Joe Capote

September 21, 2009 • 10:44 am 0

Tax Benefits of Home Ownership

Home ownership—it’s the American dream, isn’t it? It’s also a taxpayer’s dream, because home ownership is full of tax benefits. The interest on your mortgage payments and real estate taxes—it’s deductible. Settlement or closing costs when you buy your home—some are deductible. Capital gains you realize when you sell your home—exempt from taxes, with some restrictions. And if you use a part of your home for business, you may be able to claim a tax deduction for some of your house expenses. In short, home ownership may be your most profitable investment, from a tax standpoint.

Let’s take a closer look at some of these tax benefits. Keep in mind that this article is for informational purposes only and is not intended as legal, accounting, or tax advice. You should consult a tax professional for details.

The Home Mortgage Interest Deduction
If you itemize deductions on your federal income tax return, you can generally deduct all of the interest you pay on any loan that is secured by your home, whether that loan is called a mortgage, a second mortgage, a home equity loan, a line of credit, or a home improvement loan. This applies to both your principal residence and a second home. You can deduct the interest on up to $1 million of home acquisition debt ($500,000 if you’re married and file separately). You can also deduct the interest on certain home equity loans, regardless of how you use the loan proceeds, with two limitations:

•Your deduction is limited to interest on the amount of debt that does not exceed the equity in your home (the fair market value of your home minus the total acquisition debt on that home)
•Your deduction is limited to interest on up to $100,000 (or $50,000 if you’re married and file separately)
For complete information on the home mortgage interest deduction, see IRS Publication 936 Home Mortgage Interest Deduction, available online at http://www.irs.gov or at your local IRS office.

The Real Estate Tax Deduction
Homeowners can also deduct real estate taxes, whether the state, county, city, township, or some other local government body imposes them. This applies to all the real estate you own—this deduction is not limited to just your primary and secondary homes, as is the home mortgage deduction. Only the person who owns the property can claim the deduction.

The Closing Costs Deduction
When you buy a home, or refinance an existing one, there are generally a number of closing costs, including attorney’s fees, recording fees, title search fees, document preparation and processing fees, as well as points. Points are fees charged by your lender when you take a loan secured by your home. Each point is one percent of the amount borrowed. Generally, you could deduct points as mortgage interest but you’d have to spread your deduction out over the entire life of the loan. If you itemize deductions on your tax return, you can deduct points in the year you buy your principal home, provided you meet certain requirements (these requirements are listed in IRS Publication 936). You can even deduct points that the seller pays for you.

Other non-deductible closing costs that can be added to the tax basis of your home include attorney’s fees, abstract fees, charges for installing utility services, recording fees, title search fees, document preparation and processing fees. For more information, see IRS Publication 530 Tax Information for First-Time Homeowners available online at http://www.irs.gov or at your local IRS office.

The Home Office Deduction
You may be able to claim a deduction for certain home expenses if you use a part of your home for business. Even if you don’t qualify for a home office deduction, you may be able to deduct certain business expenses, such as office supplies, postage, or the cost of adding a second telephone line. You may also be able to depreciate the cost of computers and other business machines as well as office furniture you use at home. The requirements for the home office deduction are fairly strict, and the calculations fairly complicated—see IRS Form 8829 Expenses for Business Use of Your Home and the Instructions for Form 8829 available online at http://www.irs.gov or at your local IRS office.

The Tax Treatment When You Sell Your Home
If you’re lucky enough to sell your home for more than you paid for it, you may be able to exclude the gain from federal income taxes. You can exclude up to $500,000 of gain if you are married, file a joint tax return, and the home was your principal residence for at least two out of the last five years preceding the sale. If you’re not married or file a separate return, you may exclude up to $250,000 of gain. For example, let’s say you and your spouse bought your house five years ago for $100,000 and are selling it today for $300,000. Your entire gain of $200,000 ($300,000 – $100,000) is excludable, which means you don’t have to report it on your income tax return. This exclusion can be used every two years. In certain situations, you may be able to prorate exclusion of the gain if it occurs within two years of a previous capital gain exclusion if the sale of your home was due to a change in place of employment, health reasons, or other unforeseen circumstances. If you sell your principal residence at a loss, you generally cannot deduct the loss on your tax return. For more information, see IRS Publication 523 Selling Your Home available online at http://www.irs.gov or at your local IRS office.

The tax benefits associated with buying a home, selling a home, and all the time in between truly make home ownership a taxpayer’s dream. Consult your tax professional to make sure you take advantage of all the tax benefits you’re entitled to.

For more info, visit the buyer’s center at http://www.JosephCapote.com

Pilfered from IRS.gov – http://www.irs.gov

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September 17, 2009 • 9:45 am 0

Common Closing Costs for Home Buyers

I got asked this question over the weekend, I thought this might be helpful.

You’ll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for:

• Down payment
• Loan origination
• Points, or loan discount fees, which you pay to receive a lower interest rate
• Home inspection
• Appraisal
• Credit report
• Private mortgage insurance premium
• Insurance escrow for homeowner’s insurance, if being paid as part of the mortgage
• Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
• Deed recording
• Title insurance policy premiums
• Land survey
• Notary fees
• Prorations for your share of costs, such as utility bills and property taxes

A Note About Prorations: Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first five days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.

For more information, visit my Buyer’s Center at http://www.JosephCapote.com.

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September 16, 2009 • 9:45 am 0

What You Can Do to Improve Your Credit

When I’m working with first time homebuyers, I often meet folks who have had credit issues in the past. Here is a quick list of what future homeowners can do to improve their credit.

Credit scores, along with your overall income and debt, are big factors in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:

1. Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.

2. Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.

3. Don’t charge your credit cards to the maximum limit.

4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.

5. Don’t order items for your new home on credit — such as appliances and furniture — until after the loan is approved. The amounts will add to your debt.

6. Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.

7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

For more information, visit the buyer’s center on my website, www.JosephCapote.com

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation.

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September 15, 2009 • 3:53 pm 0

Why Choose FHA?

I know that I have written about FHA loans before. This post aims to be a lot less long-winded and more straight to the point. So why should you, Mr./Ms. potential borrower/first time homebuyers, choose an FHA loan?

  • FHA loan limits for a 1 unit property are $625,500
  • Minimum FICO score of 580
  • Permits non-occupying co-borrowers
  • 3.5% down payment can be a gift
  • 6% seller credit for non-recurring closing costs

What does this mean? Say you are a first time homebuyer and want to purchase a home, but your credit isn’t the best and/or you have little money for downpayment closing costs. The FHA can give you hope. Take the following scenario:

You want to buy a cherry, 1br/1ba condo with a pool/jacuzzi in a desirable mid-peninsula neighborhood.

  • Purchase Price: $348,000
  • 3.5% Down Payment $12180
  • Closing Costs estimated at $8000
  • Total cash required at closing: ~$20,000

Now, if you ask the seller to credit back the closing costs (the purchase price is now $356,000, and the seller pays for your non-recurring closing costs, allowing you to finance them as part of the loan) your cash to closing in $12,180. Now, if you have a rich uncle who is willing to gift you the 3.5% downpayment, (thanks, unc) your cash to closing is $0.00.  Additonally, the first time homebuyer tax credit ($8,000) and the Mortgage Protection Program are available to help.

Think you can’t afford to own a home, think again. The rates are low, there are right priced homes available (be flexible) and you can qualify for FHA loan with a 3.5% downpayment. For more information, visit my website at www.JosephCapote.com

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September 15, 2009 • 10:42 am 0

Take the Stress Out of Homebuying

When it comes to real estate, there is a lot to know and a lot to think about. It’s no wonder that buying or selling real estate can be an extremely stressful situation, for many reasons. Here are some tips to keep the stress level down, and keep the buying/selling process as comfortable as possible.

Buying a home should be fun, not stressful. As you look for your dream home, keep in mind these tips for making the process as peaceful as possible.

1. Find a real estate agent who you connect with. Home buying is not only a big financial commitment, but also an emotional one. It’s critical that the REALTOR® you chose is both highly skilled and a good fit with your personality.

2. Remember, there’s no “right” time to buy, just as there’s no perfect time to sell. If you find a home now, don’t try to second-guess interest rates or the housing market by waiting longer — you risk losing out on the home of your dreams. The housing market usually doesn’t change fast enough to make that much difference in price, and a good home won’t stay on the market long.

3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas from too many people will make it much harder to make a decision. Focus on the wants and needs of your immediate family — the people who will be living in the home.

4. Accept that no house is ever perfect. If it’s in the right location, the yard may be a bit smaller than you had hoped. The kitchen may be perfect, but the roof needs repair. Make a list of your top priorities and focus in on things that are most important to you. Let the minor ones go.

5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price or by refusing to budge on your offer may cost you the home you love. Negotiation is give and take.

6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself — room size, kitchen, etc. — that you forget about important issues as noise level, location to amenities, and other aspects that also have a big impact on your quality of life.

7. Plan ahead. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate home insurance, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.

8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be costs. Don’t leave yourself short and let your home deteriorate.

9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big financial commitment. But it also yields big benefits. Don’t lose sight of why you wanted to buy a home and what made you fall in love with the property you purchased.

10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is to serve as a comfortable, safe place to live.

Finally, my personal favorite, eat lots of M+M’s. These really do a lot to soothe any stress associated with buying or selling real estate. Chocolate or Peanut (or even Almond) is a personal decision, of course!

For more information, check out my website at http://www.JosephCapote.com.

Filed under: Buyer's Blog, Seller's Blog, , ,

September 14, 2009 • 7:25 pm 0

Tax Benefits of Homeownership

As a Realtor, I sometimes take it for granted that folks know and understand the tax benefits of homeownership. While many buyers do know and understand this, some folks haven’t heard that home ownership can be a tax benefit. Additionally, even those that know about the tax benefits may not understand exactly how the tax benefit can apply to them. Here is a simple breakdown that will hopefully give potential home buyers a better understanding of the tax savings possible through home ownership.

The tax deductions you’re eligible to take for mortgage interest and property taxes greatly increases the financial benefits of homeownership. Here’s how it works.

Assume:
$9,877 = Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)
$2,700 = Property taxes (at 1.5 percent on $180,000 assessed value)
______

$12,577 = Total deduction

Then, multiply your total deduction by your tax rate.
For example, at a 28 percent tax rate: 12,577 x 0.28 = $3,521.56
$3,521.56 = Amount you have lowered your federal income tax (at 28 percent tax rate)

Note: Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.

For salaried employees that make good money and pay a lot of taxes, home ownership is a good way to offeset the taxes they pay every year. Tax savings is one of the many benefits of home ownership. For more on how home ownership can benefit you, visit the buyer’s library on my website at http://www.JosephCapote.com.

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September 11, 2009 • 7:15 pm 0

The Mortgage Protection Program

On April 2, 2009 the Housing Affordability Fund launched a new program designed to provide peace of mind to first-time buyers who are hesitant to enter the housing market due to concerns about potential job loss, and subsequently being unable to meet their monthly mortgage obligations. Qualifying buyers can receive up to $1,500 a month for up to six months in the event of job loss, a qualified co-buyer can also receive a $750 benefit for up to six months to help pay the mortgage.

To qualify for the Mortgage Protection Program, Applicants must:

. · Be a first-time home buyer – someone who has not owned
property in the last three years (includes co-buyer).
· Open escrow April 2, 2009, or later, and close on or before
Dec. 31, 2009 (purchase agreement cannot be dated before April 2, 2009)
· Use a California REALTOR® in the transaction
· Purchase the property in California
· Be a W-2 employee (cannot be self-employed)

As always, there are some strings attached, but overall a good program for first time homebuyers. The demand in California is really high righ now. For more information, visit my wesite at http://www.JosephCapote.com or contact me at JCapote@FrancoRealEstateGroup.com

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September 11, 2009 • 4:48 pm 0

10 Questions to Ask Your Lender

There are a lot of factors to consider when buying a home. One thing that often gets lost in the shuffle of the home search is the mortgage loan. Obtaining home financing is sometimes treated as an afterthought despite the fact it is a time consuming and complex process. As any Realtor can tell you, mortgage loan pre-approval is an essential first step in the homebuying process. Working with a loan agent you can trust (and that works well with your Realtor) is a key component to a successful home search. Here is a simple and quick list of questions to ask potential lenders when you meet them.

1. What are the most popular mortgages you offer? Why are they so popular?
2. Which type of mortgage plan do you think would be best for me? Why?
3. Are your rates, terms, fees, and closing costs negotiable?
4. Will I have to buy private mortgage insurance? If so, how much will it cost, and how long will it be required? (NOTE: Private mortgage insurance is usually required if your down payment is less than 20 percent. However, most lenders will let you discontinue PMI when you’ve acquired a certain amount of equity by paying down the loan.)
5. Who will service the loan — your bank or another company?
6. What escrow requirements do you have?
7. How long will this loan be in a lock-in period (in other words, the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if it drops during this period?
8. How long will the loan approval process take?
9. How long will it take to close the loan?
10. Are there any charges or penalties for prepaying the loan?

In a purchase transaction, #9 is important as the purchase offer written by the buyer and Realtor is contigent upon financing within a specified time. #5 is a bit of a loaded question since some lenders sell their loans on the secondary market for fun and profit, meaning that who you make the payment to today may differ from that of tomorrow. #4 is important as it is a additonal monthly payment and part of the loan qualification process.

For more information, please visit my buyer’s library at http://www.JosephCapote.com. Feel free to ask any additional questions by contacting me directly.

Used with permission from Real Estate Checklists & Systems, http://www.realestatechecklists.com.

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September 10, 2009 • 5:00 pm 0

Lender Checklist: What Documents Do You Need to Apply for a Home Loan?

Here is a handy and simple checklist that I supply my buyer’s with when they are applying for a home loan. Preparing this information up front makes the process much smoother.

□ W-2 forms — or business tax return forms if you’re self-employed — for the last two or three years for every person signing the loan.

□ Copies of at least one pay stub for each person signing the loan.

□ Account numbers of all your credit cards and the amounts for any outstanding balances.

□ Copies of two to four months of bank or credit union statements for both checking and savings accounts.

□ Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.

□ Addresses where you’ve lived for the last five to seven years, with names of landlords if appropriate.

□ Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.

□ Copies of your most recent 401(k) or other retirement account statement.

□ Documentation to verify additional income, such as child support or a pension.

□ Copies of personal tax forms for the last two to three years.

For more info, visit my Buyer’s Center HERE, at http://www.JosephCapote.com

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September 9, 2009 • 5:03 pm 0

What’s a Home Warranty?

A home warranty is a service contract, normally for one year, which helps protect home owners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear. Coverage is for systems and appliances in good working order at the start of the contract. 

Check your home warranty policy to see which of the following items are covered. Also find out if the policy covers the full replacement cost of an item.

  • Plumbing
  • Electrical systems
  • Furnace
  • Water heater
  • Heating ducts
  • Water pump
  • Dishwasher
  • Garbage disposal
  • Stove/cooktop/ovens
  • Microwave
  • Refrigerator
  • Washer/dryer
  • Swimming pool (may be optional)

Ask me about home warranties as part of your purchase of a new home. Find out more in my buyer’s center at www.JosephCapote.com

 Source: American Home Shield, www.ahswarranty.com, REALTOR® Benefits Partner

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