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One of the drawbacks to low mortgage rates is that the total interest and property taxes paid for the year may be lower than the standard deduction. A little planning might be able to help you at least every other year.
Most homeowners know they can deduct their qualified mortgage interest and property taxes on their Schedule A of their 1040 tax return or to take the standard deduction if it is greater. See Your Deduction…Your Choice.
Deductions are taken in the year that they’re actually paid. If a homeowner paid their 2012 property taxes in 2013, they would not be deductible on their 2012 tax return. Then, if the 2013 property taxes were paid in 2013, both the 2012 and 2013 taxes could be deducted on the 2013 Schedule A.
By delaying the payment of the 2012 taxes until 2013, the combination of the 2012 and 2013 taxes might exceed the 2013 standard deduction and provide a higher deduction.
Other Schedule A expenses such as charitable contributions and medical expenses may be bunched also. From a practical standpoint, since most mortgage payments are due monthly, the mortgage interest would not be bunched.
This information should be discussed with your tax advisor to see how it might apply to your individual situation. The key is you must be aware of the strategy early to be able to use it.
Pre-paying your mortgage can save thousands in interest and build equity in your home. As cheap as mortgage rates are currently, they’re higher than you can earn on your savings. If you don’t need the money any time soon, pre-paying the mortgage can be the better investment.
If you have a FHA loan, pre-paying the mortgage can also benefit you by eliminating the annual mortgage insurance premium early. For example, if a person bought a home for $175,000 with a 3.5% down payment on a 4% FHA loan, the monthly mortgage insurance would be $178.99.
It would take 116 months or over 9.5 years to reduce the principal enough to cancel the MIP. If the borrower would make additional principal contributions of $285.32 per month, the MIP would not be required after five years. Beginning June 3, 2013, mortgage insurance on FHA loans will be required for the life of the mortgage.
The elimination of MIP would lower payments or a buyer could continue making the higher payments to reduce the principal and retire the loan sooner.
FHA mortgages with terms longer than 15 years, the MIP can be cancelled when the loan-to-value reaches 78% after a minimum of five years. With normal amortization, that would take about 10-12 years.
Another alternative to eliminate the MIP is to refinance the home with a conventional loan. If the loan-to-value is less than 80%, the MIP would no longer be required and a lower interest rate may be available.
Some people refer to the heating and air conditioning systems as the “comfort systems.” If you’ve ever had to be without one in the dead of winter or the heat of summer, lack of comfort may be an understatement. Simple maintenance with a HVAC checklist is something that every homeowner can perform.
- Change your filter every 90 days; every 30 days if you have shedding pets.
- Maintain at least two feet of clearance around outdoor air conditioning units and heat pumps.
- Don’t allow leaves, grass clippings, lint or other things to block circulation of coils.
- Inspect insulation on refrigerant lines leading into house monthly and replace if missing or damaged.
Annual, in spring
- Confirm that outdoor air conditioning units and heat pumps are on level pads.
- Pour bleach in the air conditioner’s condensation drain to clear mold and algae which can cause a clog.
- Avoid closing more than 20% of a home’s registers to keep from overworking the system.
- Replace the battery in the home’s carbon monoxide detector.
Even with the attention that perfoming this list will provide, it is recommended that you have your units serviced annually by a licensed contractor. Furnaces can be inspected for carbon monoxide leaks and preventative maintenance may help avoid costly repairs. Click Here if you’d like a recommendation.
Taxpayers are allowed to decide each year whether to take the standard deduction or to itemize their deduction when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.
The 2012 standard deduction, available to all taxpayers, regardless of whether they own a home, is $11,900 for married filing jointly and $5,950 for single taxpayers.
Let’s look at an example of a homeowner couple with a $150,000 mortgage at 3.5%. The standard deduction would give them $2,650 more than the total of their interest paid and property taxes of approximately $9,250. If they were in the 28% tax bracket, the actual tax savings would be $742.00.
When mortgage rates were considerably higher, many people expected the interest and property taxes to easily exceed the standard deduction but with today’s low rates, a comparison is certainly justified.
There are other things that could come into consideration like charitable contributions, medical expenses and casualty losses. Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most.
For more information, see www.IRS.gov and consult a tax advisor.
Low inventory is a relative term depending on how you’re comparing it. Would the comparison be to total number of homes on the market last year, homes in a certain price range or homes in a certain area? In some situations, it’s a combination of all of those things.
In any given market, inventories will fluctuate based on area and price range. The National Association of REALTORS® considers a balanced market to be six months’ supply of homes. If it takes longer than six months to sell, it is thought to be a buyer’s market and less than six months, a seller’s market. Most buyers and sellers probably feel inventory equilibrium is more like three month’s supply of homes.
Inventory has a direct impact on price. During the housing bubble, demand decreased, supply ballooned to four million houses and prices dropped dramatically. Increased inventories due to foreclosures, bank’ revised lending practices and builder’s lack of new housing starts each contributed to the dramatically lower prices.
As the market has recovered, economic conditions have improved, banks have loosened their requirements, interest rates have remained low, foreclosures have slowed and gradually, the inventory has been reduced to approximately two million houses. When demand is constant but inventory is reduced, price tends to increase because the same number of people are trying to buy a smaller than normal number of homes.
Based on the low mortgage rates that have been inching up each week in 2013 and an improving consumer confidence level, most markets are experiencing some increase in demand. With inventory decreasing, buyers in the marketplace can see that prices are increasing.
Just as signs of spring can be seen to be just around the corner, it should be recognized what direction prices will be moving. Hindsight is 20/20 but we can’t purchase or sell in the past. We need to make decisions today on what we think will happen in the future.
If you’re curious to know what inventory conditions are for your specific market, send me an email with the price range and area and I’ll send you a report. Vivian@VivianDaywood.com
We’re constantly bombarded by lenders to refinance our mortgage under a variety of programs. The volume of offers can almost make you numb to the rational consideration.
There are common rules of thumbs that homeowners and agents use such as not refinancing more often than every two years or there must be at least 2% savings from your previous mortgage rate may not always be accurate.
The reality is that if you can refinance for a lower rate and you’ll be in the home long enough to recapture the cost of refinancing, it should be considered. The costs of previous refinancing that haven’t been recaptured by monthly savings may need to be added to the costs of the new refinance.
Take a look at the chart that shows the average rates according to Freddie Mac for 2012. They are lower today than they were in January of 2012 and for the ten years before that.
Refinancing may save you a substantial amount of money, especially if you’re going to be in your home for a long time. It is definitely worth investigating. To get a quick idea of what your savings could be, use this refinancing calculator.
If it shows better, it will probably sell faster and maybe for more money. Once your home is on the market, it’s time to look at it like a commodity and through the eyes of potential buyers. In all likelihood, you’ll need to take care of these items eventually, so do them now to help it sell sooner.
- Make repairs – it doesn’t matter if it’s been that way since you bought it. You need to fix it so that the buyer doesn’t think that the rest of the house is about to fall apart.
- Not too personal – you may have bought your home to express yourself but if the buyer can’t see themselves in the home for all of your things, it’s going to take longer to sell than you want.
- Drive-up appeal – the old saying “you never get a second chance at a first impression” applies to your home too. They may never even get out of the car to come inside.
- The nose knows – it may not smell like home but it shouldn’t smell like a place they would never consider living.
- Neutral colors, decor, etc. – these are not decorating tips you’ll see in magazines but the truth is that bold colors and designs are difficult for most people to see beyond. They’ll imagine their things better in neutral surroundings.
- Less looks like more – removing some of the non-essential things from your home will eliminate clutter and make the home feel larger. The same suggestion applies to cabinets and closets.
The 3.5% down payment on FHA loans could be more expensive for buyers than expected. Beginning April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35% which may not even be noticeable to most would-be homeowners.
The staggering increase will occur on 6/3/2013 when FHA’s policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP if the loan is paid to term.
Example: Purchase Price $175,000
78% of original loan
Life of mortgage
Currently, the MIP is required for approximately 9 years 9 months with normal amortization. The new program would require the MIP for the life of the loan. In this example, the initial monthly MIP is $196.88 which decreases based on amortization.
There are buyers that qualify on income and credit who may not have the necessary additional down payment required for 80% and 90% conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.
For homeowners that expect to stay in their home for ten years or less, the new changes might not have much financial impact. Homeowners who expect to be in their home long term can refinance with a conventional loan without mortgage insurance once the equity has increased due to amortization and appreciation.
For buyers to avoid these increases, they will need to act now to get the FHA commitment issued prior to these change dates.
The last thing you want to do while you’re on a trip is to worry about someone burglarizing your home. Use this checklist to add some peace of mind to your travel plans.
- Ask a trusted friend – to pick up your mail and newspaper and keep the yard free of trash and advertisements.
- Stop your mail but maybe not your newspaper – you can easily handle this online by going to the US Postal Service’s Hold Mail Service. A recent story implicated an employee from a major newspaper who was passing customer hold requests to burglars.
- Don’t post about your trip on Facebook and Twitter until you return – some burglars actually look for this type of announcement to schedule their activities.
- Do notify police and/or neighborhood watch – especially if you’re going to be gone for more than just a few days. Let your monitoring service know when you’ll be gone and if someone will be checking on your home for you.
- Light timers make it look like someone is home – use several set for different times to better simulate someone at home.
- Do unplug certain appliances – TVs, computers, toaster ovens that use electricity even when they’re off and to protect them from power surges.
- Don’t hide a key – burglars know exactly where to look for your key and it only takes them a moment to check under the mat, above the door, in the flower pot or in a fake rock.
These easy-to-handle suggestions may protect your belongings while you’re gone while adding a level of serenity to your trip.