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With Tax Time Coming Don’t Overlook Tax Breaks Associated With Mortgages
Most real estate owners who have taken out a primary mortgage probably already know of the tax advantage provided by deducting your mortgage interest payments. However, many primary home real estate owners overlook another tax break available for points paid to get a home loan. In some cases, points also could shave tax bills for folks who refinanced or got an equity loan or line of credit. Every mortgage point is one percent of the loan amount. Lenders charge points as a way to make a profit, and borrowers generally pay points in exchange for lower mortgage rates. If you obtained a primary home loan, not only in Arizona, in the past year and paid points, the amount should be listed on the 1098 year end statement from your lender. This document also notes how much mortgage interest you paid. Both of these deductible amounts go on line 10 of Schedule A (If the points aren’t on that statement, but show up elsewhere — for example, on your closing documents — enter them on line 12. Check the Schedule A Instructions for details.) On a conventional mortgage points may be paid by either buyer or seller or split between them. Even if the seller pays all the points, the buyer gets the deduction. Exactly how much of one and when depends on the loan circumstances. Remember, always consult your CPA with questions and concerns.
Loan points are fully deductible in the year paid if they meet ALL of these requirements:
1. The loan is secured by your main home, the house you live in most of the time.
2. Paying points is an established business practice in your area.
3. The points are generally what is charged in your region.
4. You use the cash method of accounting: You report income in the year you receive it and deduct expenses in the year you pay them. Most individuals do this.
5. The points are not paid in place of amounts ordinarily stated separately on the settlement sheet. That is, you cannot pay points in exchange for lower or no appraisal fees, inspection fees, title fees, attorney fees and property taxes.
6. The funds you come up with at or before closing, plus any points the seller pays, must be at least as much as the points charged. The money does not have to apply just to the points. It can include a down payment, escrow deposit or earnest money. But it all must come to at least as much as the points. For example, you took out a $100,000 mortgage and were charged $1,000 (one point). However, your lender only required a $750 down payment. In this case, you cannot deduct the full $1,000 points payment, only $750 of it. The remaining $250 must be deducted over the life of the loan. And you cannot have borrowed any of the money you paid at closing from your lender or mortgage broker.
7. The loan is used to buy or build your main home.
8. The points are computed as a percentage of your mortgage’s principal amount.
9. The amount is clearly shown on the settlement statement as points charged for the mortgage. The points may be shown as paid from either buyer or seller funds.
THE TOP 10 CREDIT DON’TS DURING THE LOAN PROCESS
1. DON’T DO ANYTHING THAT WILL CAUSE A RED FLAG TO BE RAISED BY THE SCORING SYSTEM. This would include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
2. DON’T APPLY FOR NEW CREDIT OF ANY KIND. Including those “You have been pre-approved” credit card invitations that you receive in the mail or online. Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately. Depending on the elements in your current credit report, you could lose anywhere from one to 20 points for one hard inquiry.
3. DON’T PAY OFF COLLECTIONS OR CHARGE OFFS during the loan process. Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through escrow – at closing.
4. DON’T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. This is the fastest way to bring your scores down 50-100 points immediately. Try to keep your credit card balances below 30% of their available limit at ALL times during the loan process. If you decide to pay down balances, do it across the board. Meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all to 30% of the limit, or all to 40% etc.)
5. DON’T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do, however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above in 4. If you want to save money on credit card interest rates, wait until after closing.
6. DON’T CLOSE CREDIT CARD ACCOUNTS. If you close a credit card account, you will lose available credit, and it will appear to the FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you HAVE to close a credit card account, do it after closing.
7. DON’T PAY LATE. Stay current on existing accounts. Under the new FICO scoring model, one 30-day late can cost you anywhere from 50-100 points, and points lost for late pays take several months if not years to recover.
8. DON’T ALLOW ANY ACCOUNTS TO RUN PAST DUE –EVEN 1 DAY! Most cards offer a grace period, however, what they don’t tell you is that once the due date passes, that account will show a past due amount on your credit report. Past due balances can also drop scores by 50+ points.
9. DON’T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When you send a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removed and new credit scores are pulled.
10. DON’T LOSE CONTACT WITH YOUR MORTGAGE & REAL ESTATE PROFESSIONALS. If you have a question about whether or not you should take a specific action that you believe may affect your credit reports or scores during the loan process, your mortgage or real estate professional may be able to supply you with the resources You need.
Fannie Mae Launches Revised Home Foreclosure Options Website
Recently, Fannie Mae, the government mortgage giant, created new website targeted to homeowners facing foreclosure. The new website that was launched can be found at http://www.KnowYourOptions.com and features information on different potential options for homeowners struggling to stay in their homes.
Most notably the new website, adds an interactive element that allows users to navigate through various home retention or foreclosure scenarios, with live action videos of actors playing out the situations that could potentially occur.
Distressed homeowners can choose to go down a number of different paths. Should you stop making payments on your mortgage? Do you answer the phone when the mortgage lender calls? Should you call the company that sent you a letter claiming to be able to save your home? Each decision leads to a different video showing the consequences.
This interactive feature is called WaysHome and is an effort to guide struggling homeowners to short- and long-term solutions, according to Fannie Mae.
This is another tool to prevent information to a large issue in the housing market that still has a long way to go and that is, the large number of foreclosures in the current marketplace. While increased awareness and education is always a good thing in an uncertain market and while this does take a creative spin on recent efforts, we will wait to see what if any impact this latest web feature accomplishes.
Wow! Who knew the bank would be able to take out an insurance policy on your second mortgage without you ever even knowing about it. Yes, I am dealing with this situation right now and it is going to prevent the short sale from successfully closing. We didn’t even find out about the policy until we almost had a short sale approval letter in hand and then we got the news. Not so good! The mortgage insurance company is demanding that the home owner/seller come in to closing with a substantial cash contribution or they will not approve the short sale. The owner/seller does not have the cash so the mortgage insurance company will not approve. Now the homeowner will have the foreclosure on their credit. In actuality, he took out the second mortgage, at a higher interest rate, to AVOID mortgage insurance and it ended up kicking him in the pants anyway!
Questions your REALTOR® will ask if you are thinking about a Short Sale:
1. What type of loan did you purchase your home with?
2. Do you have more than one mortgage?
3. Do you have mortgage insurance?
4. Is your loan conventional or FHA?
5. Have you refinanced?
6. How much do you owe on your loan(s)?
7. Who have you spoken to with regard to your options? Your attorney? Your CPA?
8. Do you have other debt?
9. Do you own other assets?
10. Are you current on your mortgage? HOA? Taxes?
11. Are there any other liens on your property other than your mortgage(s)?
12. Do you have cash to possibly contribute to closing?
13. Would you be willing to sign a promissory note?
14. Is your home a primary residence or investment property?
15. Have you tried to modify your loan?
These are just a few questions to have answers to before you call a professional to get your options. Please know that I am here for you any time you have questions or need help.
Your REALTOR® In Today’s Market!
(602) 510-5554 Cell
(602) 325-8395 eFax
Professional Real Estate Consultant
Keller Williams Integrity First Realty
How much any action good or bad can affect your credit score really depends on your credit report as a whole. And your credit score can change daily depending on when your creditors report to the bureaus (Equifax, Experian, Trans Union). A lot of consumers are under the assumption that credit scores only change once a month but the truth is that since different creditors report at different times of the month your scores can change with any new reporting.
According to Fair Isaac here is how some common credit mistakes could affectyour credit score:
•Maxed out credit card – if your credit score is 680 this could drop your score 10-30 points. If your credit score is 780 it could drop your score 25-45 points. This is per credit card and a maxed out card is any card where the balance is at 80% of it’s credit limit.
•30-day late payment – at 680 it could drop your score 60-80 points. At 780 it could drop 90-110 points.
•Debt settlement – at 680 your score could drop 45-65 points. At 780 it could drop 105-125 points.
•Foreclosure – at 680 it could drop 85-105 points. At 780 it could drop 140-160 points.
•Bankruptcy – at 680 it could drop 130-150 points. At 780 it could drop 220-240 points.
Again, how much your scores will be affected by any action depends on the overall content of your credit report. So these numbers are not necessarily set in stone, but they give us a better idea of what might happen if these actions occur. A person with several current late payments will take less of a hit by acquiring another late payment then a person with no late payments to begin with. Just as a person with several maxed out credit cards will take less of a hit for having one more maxed out card then a person who suddenly has one maxed out card show up on their report. Maintaining a good credit score (720+) is not really difficult as long as certain guidelines are followed:
• Keep your revolving balances below 30% of the high credit
• Pay your bills on time (or early)
• Avoid opening new credit (unless you have to)
• Dont close old accounts (keep them open and use them occasionally)
Credit scoring models are still shrouded in a lot of mystery but at least this is a start into answering some of the more common consumer questions. The more questions we ask the more FICO may continue to open up.
Please call me anytime with any additional questions that you may have!
Okay, here’s the scoop. We moved last weekend and were told by our neighbors that we HAD to go to Home Depot and buy “Contractor Clean Up Bags” to move with. Wow! How great was it to throw everything in a bag and go. You can literally put the contents of your silverware drawer, board games, all of your cleaning solution bottles and hard cover books all into one bag. If it is too heavy, drag it Contractors put rebar, cement, nails, screws and much more and they don’t break. Crazy! Much quicker, easier and cheaper than moving boxes. They cost around $8 a box and come in a box of 32. Don’t move again without them!
Wow, you have just spent the last 6 months working diligently with your lien holders to solidify a permanent loan modification. The bank has told you that if you make 6 consecutive payments, on time, that they will grant you a change in your mortgage terms. They have even been so nice as to make those 6 payments half of what your original payment is supposed to be. It has probably been a little frustrating along the way, getting someone on the phone after a long wait, to finally offer a solution but it seems to have paid off. SUPER JOB! Then…… the sixth payment is made, full and on time, and you await eagerly for the paperwork to come in so that you can breathe a little easier. After all, you fulfilled your part of the bargain. Then the truth comes out. The bank NEVER intended to permanently modify your loan terms. Please find a few necessary steps below to help you and call or email anytime with any questions that you may have. Your AZ Short Sale Realtor
1. Keep a notebook log of every single phone call you have with the bank.
2. Write the date, time of call, who you spoke to, what the conversation consisted of, and every promise you are made.
3. Ask them to put every thing in writing (sometimes they will but most of the time they will not, ask anyway).
4. Make sure, before you make any payments, that they put all of the terms of the “temporary modification” in writing.
5. Consult with an attorney and let the bank know that you have spoken with an attorney and that you know your rights.
6. Consult with a realtor that specializes in distressed market situations for all of your options.
Keller Williams Integrity First Realty
Arrowhead Ranch features two gorgeous Arizona golf courses, one course is public and one course is private. There are also many other beautiful and challenging courses that are nearby and just waiting to test your handicap.
The Legend at Arrowhead Ranch
- Par 72
- 7,000+ yards
- Slope 131
Designed by Arnold Palmer and Ed Seay, the Legends of Arrowhead offers a challenging layout while also providing spectacular views of the Hedgpeth Hills and Arrowhead Ranch.
The course has played host to numerous local and prep tournament events through the years. All but one of its 18 holes have sand bunkers either along the fairways or next to the greens, and the signature 5th starts with an elevated tee box and requires quality first and second shots with water down the right side of the fairway and alongside the green.
A new clubhouse was built on-site in 2002.
Arrowhead Country Club
- Par 72
- 7,000+ yards
- Slope 124
Like The Legend, the Arrowhead Country Club was designed by Arnold Palmer. An Arrowhead Country Club membership or reciprocal club membership is required to play this par 72, 7000-plus square foot course.
Other nearby courses
Several other golf courses are in close proximity to the Arrowhead area, ranging from full par-72, 18-hole designs to smaller, executive courses:
- Bellair Golf Club, Glendale
- The 500 Club at Adobe Dam, Glendale
- Glen Lakes Golf Course, Glendale
- Desert Mirage Golf Course, Glendale
- Country Meadows Golf Club, Peoria
- Coyote Ridge Golf Club, Peoria
- Anthem Golf and Country Club, Anthem
Arrowhead Ranch & Fletcher Heights Specialist
As your Arrowhead Ranch & Fletcher Heights neighborhood specialist I look forward to assisting you with your real estate needs in the following areas: The Vistas at Arrowhead Ranch, Estates at Arrowhead, Arrowhead Manor Estates, Arrowhead Lakes, Arrowhead Estates, Hamilton Arrowhead Ranch & Arrowhead Valley. I specialize in residential sales, short sales and foreclosures and look forward to helping you with all of your real estate needs. Please give me a call today or click on the top right button labeled “Buying or Selling Questions”.