, both sides need to feel satisfied.

5. Furnishings included

Whether you are moving up or downsizing your home, chances are you don’t want or need all your stuff. Don’t list your house as being sold furnished because the commissions paid to the agents will be based on your final sales price — no need to jack it up artificially. But do consider asking a buyer to purchase your stuff outside the escrow process.

Moving is expensive, especially if you don’t want the furniture and it won’t work in your new home.

Some things are, however, negotiable. Will you be leaving your washer and dryer? To replace them in your next home can cost about $1,500. What about that riding lawn mower and all your garden tools? You won’t need them in your new condominium, so why not offer them to the buyer?

Mortgage Applications Increase

Written on June 16, 2011 at 7:35 am, by admin

The following report on mortgage applications comes from the Wall Street Journal.

Mortgage applications increased 13 percent nationwide in the week ending June 10, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, released today. Refinance applications also jumped 16.5 percent from the previous week.

“Mortgage rates have declined for eight of the past nine weeks. Coming off of the Memorial Day holiday weekend, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November,” said Michael Fratantoni, MBA’s vice president of research and economics.

“The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes,” he continued. The refinance share of mortgage activity increased to 70 percent of total applications from 67.3 percent the previous week, the highest refinance share since Jan. 21, 2011.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.51 percent from 4.54 percent, with points increasing to 1.05 from 0.94 for 80 percent loan-to-value ratio loans, the lowest 30-year average rate since November 19, 2010. TRD

How to get a home mortgage in Massachusetts

Written on June 16, 2011 at 7:27 am, by admin

The following article provides several great tips for qualifying for a home mortgage.

The housing inventory is flush with choices. Interest rates are at record lows. And you’re ready to buy a house. There is likely just one thing standing between you and home ownership: Getting a lender to approve your mortgage. Here are eight ways not to sabotage your plans.

1. Don’t quit your job or decide to become self-employed.

Lenders want to see stability of income. The more stable you are, they reason, the less likely you are to default on the loan. You might even defer switching jobs to another company until you close escrow. If you do change jobs — even if it’s to a better-paying one — lenders are going to look a little harder at your application. They will likely ask to see a job offer letter plus at least a month of pay stubs if you switch employers. It’s way preferable to just keep hating your boss for a little longer.

2. Put off major purchases, especially if they involve financing.

This means don’t buy a car, new furniture, a boat or motorcycle. Keep credit card balances down. If you want a house, you need to keep your debt-to-income ratio low. Wait until after you move in to buy the toys.

3. Don’t open any new credit cards.

Not even the retail cards that offer you an enticing 15 percent or 20 percent off on your day-of purchases. Those store cards are the quicksand that will sink you into renterdom forever if you aren’t careful. The major credit-scoring companies ding you a few points for each new card you open and often ding you again for those cards recently opened.

4. Don’t be late on your credit card payments or anything else.

It seems obvious to say this, but your credit score will suffer if you pay your bills late. Establish a system where you sit down and either write checks or pay your bills online at least once a week.

5. Don’t make large deposits into your bank accounts at the last minute.

If rich Aunt Sadie or Mom and Dad are helping you out with the down payment, get the money into your accounts at least two months before you apply for a mortgage. Lenders like the money to be what they call “seasoned” and not appear out of nowhere.

6. Don’t offer to help a friend or baby brother out by co-signing a loan.

Even if you won’t be making the payments on that loan, it increases your debt-to-income ratio — and is a bad thing. You want to be carrying the least amount of debt possible when you apply for a mortgage. And keep in mind, when you co-sign a loan, you are saying that you will be financially responsible should the signer fall behind in payments.

7. Limit the hard pulls on your credit reports.

A hard pull is when a third party, with your permission, checks your scores for the purpose of lending you money. If you are shopping for a loan, lenders will make a hard pull. Make too many of them, and your scores go down.

8. Don’t lie on your application.

Another no-brainer, right? But after about a decade of no-doc loans, where we put down whatever the lender needed to hear on the application and were never asked for proof of anything, it’s important to realize how much things have changed. Lenders today request evidence for everything you state. We know of one applicant who was nearly rejected because he failed to copy the last page of his monthly bank statement — the one with the boilerplate disclosures on it. Don’t inflate your income or forget about any debts.

Mortgage Rates Drop Massachusetts

Written on June 16, 2011 at 7:21 am, by admin

The following mortgage rate update comes from the WSJ.com

A week of troubling economic data helped push fixed mortgage interest rates to a new low for the year, representing the seventh consecutive weekly decline, according to the latest survey from Freddie Mac.

Surveys of national consumer confidence and manufacturing activity in the past month have suggested the economy may be slowing, said Freddie Mac Chief Economist Frank Nothaft. The S&P Case-Shiller National Home Price Index, meanwhile, showed first-quarter home prices fell by the steepest annual rate since the third quarter of 2009.

“Fixed mortgage rates followed U.S. Treasury yields lower this week amid financial market concerns that the current lull in the economy is continuing,” Mr. Nothaft said.

The 30-year fixed-rate mortgage averaged 4.55% in the week ended Thursday, down from 4.60% the prior week and 4.79% a year earlier. Rates on 15-year fixed-rate mortgages fell to 3.74% from 3.78% the previous week and 4.20% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages held steady from last week at 3.41%, but are down from 3.94% a year earlier. One-year Treasury-indexed ARM rates rose to 3.13% from 3.11% the prior week but are down from 3.95% a year earlier.

To obtain the rates, 15-year mortgages required an average payment of 0.7 point, while the others required a 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.