My father always told me that the most important reason to buy a home is to stabilize your monthly housing expense. Everything else; tax deductions, building equity and housing appreciation are just bonuses. Think about it, how much money would you have if your housing expense stayed stable for 10 years?

It’s staggering when you think about the cost of housing, especially if you’re a renter and not a home owner. If you are currently paying $1,000 a month for rented housing, then over the next three years, your property management company will effectively have reaped $36,000 of your hard earned cash! You’re paying their mortgage when you could be building equity in your own property. In addition how often do you think they will increase your rent? All the while the cost of a new home continues to go up.

What if I don’t have the money to buy a home right now?

There are many loan programs available that offer low and no down payment options. Some Federal, State and local housing agencies have down payment assistance programs that allow you to buy with little or no down payment, and often sellers are willing to pay some of your closing costs if they want to sell the home quickly.

There are many benefits of home ownership to consider, most of all, tax deductions. Let’s take a look at how advantageous this can be as a homeowner:

How much is tax deductible?

Tax deductions vary, but the IRS has laid out solid rules. They also have several tax publications full of helpful information worth taking the time to read. Publication 530, Tax Information for First-Time Homeowners, is very thorough, as is Publication 936, Home Mortgage Interest Deduction. For quick reference, you can refer to Tax Topics 505, Interest Expense, and 504, Home Mortgage Points.

These publications often refer to local and state guidelines, so I recommend consulting a tax specialist or a CPA to answer all the questions that arise from reading these materials. Here are a few tips you should know up front:

Real Estate taxes are deductible on a primary residence. Real Estate taxes are paid at settlement or closing, or through an escrow account.

Mortgage interest is deductible on a loan to purchase, build or improve your home. Your lender will provide you with a Mortgage Interest Statement (Form 1098) to list the total interest paid during the year. This should include any deductible points paid for that year.

Pre-paid interest is deductible in the year it is paid. At the close of a real estate transaction, borrowers usually pay for the interest on their loan that falls between the closing period and the first of the next month. Mortgage payments are made “in arrears” so when a loan is closed mid-month, there is interest due to the new lender which must be paid in advance.

If you are building a home, the interest on the construction loan is deductible. The construction period cannot exceed 24 months prior to the date that you move in if you claim this as your primary residence.

My advice is simple. Call a mortgage professional to discuss your specific needs and they can help find the program that’s right for you. There are a variety of low down payment and no down payment programs available.

In order to expedite the paperwork process, I recommend you gather the following items:

• Most recent paystubs for one month.
• W2s from the last two years.
• Signed copies of your last two years’ tax returns, including all schedules that were filed.
• If you are self-employed, a year-to-date profit and loss statement.
• Homeowner’s insurance company name and number.
• Most recent bank statements for two months.
• Most recent statements from any retirement and investment accounts for two months.

What costs are involved?
Within 3 days of your application, your Loan Officer is required by law to provide you with a good faith estimate of closing costs, a truth in lending form disclosing your APR (annual percentage rate) along with other state and federal disclosures. This is important because you will need sufficent assests for your down payment and closing costs as well. This is a brief rundown of some of the fees that could be associated with your new mortgage:

• Application/Processing Fee – Charged by the loan officer to process your loan application.
• Appraisal Fee – Charged by the appraiser to determine the current value of the property.
• Closing Fee – Charged by the closing agency (escrow, attorney, title) to ensure the close of your transaction.
• Credit Report Fee – Charged by the credit reporting agency to provide your credit report to your loan officer and/or lender.
• Title Search/Title Insurance Fees – Charged by the title company to ensure the property is free from liens or title defects.
• Origination Fee – Paid to the originator to obtain a lower interest rate. This is usually expressed in the form of points. One point equals 1% of the loan amount.
• Discount Points – Paid to the lender to secure a lower interest rate.
• Miscellaneous Fees – VA and FHA loans may have other fees associated with them. Private Mortgage Insurance (PMI), document preparation, notary, recording and tax service are other fees which may fall under this category.  

 

Always work with a local professional loan officer who and help you evaluate your personal situation and assist you in finding the loan program that works best to meet your individual goals and needs.

On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.

TAX CREDIT OVERVIEW
Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible for FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.

According to the IRS, factors that would demonstrate the ownership of the property would include:

1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
They do not use the home as your principal residence.
They sell their home before the end of the year.
They are a nonresident alien.
They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.

Information provided by: The Mortgage Market Guide
©2009 MSS, LLC. All rights reserved.

Many customers ask me if they should go to the expense of having a Radon test performed before buying a home. So here are a few statistics to consider:

The Environmental Protection Agency (EPA) states that radon gas is found in one out of 15 homes across the U.S. They also state that it is the second leading cause of lung cancer, causing an estimated 15,000 to 22,000 deaths per year. Because of this significant health risk there are many resources dedicated to combating this potentially deadly gas.

Radon is commonly found in the earth beneath homes, in well water and building materials like rock, bricks, and concrete. Radon gas can then seep into the house via the cracks in the basement floors, drains, loose-fitting pipes and exposed soil. After the gas enters the home it becomes an airborne carcinogen - a cancer-causing agent.

This is why I recommend to my clients that they get their home tested, especially if radon gas is prevalent in the area. Home testing kits for radon gas can be obtained from most of the local home improvement or hardware stores. In addition, you can hire a qualified radon service professional to inspect your home or most home inspection companies offer this as an additional service.

If you would like more information on radon gas, visit www.epa.gov/iaq/radon.  This website has extensive information detailing prevention measures and contact information for certified professionals in your area.