Is the Window Closing?

With interest rates lower than they’ve been in over 40 years, it may be difficult to think of a “window of opportunity” closing.  However, it isn’t difficult to understand that it may very probably cost more to live in a home in the near future due to rising interest rates and prices.

Zillow recently reported results from a nationwide study that home values are expected to appreciate by 4.5% through the end of the year.  Coupled with Freddie Mac’s projection that rates are going up, the cost of housing for buyers by the end of the year will be higher than it is now.

While uncertainty of the future can stagnate some people, the fear of loss can be much more devastating when a person realizes that the amount they pay to live and enjoy a home could have been considerably lower had they acted when prices and mortgage rates were lower.

The following example considers a $250,000 purchase today with a FHA mortgage compared to what it might be at the end of the year with a higher price and interest rate as discussed earlier.  The net effect is that it will cost $191.87 more each month to live in the very same home based on the cost of waiting to buy.

To see what the cost might be for your price range, use this Cost of Waiting to Buy spreadsheet.

Looking for the Largest Deduction

IRS allows taxpayers the option to take the standard deduction or the itemized deduction.  The astute taxpayer will compare to see which one will result in the greatest deduction and the election can be made each year.

The 2013 standard deduction for a married couple filing jointly is $12,200 and $6,100 for a single taxpayer.  It doesn’t require any proof of actual expense and has no requirement for home ownership.

Items that can be included on Schedule A for itemized deductions include: 

• Certain taxes paid for state and local income tax, general sales tax, real estate property taxes, personal property taxes or other taxes paid
• Qualified home mortgage interest, investment interest or possibly, mortgage insurance premiums
• Charitable contributions
• Casualty or theft losses
• Medical and dental expenses that exceed 7.5% of adjusted gross income if born before 1/2/49 or 10% if born after 1/2/49
• Job expenses and other miscellaneous deductions that exceed 2% of adjusted gross income

A non-homeowner taxpayer who has been taking the standard deduction needs to consider that it isn’t just the ability to deduct the mortgage interest and property taxes.

While the standard deduction might be the obvious choice for a non-homeowner, the combination of the mortgage interest and the property taxes plus other allowable deductions not recognized previously such as charitable contributions, now makes taking the itemized deductions significantly more advantageous.

What's the Point?

Prepaid interest, sometimes called “points”, is generally tax deductible when a person pays them in connection with buying, building or improving their principal residence.  When points are paid on a refinance, they are not a current deduction but have to be taken prorata over the life of the mortgage.

For instance, if $3,000 in points were paid on refinancing a 30 year mortgage, a deduction of $100 per year is allowed.  When the loan is paid off or replaced by refinancing again or the home is sold and the mortgage paid off from the proceeds, the balance of any un-deducted points may be taken in that tax year.

Your tax professional needs to be made aware of any of these situations so that he or she can accurately reflect the deductions in your return.  Currently, the most common situation is homeowners may be refinancing their home for the second, third or even, fourth time. If there are points that have not been completely deducted, they need to be treated in the year of refinancing.

For more information, see points in IRS Publication 936; there is a section on Refinancing in this publication. For advice considering your specific situation, contact your tax professional.

Onwing x Renting...making an important decision

A Home is More Than an Address

A home is a place to call your own, raise your family, share with your friends and feel safe and secure. It is also one of the largest investments most people have.
Leverage is the ability to control a larger asset with a smaller amount of cash through the use of borrowed funds. It has been described as using other people’s money to increase your yield and it applies to homeowners and investors alike. Positive leverage causes the yield to increase as the loan-to-value increases.
Even a modest amount of appreciation combined with the amortization of a loan can cause a substantial rate of return on the down payment and closing costs.
Homes build equity as the price goes up due to appreciation and the unpaid balance goes down due to amortization.







The example above indicates the yield on a home considering 3% acquisition costs on the home with a 4.5% mortgage rate and the resulting equity at the end of five years. The different down payments will affect the yield based on the leverage effect.
Whether you rent or buy the home you live in, you pay for what you occupy. The question a person is faced with is whether they are going to buy it for themselves or their landlord. Take a look at the cost of Renting vs. Owning.

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Are you a First Time Home Buyer? Are you ready to sell your home? Call me today!

Luci Edwards - Bozeman MT Real Estate

Maintain Your Home Foundation

3 Tips to Maintain the Well-Being of Your Home's Foundation

When was the last time you took a close look at your home’s foundation? If you find yourself racking your brain trying to determine whether it was last spring, or two summers ago, it’s definitely been too long. From simple tasks to time-consuming projects, homeowners often don’t have the time—or the space on their to-do list—to add yet another item. However, when it comes to your home’s foundation, there’s no time like the present. 

A pro-active approach to caring for your home’s foundation is not only economical, it can also save you a lot of money—and headaches—down the road. 

1. Check the drainage around your home by ensuring that gutters and spouts drain away from the foundation.

2. While plumbing leaks under the house foundation are not uncommon, homeowners can have a plumbing pressure test done to make sure there are no leaks under the slab. 

3. The ground moisture around the home's perimeter should remain as constant as possible. Periodic use of a sprinkler system and soaker hoses in the summer time is recommended, but can also be done in the winter if the weather is dry.

If you’re pressed for time, contact a reputable foundation repair company to have an inspection conducted inside and outside the house. Most of the solutions are affordable and extremely important to the well-being of the structure. 

Source: www.premierfoundationrepair.comTips for Home Owners

Don't Do It!

You’ve seen lists telling buyers what to do to find the right home but knowing what not to do can be just as important.  After finding the right home, negotiating a contract, making a loan application and inspections, buyers, understandably, start making plans to move and put their personal touches on the home.

In today’s tenuous lending environment, little things can derail the process which isn’t over until the papers are signed at settlement and funds distributed to the seller. Verifications are made by a lender at the beginning of the loan process to determine if the buyer qualifies for the mortgage. The verifications are usually done again just prior to the closing to determine if there have been any material changes to the borrower’s credit or income that might disqualify them.

Simply stated:

1. Don’t make any new major purchases that could affect your debt-to-income ratio
2. Don’t apply, co-sign or add any new credit
3. Don’t quit your job or change jobs
4. Don’t change banks
5. Don’t open new credit accounts
6. Don’t close or consolidate credit card accounts without advice from your lender
7. Don’t buy things for your new home until after you close
8. Don’t talk to the seller without your agent

Your real estate professional and lender are working together to get you into your new home. It’s understandable to be excited about one of the biggest decisions you’ll make and that you feel you need to be getting ready for the move.

Planning is smart but don’t do anything that would affect your credit or income while you’re waiting to sign the final papers at settlement.