Whether you’re buying a second home while you rent out your first home or you’ve decided to invest in a vacation home in Mammoth Lakes, the financing can look a bit different. Thinking through these four questions will help you decide if it’s the right choice for you.
1. Do you have plenty of cash reserves?
When you get into second home buying, underwriters will want to see significant cash reserves before they approve the loan. Sometimes they’ll want to see enough in reserve to cover six months of payments on both properties. And if you’re not buying with all cash, you’ll probably have to do a 25-30% down payment rather than the standard 20% for first/primary homes.
2. Is your debt-to-income ratio low?
Debt isn’t a bad thing, but most lenders will want to see a modest debt-to-income ratio — ideally between 36 and 42 percent. If the second home you’re buying will produce rental income, your chance of getting approved is higher.
3. Are you prepared to pay higher interest rates?
Second mortgages are considered more risky, so lenders tend to charge higher interest rates. Banks will also be looking at your cash reserves to see if you can pay for maintenance in addition to the new mortgage. Add in higher interest rates and your second home is likely to be quite a bit more expensive than your first home.
4. Are you ready for the additional costs?
We’re not done quite yet — there are other additional costs that come with buying a second home or vacation home in Mammoth Lakes. For insurance, you’ll probably be paying about 20% more than a primary residence if you’re renting out the property at all. If you don’t live in Mammoth Lakes, you might also need to pay for someone to manage your property. Regardless, you’ll have added expenses like maintenance and utilities.
If you’re financially prepared for it, buying a vacation home or second home can be a dream come true.
Learn more about buying a vacation home in Mammoth Lakes in my Ultimate Home Buyer’s Guide or contact me to chat more about vacation home financing.
If you liked this post, you might also like:
- Pros and Cons of Purchasing a Home in a Resort Community
- 4 Steps to Take Before Buying a Mammoth Lakes Vacation Home
- Buying a Vacation Rental Property in Mammoth Lakes: What You Need to Know
Closing costs can seem to be endless, annoying in nature and end up in a lot of cash. Closing costs are itemized in the closing statement, which can be referred to as a HUD-1, the settlement statement, and of course the closing statement. The net effect is that the seller ends up with less cash after paying all the closing costs on their [City] home.
A buyer’s closing costs typically range from 2%-7%, where the seller’s costs can be increased by 4%-7% just for the agent’s fees.
As a seller, here is what you can expect to pay in closing costs:
- Cost of the survey
- Broker’s commission
- Broker’s processing fee
- Courier fee to pay off the loan
- Title insurance
- Recorded release of the mortgage
- Lenders fees
- Prepayment penalties
- Local city, county, and state transfer taxes, and state capital gains taxes
- Credit to the buyer of unpaid real estate taxes
- Interest on loans to be paid off
- Attorney’s fees
- FHA fees and costs
- Condo/co-op move out fee
- Homeowners Association transfer fees
- Paid utility bills
- Certificate of compliance with building and zoning codes
- Home inspection fees
- Home warranty
- Homeowner association reserves
- Other credits to the buyer
- Unpaid mortgage or home equity loan, or line of credit
- Upside down loans
- Notary fees
As you can see, the seller pays many fees from the proceeds of the sale of their Mammoth Lakes home. Most of these will apply no matter where you are, some will not. This list will also vary from state to state, city to city. Make sure you talk to your real estate agent or real estate attorney to find out what will have to be paid ahead of time.
When you are ready to put your Mammoth Lakes home up for sale, call me at 661-979-9000 or email me at [email protected] to schedule an appointment to talk.
Seller closing costs
Broker’s processing fee
There are times when it pays (literally) to refinance a mortgage. Refinancing a mortgage means paying off the existing loan and replacing it with a new one. There are many reasons why homeowners refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching types of mortgage loan, to tapping into equity. Below are some of the reasons to consider refinancing:
- One of the best reasons to refinance is to lower the interest rate on your existing loan. The rule of thumb is if you can reduce your current interest rate by 2%, then it is a no-brainer.
- If refinancing will shorten the length of your loan from a 30-year mortgage to a 20 or even 15-year mortgage, and you plan to keep the home, this makes sense.
- Those who want more stability in their loans, and who are looking at increasing mortgage payments from an ARM, may want to look into a fixed-rate loan while interest rates are this low.
- If you have high credit card or other debt and have equity built up in the home, refinancing to tap into the equity to pay off those debts, send a child to college, or make improvements to the home, makes sense for some homeowners.
- If the homeowner is able to make higher monthly payments due to a new job or salary increase, switching from a 30-year mortgage to a 15 or 20-year mortgage to pay off the home faster and build equity makes sense.
Before refinancing your current mortgage, you must have a clear understanding of all financial objectives. Refinancing normally costs between 3 and 6% of the loan’s principal and it can take years to recoup that cost with any savings generated by a lower interest rate or shorter-term loan. A refinanced loan can go a long way to improving your financial situation, however if you are not planning on staying in the home or keeping it long term, then refinancing might not make sense. Be sure to talk to your investment manager and do what is right for your particular situation. Be sure to call Sonja at 661-979-9000 or email her at [email protected] to discuss your refinancing options also.
Short sales have become more and more popular since the housing market began its struggle during the recession. Though the term is thrown around more loosely now, there are still a great deal of people who do not understand exactly what a short sale is.
What is a short sale?
A short sale is a carefully agreed upon sale of a property for less than the amount of the mortgage balance, executed as a means for both a homeowner and a mortgage lender to essentially cut their losses.
Typically, short sales are for extreme cases when the bank or lender decides that it is in their best interest to take an early loss instead of enduring costly foreclosure proceedings.
If you have missed multiple mortgage payments and are facing foreclosure, the bank or lender won’t automatically offer a short sale. You need to prove that your situation merits a short sale, which typically involves providing documentation that proves you are indeed in a crisis with no other viable options.
Submitting a letter of hardship.
To prove your case, you’ll need to spend some time on a cover letter explaining your hardship and provide full financial disclosure; the original purchase contract; a balance sheet of your income and expenses; asset statements, proof of income; bank statements; two years of tax returns; and a professional who knows the ropes.
Simply stating, ‘My house is worth less than the loan and I don’t want to pay any more,’ will not be acceptable.
Along with the required documentation, you stand the best chance of getting through the two- to seven-month short sale ordeal if:
- The home is marketable
- The second mortgage holder (if there is one) gets a cut or otherwise goes along with the deal
- The same lender holds all mortgages
- There is enough time before foreclosure (at least about 4 months).
Lenders prefer handwritten letters and are more apt to agree to a short sale for those who lost jobs or encountered significant medical bills, as opposed to careless spending.
Your best approach to a short sale is by contracting with a real estate professional familiar with the transaction. If your home’s value is significantly less than debt tied to the property, you are a candidate for a short sale. You are not selling a home on the open market so much as you are selling your case to the lender. Call Sonja today at 661-979-9000 or email her at [email protected] to discuss this in more detail.
Letter of hardship
Wealth is within reach for many people; however, according to a recent study, 63 percent of Americans said it’s not likely they’ll become rich.1 While younger people are more likely to say they’ll achieve wealth one day, only 34 percent of people aged 30 to 49 and 21 percent of people aged 50 or older say the same. There is no secret to becoming rich: it takes time, sacrifice and good financial sense. Here are a few ways to build your household’s wealth.
Let Compound Interest Work for You
Compound interest is your interest earning interest. While the concept may work against you when you take out a loan to buy a car or use your credit card, it works in your favor when you’re saving money. For example, if your savings is growing at a rate of four percent, your investment will double in eight years and quadruple in 16 years. Your money will grow exponentially the longer you save: the more money you’ve saved, the more your money will grow.
Tap into Your Home Appreciation
Experts expect home prices to appreciate 3.24 percent and grow by 21.4 percent cumulatively.2 If a homeowner purchases a home this year for $250,000, they could earn more than $40,000 in equity over the next five years. Although the home value of the average American family’s home is $165,000, home values vary by market.3 If you’re curious about the value of your home, give us a call!
Build Equity in Your Home
One of the most compelling reasons to own a home is it allows you to build wealth over time. According to one study, the average homeowner has a net worth of $200,000, which is 31 to 46 times the net worth of the average renter.4 Saving for a down payment, especially if you plan to put down more than 20 percent, helps you adopt good financial habits. The more you put down when you buy, the higher your share of equity when you close. Although for the first five to seven years, the majority of your payment will go toward interest, over time more money will be applied to the principal. There are many tools online that calculate your current and future equity in your home, including this one here.
Build equity sooner by choosing a shorter amortization term. While your payment may be higher, you’ll likely qualify for a lower interest rate and will pay less interest over the life of the loan.
Build Equity Faster in Your Home
|Mortgage Term||30 Years||15 Years|
|Months to pay||360||180|
|Annual percentage rate||4.0%||3.0%|
Source: Federal Reserve Bank of Dallas, Building Wealth: A Beginner’s Guide to Securing Your Financial Future
Pay Down Your Mortgage…or Not
Many homeowners grapple with whether or not to pay down their mortgage. On one hand, if you pay it down, or pay it off early, you’ll save money on interest, which you can use to make other investments. On the other hand, if your goal is to be debt free, it’s better to pay off your higher-interest debt, such as credit card debt, first before paying down your mortgage debt. Additionally, if you’re saving for retirement, putting extra cash toward your retirement accounts will help you build a nice nest egg to enjoy later on.
If you decide to pay off your mortgage sooner, here are a few ways to do so:
- Pay more money at the beginning of your amortization period and apply it to your principal.
- If you receive a tax refund or other windfall, apply it toward your principal.
- Make one extra payment each year. You’ll save money on interest and pay your loan off sooner.
- Add an extra $50, or another amount you can afford, to the principal of your payment each month.
- If you locked into a 30-year fixed loan, refinance to a shorter, 15-year fixed loan. Your payment may be higher, but you’ll pay it off sooner.
Your financial advisor can help you decide if paying off or paying down your mortgage is right for your goals.
Purchase Investment Property
Investment properties provide passive income to your growing financial portfolio. More than 25 percent of Americans say real estate is the best way to invest money you may not need for the next 10 years.5 While many people flip houses to make money—that is, they buy a home at a low price, fix it up and sell it quickly—others purchase multifamily properties to create monthly cash flow to save or to reinvest in other properties.
The longer you own a property, the better investment it becomes as you’ll continue to build equity. While rental costs rise with inflation, your mortgage will remain the same. The best part? Once you pay off the mortgage, your cash flow will increase. Remember to create a budget for maintenance each month, between 10 to 20 percent of the rent you receive, or more if the home is older. This will help you save more money in the long run and allow you to prepare for unexpected repairs.
There are tax benefits to owning investment property as well. You may be able to claim deductions for depreciation, as long as it fits within the guidelines; repairs, travel expenses, interest and more. If you’re thinking of purchasing investment property, talk to your tax professional to get the details.
Achieve More Wealth by Creating Financial Goals
Setting a goal will help you achieve your desired level of wealth. Once you achieve one goal, reassess and set the bar higher.
- What is your idea of wealth? Your idea of wealth will change as you earn more money. That’s why it’s vital to set goals along the way. What do you want your net worth to be in 5 years, in 10 years and in 20 years?
- Write down your short-term and long-term goals. Once you have determined your goals, write them down. This is the first step towards getting your desires out of your mind and into motion and it will be easier to refer to them later on.
- Develop a budget to help you reach these goals. A budget not only helps you understand where your money goes each month, it may also prevent you from overspending. That way you can have more money to save and invest.
|Total Income||= $|
|Daily Expenses||– $|
|Monthly Bills||– $|
|Total Available for Investment||=|
To increase the amount you can invest, make adjustments to your daily spending and monthly bills, if possible. Look for opportunities to save money and transfer that savings into your accounts.
It’s never too late to begin building your family’s wealth. Whether you’re interested in buying a first home, upgrading to a larger home or are thinking of renovating, we have you covered. Give us a call and we’ll answer all of your real estate questions and offer suggestions to help you increase the value of your home.
Sources: 1. BankRate.com
- Pulsenomics, Home Price Expectation Survey Q4 2016
- Statistic Brain, August 1, 2016
- National Association of REALTORS, Economists’ Outlook, September 8, 2014
- The Motley Fool, July 30, 2016
No matter if you’re in a buyer’s or seller’s market, there are a few critical steps you can take to make a smarter purchase. Since buying a home is likely the biggest single investment you will ever make, being prepared will help you make a better purchase. Here are our best tips to buying a home.
Know your buying power
What is your buying power? It is the combination of your credit-worthiness and how much you can realistically pay for a home.
First, you need to understand the hidden costs of buying a home. You will need to save not only for the down payment of your home — which is typically between 10% – 20% of the offer price — but also for any additional transaction fees, such as transfer tax, PMI, title insurance, and legal fees.
Then you need to know what you can realistically afford each month to understand how much house you can buy. Your mortgage rate will depend on your creditworthiness — if you have a high credit score, your lender will likely approve you for a lower mortgage rate, which can save you thousands of dollars per year in interest.
How much of your budget should go to your monthly home costs? According to SmartAssets, you can use the 36% rule as a rough guideline. This means that your monthly obligation shouldn’t be more than 36% of your monthly gross income.
A loan professional can help you figure out how much house you can afford.
Fix your credit with the help of a loan professional
According to CreditKarma, a good credit score is usually 720 or above. You want to clean up your credit as soon as you can, and definitely before you go to a lender for a loan pre-approval.
When you apply for your loan pre-approval, you don’t want to have anything to hide on your application. So don’t lower your credit score by doing anything that will originate more inquiries into your credit. For example, don’t open any new credit cards. Also, don’t omit any debts or loans when you apply. If the loan officer discovers them in the application process, they may deny you a pre-approval.
Get a loan professional to check your credit score for you. A professional can give you a clearer idea if your score is in the ‘good’ range, or if you need to do some credit cleanup before getting a mortgage pre-approval.
Work with a knowledgeable buyer’s agent
Do you understand what kind of market you are buying into? Even within a city’s limits, there can be micro markets that are increasing or decreasing in value.
That’s why it’s important to hire a highly competent real estate agent who knows the specific market. You want to make sure that the professional who you’re working with really understands what the market is like and will help you find the home that you desire.
How can you tell if your agent knows the market? See if they can provide you with a buyer’s market analysis.
A buyer’s market analysis report outlines which neighborhoods are still up and coming — with potential for increased property value — versus those that have peaked with inflated home prices. Having this analysis at your fingertips will help you know if a home’s list price is above comparable properties so you don’t overpay for a home.
Don’t try to time the market…
Even in a hot market, there’s never a perfect time to buy a home. It can take a while to know exactly what you like, and you may have to look at 10 or more homes before you can recognize what suits your lifestyle best. While you’re shopping, take photos of your favorite properties and the details that you liked the best so that you can remember what you liked.
Another good reason to slow down the buying process: you might find a better deal if you do. Investigate expired listings.
Expired listings may have gone off the market because they didn’t get any offers at the listed price, so you may be able to underbid the original listing price. It’s not likely worth your time to look at FSBO (for sale by owner) listings, though. Since they are not represented by a professional, they are often overpriced.
When you start shopping, have a one-hour initial consultation with your realtor. Give them every single detail that you know about your lifestyle, buying power, needs, wants and desires for your home. The more detail you can provide, the easier it will be for them to help you find your future home. Your agent may also know of exclusive listings not available to the general public.
… But make the offer as soon as you find the right home
If you love it, make the offer. Otherwise, that dream home may disappear faster than you think, especially if you’re buying in a hot market.
Your buying agent should contact the listing agent before you submit an offer so that they can decide what’s important to include in the offer. If you’re serious about it, you want to increase the chances that your offer is accepted.
Show that you’re serious about the purchase by creating a buyer’s offer packet. It should include your lender’s pre-approval letter, a screenshot of your down payment money in your bank account, and comps that support the rationalization of the offer you are presenting.
Get a home inspection
Once you’re in the negotiation process, it’s essential that you get a third-party inspector to run a thorough home inspection. The inspector will be looking for major structural issues, including problems with the foundation, plumbing, and electrical systems. Your inspector should be extra picky, pointing out the most minor faults.
Make sure to have the inspection conducted before it is too late to back out of a deal. If there are any major structural issues, you may be able to make the seller repair them as a contingency to solidifying your offer. Minor issues that you can repair on your own may be points for negotiating a lower offer.
Protect your credit before you close
Don’t raise any red flags with your creditworthiness in the weeks before closing. Any one of these moves could mean that you’re denied the loan and the deal falls through — even if you’ve already been pre-approved!
- Keep your spending to a minimum and don’t make any major purchases before closing — that includes buying furniture, or a car, truck, or van, or any excessive charges on your credit card.
- Keep your bank accounts stable. Don’t change banks, spend any of the money you have set aside for closing, or make any large deposits to your accounts without checking with your loan officer first.
- Keep your employment situation stable — do not change jobs, quit your job, or become self-employed. Any sudden change in your income can have that pre-approval offer rescinded.
- Do not cosign a loan for anyone. It will open an inquiry into your credit and add to your debt, which could raise your mortgage rate and cost you thousands of dollars over the life of the loan.
Looking for a home in the Mammoth Lakes area? Let me help you find the home of your dreams. I’m well versed in the local Mammoth real estate market, and I can provide you with a buyer’s market analysis to help find the right neighborhood for you. Contact me today at (661) 979-9000 or [email protected].
Despite the grim economic outlook for some industries, one sector is gaining viability — real estate. According to the 2016 Emerging Trends in Real Estate, which was released by the Urban Land Institute earlier this year, trends such as “18-hour cities” and millennial parents increasing moving from urban areas out into the suburbs signal that real estate as an industry is gaining strength every passing day in 2016. One lending officer at a large financial institution even went to far as to say that “the next 24 months look doggone good for real estate.”
These trends means that real estate is a smart place to make an investment and grow your wealth. A housing shortage means that flipped homes tend to sell quickly and for high prices, and an increased demand across all age groups for rental properties means that finding tenants for your buy-and-hold properties should be a breeze.
Of course, these trends also mean that the real estate market is highly competitive right now. If you want to make a foray into real estate investing, you’ll need to educate yourself and be strategic in who you work with and where you look for investment opportunities. Read on for our beginner’s guide to real estate investing.
Assemble your real estate team before you buy
Building relationships with your team will empower you to make serious offers that will more likely get accepted by sellers. Among your team members, you will want to include:
● A mortgage broker or banker, who can help you get the financing for your deal
● A real estate attorney to protect you by reviewing and revising contracts
● An appraiser who can help you get a correct appraisal for your potential property
● An accountant who is well versed in real estate investments
● A good contractor, for repairs whether you’re rehabbing or buying rental property
How to find rehab or wholesale deals
You can buy properties to fix up and resell (flip) or you can buy and hold properties that you rent out for monthly cash flow.
The advantage of flipping properties is that you can end up with a good return on investment (ROI) in the short term. For example, you buy a property for $100,000, and invest $50,000 into repairs. Once it’s rehabbed, your property is valued at $200,000, and you sell it for a $50,000 profit.
This is an extremely simplified version of ROI. There are many other factors that you need to determine to see if the numbers work in your favor — that is, you’re not overpaying initially when you buy the properties or for the renovations or holding costs.
Flipping properties means that you will need to spend more time looking for fixer uppers that may be under market value. These may be more difficult to find in a hot market with rising property prices. Beyond the actual purchase price, you will also need to factor in fixed purchase costs for inspections, closing, and lender fees.
You’ll also need to factor in holding costs. Your budget should include funds for making repairs, whether you are doing them yourself or hiring contractors. While you’re upgrading the property, you’ll need to carry mortgage payments, property taxes, utilities, and insurance.
Because of rising property values, fix-and-flip deals in good neighborhoods can be hard to find. But once you know where to find rehab opportunities, you can easily repeat the process by reinvesting proceeds from a previous flip into the next property, which can be bigger, in a more desirable neighborhood, or finished out more luxuriously, and therefore sold for more cash!
Working with the right real estate professionals will help you learn which neighborhoods to consider and determine where you should focus your search. We can help you find the right fixer-uppers that may be under market value. Also, a Realtor will have access to many properties that may not be publicly available.
Finding buy-and-hold rental properties
A buy-and-hold rental property is one that your purchase with the intent of renting it out to tenants. If you find the right long-term buy-and-hold rental property, you can earn consistent cash flow each month, which can be a great source of supplemental income.
You’ll need to carefully review the operating expenses on the property and what tenants are willing to pay for the space to know if you’ll make or lose money each month. For example, say your total costs to buy a duplex was $20,000, including down payment and closing costs. You can rent each of the units for $600. Assuming your building is 100% occupied, you’ll make $1200 per month in income. Your expenses include mortgage payments, taxes, insurance, utilities, and management fees, and you want to set aside some cash each month for capital expenditures and routine repairs. You calculate that your expenses add up to $1100 per month. Once you subtract your expenses from your income, you’ll have a positive cash flow of $100 per month.
Of course, this is a very simplified example, and it doesn’t take into account that problems will inevitably arise. Emergency roof repairs, heating system breakdowns, broken windows that need replacing, and other unexpected expenses can eat away at your profits. One of your units may be vacant for a month or more — for example, vacancies are high in the summer months in buildings around universities — or you could have a tenant who fails to pay their monthly rent.
The more you can anticipate problems before they happen, however, the easier it will be for you to recover from setbacks! Moreover, rent isn’t the only way to make money on a buy-and-hold property. You can also add amenities, such as coin laundry and vending machines, to increase your potential monthly income. If your property has space to add a billboard, you can earn advertising revenue from renting that space, too. And when you decide to sell, your property’s value will likely have increased both from the overall rising property values and by the improvements you made to increase the cash flow.
Once you find and invest in your rental property, you’ll need to decide how you want it managed from month to month.
Getting the right property manager
Do you want to manage your own property or hire a manager? Property management can become a full-time job. As a property manager, you’ll have to deal not only with maintenance, repairs and tenant issues, but also with insurance, fair rental regulations, and building code compliance. So if you’re not an expert in these areas, managing your own properties may not be worth your time and effort.
Hiring a professional manager can save you headaches over the long term. While you’ll have to factor in management as a fixed expense, your property manager will likely know how to better take care of routine repairs, tenant issues, and keeping your property near 100% occupancy.
Your real estate professional can refer you to reputable property management companies to help you take care of your investment.
Where should I start investing in local real estate?
Work with a knowledgeable real estate professional who knows about the different neighborhoods. We can help you find properties that will fit into your budget and your overall goals. Whether you’re seeking a duplex or multifamily property so you can maximize your rental income or whether you want a condo or single-family home to improve for resale, we can guide you to the best property to suit your needs.
Contact Sonja Bush at 661-979-9000 or by email at [email protected] to learn more about investment properties in our area.
A topic always on our mind is water usage and conservation. Below is an article by Brian Kimball of Summit Funding:
Your Home – April Showers
Usually, the saying ‘April showers, May flowers’ refers to the weather. In this case, April showers will be used to encourage you to focus on your water conservation efforts during the month of April. As you’ve likely heard, water conservation efforts in the US have been increasing over recent years due to increasing population and decreasing usable water supply. Because of current water conservation effort, it is important for each person to be aware of and responsible for their own personal water conservation efforts. According to Kurunthachalam (2014), below are some stats about water usage in the US:
- Toilets use the most water on a daily basis (20.1 gallons per person per day)
- Clothes washers were the second largest water users (15 gallons per person per day)
- Showers use the third most water (13.3 gallons per person day)
Because of the importance of water conservation, below are a couple of tips to help you cut back on your daily water usage:
- Turn off faucets while brushing your teeth
- Make sure your water heater works properly to reduce the ‘water-warming’ period
- Don’t flush as much (If it’s yellow, let it mellow. If it’s brown, flush it down).
- Check faucets and pipes for leaks
- Limit your showers to 5mins (or turn on some music and limit your showers to the length of 1 song)
- Water your lawn sparingly.
- An alternative to lawn-watering is replacing traditional grass lawns with grass alternatives, succulents (which require less water), a garden (which requires water but also doubles as a food source), or even using cobblestones or paving parts of your lawn.
- Wash dishes by hand
These are just a few suggestions to get you on the road to water conservation, there are many other options available to help you reduce your water usage. Explore these options and find additional ideas to see what works for your family and your lifestyle.
Summit Funding, Inc.
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You can’t avoid paying taxes, and we all need to pay our fair share. However, paying your fair share shouldn’t place an unjust burden on you. As a homeowner, your tax burden is doubled because you pay both income and property taxes. To decrease that burden and boost your tax savings, take advantage of these homeowner tax deductions. As a result, you can use your tax savings to go on a vacation, increase your child’s college fund, build upon your retirement fund, or complete another home improvement project.
Home Improvement Tax Deduction
You spend so much of your time at home, and you try to make it as comfortable a place to live as possible. If your home needs some upgrades, consider improvements that will help foot the bill for themselves.
You can get an energy-efficient tax credit of up to $500 for installing storm doors and energy-efficient insulation and air-conditioning and heating systems. Switching out your old windows for energy-efficient ones could earn you $200. This credit expires this year on December 31st. So, this year will be your last chance to take advantage of getting tax credit for making your home more energy efficient.
Also, installing equipment that uses renewable sources of energy makes you eligible for the Renewable Energy Efficiency Property Credit. The credit covers 30 percent of the cost of equipment and installation. This credit also expires this year on December 31st.
Mortgage Interest and Refinancing
If your mortgage payment makes you cringe each month, you’ll be glad to know you can deduct taxes on the following:
* Interest towards mortgage
* Mortgage payments for additional property
* Rental properties
* Refinancing and home equity lines of credit (HELOC) up to $100,000 of debt.
If you own multiple properties, the mortgage interest on additional property is deductible as well. The cool thing is that it doesn’t have to be a house. It can be a boat or RV; as long as it has cooking, sleeping, and bathroom facilities, it counts as additional property.
Regarding using your second home as a rental, you need to vacation at least 14 days at the property or spend more than 10 percent of the number of days you rent it out.
Furthermore, you can claim points on your mortgage the year you paid them if the following happened:
* The loan was to purchase or build your main home
* Payment of points is an established business practice in your area and the points were within the usual range
Now, this is the big one. Property taxes you pay each year are tax deductible. The amount of property taxes you paid for the year shows up on your lender’s annual statement. You must deduct them as an itemized expense on your Schedule A tax form.
First-time homebuyers, look at your settlement sheet to see additional tax payment data. You may deduct the portion of property taxes you paid during the first year of your homeownership.
Protesting Your Assessment to Lower Your Property Taxes
Although you must pay property taxes, you can make sure that you pay a reasonable amount based on the true value of your home and land. Many homes get overvalued because assessors err in valuing a home and homeowners don’t pay attention to these mistakes. Consequently, homeowners unwittingly pay more than they should in property taxes.
However, if you’ve owned your home for more than a year, you can potentially lower your property tax burden by showing that your home has been overvalued, meaning that your tax assessment claims your property is worth more than it is.
Even if the number on the tax assessment seems close, you should still consider protesting your property tax. Typical savings from a successful tax protest is over 15%!
According to SmartAsset, the national median property tax paid is roughly $2,839.00. That’s about 1.192 percent of a home valued at $238,200.00.
If you’re able to reduce your assessed value by 15 percent to $202,470.00 and consequently save 15 percent on your tax bill, your new tax bill will be about 2,413.00. That’s a savings of $426.00!
To get started protesting your property tax, read your assessment letter. Your assessment letter will list data about your property and the assessed value of your house and land. Make sure your assessment letter has the correct information about your property.
Understanding that assessors can make mistakes assessing your home value will help you with your appeal. There are three key mistakes assessor make when assessing property. These mistakes include:
- Outdated Historic Sales Data: Sometimes assessors will use sales data from previous years. Because the real estate market is fluid, this data changes quickly, as a result; this data can over value your home.
- Mass Appraisal Methods: Also, when assessors use mass appraisal methods, they do not take into account all the market adjustments that occurred over time. Consequently, there sales data can’t always produce useful comparable properties to set future sales.
- Living Area: Assessors notoriously make mistakes about the living area of your house. This is especially true if you live in a 1.5 or 2 story home. Check any previous appraisals to ensure correct measurements and description of our home. Does the assessment letter show the right number of bathrooms and bedrooms? Does it report the correct size of your lot? .5 acres differs greatly than 5.0 acres.
After reading your assessment letter, consult a Realtor. We can find three to five approximate values of comparable properties similar to yours, and these comps can then be used to support your claim that your home is overvalued. This is especially useful if the assessor used poor historical sales data.
You’ll have 30 days to file an appeal of your assessment, so you’ll want to get the comps as soon as your assessment arrives. You can speak with an assessor on the phone or request a formal review.
You’ll then need to fill out a form and follow specific instructions regarding your supporting evidence. Typically, it’s not necessary for you to appear at the review. The review can take one to three months to complete, and you’ll receive a decision in writing.
The majority of assessment appeals are successful. However, if at first you don’t succeed, appeal. You’ll need to pay a small filing fee for an independent appeals board to hear your second appeal. This process could take up to a year to complete, so you’ll need to decide whether it’s truly worth it.
As a homeowner, you have plenty of options available to decrease your tax burden. The benefit is that you can use your tax savings for major life events such as weddings, vacations, and home improvements.
To find out more about your tax saving options as a homeowner, check out tax information for homeowners. You can also contact me directly and I’ll gladly lead you in the right direction towards saving you money on your taxes.
Are you aware of how your credit card usage and history can affect your real estate financing?
When was the last time you evaluated how you are utilizing your credit cards? Do you have a number of credit cards that have a maxed balance? Do you have a number of credit cards that are active but you are not using? Do you have too many credit cards that are accumulating maintenance fees? Maybe you don’t have any credit cards – whatever the case, take some time to evaluate your credit card status and plan decide how credit cards can actually be used to your advantage.
Below are 3 tips to help you manage credit cards:
- Read The Fine Print – When signing up for a credit card, understand what the terms and conditions are so you can ensure you stay within them and avoid high fees in the long-run.
- Review Rewards Cards – There are a number of different card types: rewards, frequent flyer, big spender – just to name a few. Look at the options available to you and decide which type will most benefit you and your lifestyle.
- Pay Your Balance In Full – Paying your balance in full helps to avoid having to pay back large amounts of interest. For some, paying the balance in full is not a viable option, in cases like this, make sure to pay your monthly payment on-time as to avoid late fees.
If you are ready for a walk-through of your finances before making a purchase on a home, call Sonja today at 661-979-9000 or email her at [email protected] She will help you or put you in touch with the right Real Estate Finance and Loan Officer to help get you prepared for your purchasing journey.
Source of article:
Senior Loan Officer
NMLS ID# 237105
3240 El Camino Real Suite 140
Irvine, CA 92602
Branch NMLS ID# 1014539
Summit Funding, Inc NMLS ID# 3199