Posts

Showing posts from April, 2014

The Question Every Cash Buyer Should Answer

Image
Paying cash for a home seems like a huge advantage to qualifying for a mortgage and an appraisal.  However, for the fortunate few who don’t need a mortgage, there is a question they should answer before they make that decision: Do you think at any point in the future, you might put a mortgage on this property?It’s important because paying cash for a home could affect the ability to deduct the interest if the homeowner should place a mortgage on the home at a later date. Most homeowner’s know they can deduct the interest on up to $1,000,000 of acquisition debt on their principal residence but they may not understand the limitations of such debt. Acquisition debt is the amount used to buy, build or improve a person’s principal residence.  The amount is not static but changes over time.  An amortized loan reduces the principal owed with each payment made and the acquisition debt is reduced accordingly.  If a person stays in a home long enough to retire the loan, the acquisition debt is…

A Lower Payment is Your Choice

Image
94% of purchasers last year opted for a fixed-rate mortgage at some of the lowest rates in home buying history.  Yet, some of them will pay more in interest than necessary based on the time they’ll own the home.If a person only plans to be in the home a few years, the adjustable-rate can offer significant savings. Not only is the interest rate on the adjustable-rate lower than the fixed in the initial period, amortization on a lower interest rate amortizes faster than a higher interest rate. In the example shown below, a $200,000 mortgage for 30 years is compared using a 4.25% fixed-rate to a 3.25% 5/1 FHA adjustable rate.  The first five years of the ARM generates a $113.47 a month savings which accumulates to $6,808.20.  In addition, due to faster amortization on lower interest rate loans, the unpaid balance at the end of five years will be $3,001 lower on the ARM for a total savings of $9,801. Assuming the adjustable-rate mortgage was to escalate the maximum allowed at each period,…

An Exchange Means More to Reinvest

Image
Section 1031 exchange for rental and investment real estate is a tool that allows investors to move the gain from one property to another without immediate income tax consequences.  An instant benefit is to postpone the tax due which gives the investor a larger amount of proceeds to invest.  In the example shown, the investor has 21% more proceeds to invest and grow over time than if he had paid the taxes due instead of exchanging. A legitimate long-term goal might be to make qualified exchanges from one property to another until the investor dies.  The heirs would then receive a stepped-up basis on the property based on the market value at the time of the decedent’s death and possibly avoiding taxes altogether. There are specific requirements to be met in order for the exchange to qualify. For more information on exchanges, see IRS publication 544.  In addition to enlisting the services of a real estate professional familiar with investment property, seek the help of Qualified Interm…

Is the Window Closing?

Image
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 …

Looking for the Largest Deduction

Image
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 paidQualified 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-homeown…