When is Mortgage Interest Tax Deductible?

Contrary to popular belief, mortgage interest is not always tax deductible.  Here’s the inside scoop:

1.  Is Your Home a “Qualified Residence”?

Mortgage interest is only deductible if the mortgage is attached to a “qualified residence”. Tax payers can generally deduct the mortgage interest on two qualified homes:

• One Primary Residence; and,
• One Vacation Home

2.  Is Your Mortgage Classified as “Acquisition Indebtedness” or “Home Equity Indebtedness”?

Your mortgage or home equity line of credit is considered “acquisition indebtedness” if it was used to buy, build or improve a qualified residence.  On the other hand, a mortgage or home equity line of credit that is used for any other purpose is considered “home equity indebtedness.”  Generally, you can deduct the interest on mortgage balances up to $1,000,000 of Acquisition Indebtedness, and $100,000 of Home Equity Indebtedness.  Here are two examples:

• Jane buys her $500,000 primary residence using a $400,000 mortgage. Jane would be able to deduct the interest on the $400,000 mortgage as acquisition indebtedness because, (1) the mortgage was to buy a qualified residence; and, (2) the mortgage falls within the $1,000,000 limit.
• Janice buys her $500,000 primary residence with cash.  A year later, Janice does a cash-out refinance and puts a $400,000 mortgage on the home.  The funds are not used for home improvements.  Janice could deduct the interest on the first $100,000 of this mortgage as “home equity indebtedness”.  However, the interest on the remaining $300,000 balance would NOT be tax deductible because it exceeds the $100,000 limitation on home equity indebtedness.

 

3. Are You Subject to the AMT?

Approximately six million American tax payers are subject to the Alternative Minimum Tax (AMT).  These tax payers can still deduct the interest on mortgages and home equity lines of credit that are classified as “aquisition indebtedness”.  However, tax payers who are subject to the AMT are NOT allowed to deduct the interest on mortgages and home equity lines of credit that are classified as “home equity indebtedness.”

Three Pitfalls to Avoid

As you can see, it’s very important to structure your mortgage in a way where it can be classified as “acquisition indebtedness”! Here are three common mistakes that many people make when choosing a mortgage strategy and deducting their mortgage interest:

• Pulling cash out of a primary residence to buy a vacation home, and then illegally deducting the interest on that cash-out mortgage (in these cases, it’s often better to place a mortgage on the vacation home itself so that it can be classified as “acquisition indebtedness”)
• Paying cash for a home, taking out a mortgage later on, and then illegally deducting the interest on that cash-out mortgage
• Illegally deducting the interest on mortgage balances that are classified as home equity indebtedness

Distinction Between a Qualified Residence and an Investment Property

Everything mentioned above pertains to a mortgage transaction involving a primary home or vacation home that is elected as a “qualified residence” for tax purposes. If your transaction involved an investment property, see IRS Publication 527.

PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.

---

Ben Shapiro
NMLS Number: 746571
CFL Mortgage
Corporate NMLS Number: 188998
ben.shapiro@cflmortgage.com
http://www.benshapiromortgage.com
(336) 880-5825

  

 

What are the do’s and Don’ts of getting a mortgage?

Avoid Changes to Your Financial Profile During the Loan Process

Once your home loan package has been sent to the North Carolina lender, there are a number of things you should avoid doing that will change your financial picture. Remember, the lender is looking for stability and consistency. If you want the best interest rate, keep that in mind. Here are a few things to consider:

The lender is looking to see what your source of down payment is. 

Your mortgage lender will most likely ask you to provide proof of your liquid assets. This includes bank statements for checking and savings accounts, verification of investments, and any other liquid assets. Some of the things they ask for may seem trivial, but keep in mind, if you are planning a move to a new home, it’s important to have all documentation readily available. If the lender asks for cancelled checks or deposit receipts to meet certain conditions, you want to be able to find these things quickly to avoid delaying the closing of your loan. Make sure your paper trail is easy to document, and don’t move money from one account to another or open or close accounts.

Major purchases tip the scales against your favor.

Avoid making any major purchases. You might be thinking about purchasing new appliances for the new home. This is not the time to do it. Avoid making any major purchases on jewelry, appliances, furniture, vacations, or anything with a significant price tag until after your loan is closed.

Buying or leasing a car can make a negative impact on the way the lender views your financial status. This is a big ticket item that dramatically affects your debt-to-income ratio. You may feel you have room in your budget to purchase a new car, and think this is a worthy investment if you are looking for a home that will mean a longer commute for you on a daily basis. But by tacking a car payment onto your existing debt, you reduce the amount that you will qualify for in a home loan. A $400 a month car payment can reduce your approved loan limit by as much as $50,000. Think about doing this after your loan is closed if you really need it.

If you have to change jobs, you may be asked to document why this change occurred.

If you are changing jobs to increase your income, that’s a no-brainer for the lender. If you have an erratic work history to start with, another job change may make it look worse for you.

If you are an hourly wage employee, most likely a job change will have no effect on your ability to qualify for a loan. If you have a track record of a consistent amount of overtime or consistent bonuses over the last two years, the lender views this favorably. If you change jobs, there is no way of knowing if the new employer will pay overtime. Many do not! If you work on a salary + commission or straight commission basis, it has a dramatic effect on your stability. If you are considering starting your own business, again, this is something to consider after your loan is funded.

Call me directly for a free consultation. Serving the Greensboro, Thomasville and High Point areas of North Carolina!

Try My Mortgage Calculators Today: Click Here

 

Ben Shapiro is a Certified Mortgage Planner with CFL Mortgage in Greensboro, NC. Ben is a 15 year veteran of the mortgage business, who has worked on over 10,000 mortgage loans in his career. Whether you are buying a home or refinancing, you can put his expertise to work for you by contacting him here.

Is it the right time to buy a home?

Taking a step in the right direction when considering to buy a home is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. There are many mortgage loan programs available within the Greensboro, High Point and Kernersville NC area, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage loan consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here. Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the mortgage loan process. When shopping for a mortgage home loan within the Greensboro, High Point or Kernersville area of NC, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames.

If a mortgage loan lender in NC is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate.

It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with (and I hope you would consider myself), lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.

I will help you narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.

Ben Shapiro is a Certified Mortgage Planner with CFL Mortgage in Greensboro, NC. Ben is a 15 year veteran of the mortgage business, who has worked on over 10,000 mortgage loans in his career. Whether you are buying a home or refinancing, you can put his expertise to work for you by contacting him here.

Do I need a large down payment to get a mortgage?

First Time Home Buyers – 3 Myths & 1 Fact you need to know!

There are a lot of misconceptions about what it takes to buy a home. The truth is that successful home ownership is closer than you may think!

Myth: I have to have a large down payment to buy a home these days

Reality: While it true that many lenders like that you have some “skin in the game”, there are Mortgage Loan programs that require little, and sometimes, no down payment.

Myth: I have to have “perfect credit” to qualify for a mortgage.

Reality: While taking care of your credit is important and will result in better rates and options, it does not mean that a credit challenge in the past dooms you to forever pay rent. There are programs and guidelines in place that allow buyers to get great home loans at market competitive interest rates.

Myth: I can’t have any debt to buy a home.

Reality: While excessive debt can limit your options, mortgage underwriters know that there is a level of non-mortgage debt that buyers will have. Also, knowing what you want to pay for housing expenses (ie; mortgage payment, taxes, insurance, upkeep, etc.) rather than what you “qualify” to pay will help you develop a budget for successful home ownership!

Fact: I need a steady income to qualify for a home.
This is absolutely true, and a departure from years past. While ‘stated income loans” were all the rage some years ago, lenders now want to see a documented income history of at least two years (unless you are a recent college grad working in your field). This doesn’t mean that it has to have been the same job, but rather that a consistent income has been earned.

If you are tired of paying rent, or living under someone else’s roof and are thinking about purchasing a new home in 2014, meeting with me is the place to start. We can work together to develop a financing strategy that will give you all the confidence you will need in the purchase of your first home, and they can make introductions to a Realtor who can represent you at no charge.

Need some help calculating some of the more complicated aspects of a mortgage? Use my 14 helpful mortgage calculators here!

Ben Shapiro is a Certified Mortgage Planner with CFL Mortgage in Greensboro, NC. Ben is a 15 year veteran of the mortgage business, who has worked on over 10,000 mortgage loans in his career. Whether you are buying a home or refinancing, you can put his expertise to work for you by contacting him here.

Where can I get a mortgage in Greensboro, NC?

My Company, Your Resource

With so many different mortgage companies out there you’re probably asking yourself, “What makes CFL different? Why should I allow them to finance my home?”.

CFL stands for ‘Client for Life’, which is the type of service we at CFL are committed to providing to each and every client we serve. ‘Client for Life’ service is the backbone of our business model, and a goal that we as a company strive daily to attain.

The most important attribute that sets mortgage bankers (such as CFL) apart from brokers is having complete control over the loan process. Every department of our organization – origination, underwriting, processing and closing work closely together to get loans closed quickly and exceed our clients’ expectations by delivering world-class service.

I know that good customer service is not simply getting the loan closed on time; that is our job. At CFL we define good customer service as exceeding each clients’ expectations of the products and services we offer. This means making every client, whether purchasing a $100,000 home or a $1 million dollar home, feel as if they are our only customer.

As a mortgage veteran of 16 years, the goal of this page is to promote successful homeownership in the Triad area and beyond. By making connections and addressing your questions in an open forum (and in private where appropriate), I hope to help create a resource for potential homeowners and real estate professionals alike. Keep coming back for more industry news!

OUR MOTTO:

“A referral is sending someone you care about to someone you trust. My goal is to earn your trust and your referrals.”

Ben Shapiro is a Certified Mortgage Planner with CFL Mortgage in Greensboro, NC. Ben is a 15 year veteran of the mortgage business, who has worked on over 10,000 mortgage loans in his career. Whether you are buying a home or refinancing, you can put his expertise to work for you by contacting him here.

What you need to know before you file your 2014 taxes!

How the Dodd – Frank Act affects self-employed buyers and homeowners.

It is often the goal of tax preparers to “write down” as much of an individual’s income as possible within the tax laws to lessen their tax burden. If you are looking to buy or refinance your home this year, this strategy may keep you from your goals. While no one wants to pay more in taxes than they have to, showing an excessive amount of deductions may harm your chances of obtaining a loan.

In January of 2014, the CFPB’s implements ”sections 1411 and 1412 ..of the Dodd-Frank Act, which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for ‘qualified mortgages’ ” – from CFPB website

So what does this mean to you? In order for lenders to have a “safe harbor” from litigation, they will require borrowers to demonstrate an ability to repay their mortgage. This is a departure from previous years where “stated income” loans allowed borrowers to declare an income without providing evidence of its receipt. This is especially important for self-employed borrowers.

What is the best strategy then? Meet with a mortgage planner prior to meeting with your tax advisor. Your mortgage planner can determine how much income is needed to qualify for your mortgage, and this number can be shared with your tax advisor. It is important to meet with an experienced mortgage professional that is proficient in reading tax returns. There are many potential items that can be added back to your income, but sadly many mortgage loan officers don’t know where to look.

While the times have changed, being prepared and having a plan can allow you to achieve your financial goals.

Renters Have Much to Gain by Pursuing Home Ownership

A Qualified Mortgage Consultant Can Outline Your Options

Greensboro, Highpoint and Thomasville, North Carolina – Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be on your way toward building equity. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop lower than the rate you’d currently be locked in at, and this would cause your monthly mortgage commitment to go down.

And not only would your own home give you added space, your own back yard and overall privacy—home ownership would also give you some tax advantages. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including “low” down payment mortgage programs. The most common and beneficial loan for people buying their first home is the FHA loan, which only requires a 3.5% down payment. In addition, FHA allows a seller to cover up to 6% of a buyer’s closing costs which really helps decrease the amount of money it takes to buy a home. Many people also don’t know that FHA allows the lowest credit scores of any loan available today, only needing a 640 score in most cases.

If there is any time to buy it is NOW! Why? Because home prices are low today. Low home values are surely not good for people selling homes but they are great news for people wanting to buy a home. Don’t miss this opportunity to take advantage of the current market before home values rise.

Home Buyers In North Carolina Face Decisions that Affect Their Long-Term Financial Picture

Taking as step in the right direction when considering to buy a home is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of mortgage loan programs are available within the Greensboro, Highpoint and Thomasville NC region, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a mortgage loan consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here.

Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the mortgage loan process. When shopping for a mortgage home loan within the Greensboro, Highpoint or Thomasville area of NC, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames.

If a mortgage loan lender in NC is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate.

It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!

Once you have found a mortgage consultant that you feel comfortable working with and I hope you would consider myself, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.

I will help you narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front. Contact me at ben.shapiro@cflmortgage.com or visit me at http://www.cflhomemortgage.com/.

Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.

Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.

The Art of Home Purchase Negotiation

There is much give and take involved in negotiating a property purchase. That’s why it’s important to have a checklist of what you want to get out of the deal as a buyer. Bear in mind, the home must be appraised and the lender will be looking at the fair market value on a given property. Since property values fluctuate, your Real Estate Agent should do a comparative market analysis so you are aware of what the trends are for the area in which you are shopping. This will give you an idea as to whether the seller’s asking price is realistic. You will also want to know how long the property has been on the market, and if any price reductions have occurred during that time.

Make sure your Real Estate Agent is on the same page with you so he/she is able to represent you properly. You also want to know that you are working with an agent that is experienced in representing the buyer. Not all agents have the ability to provide strong representation for both a buyer and a seller. If you have not yet selected a Real Estate Agent to represent you, my team and I can provide you with contacts that have a proven track record of success with our clientele.

Remember a good deal is mutually beneficial.

The seller will also have a wish list of what they want out of the negotiation. Listen attentively to determine what their hot buttons are. You can use this information to leverage what you want out of the deal at some point along the way.

Find out if the seller has a deadline. Perhaps they have already purchased their new home, or have to relocate because of a commitment to a new employer. Find out what the seller’s current mortgage balance is and use this to your advantage. Also find out what the seller’s bottom line is and how much room there is to negotiate. If possible, see if you can negotiate that the seller pays for your closing costs and pre-paid items. We can explain how much seller concessions are allowed with various loan programs.

On the other hand, if the seller wants to move because they can’t manage upkeep on the home, or don’t want to invest in repairs, these problems will be passed on to you. You would also want to know if the seller is planning this move because there are problems in the neighborhood. Take a walking tour of the area and ask the residents what the neighborhood is like. You can also ask the local police department about the crime rate, or check the local newspaper for crime listings. Don’t be afraid to ask questions.

When the seller is intent on getting their way on a certain point, make sure you are getting something in return. Typically the built-in amenities such as the dishwasher and garbage disposal will stay with the home. You can negotiate other items that would normally be associated with a home purchase in exchange for something that ranks high on the seller’s wish list. Keep in mind that personal property like a lawn tractor or flat screen television cannot be included or financed. Be prepared to split the difference so everyone involved is satisfied with the negotiation. A win-win situation for both the buyer and the seller is critical to a smooth close.

Keep it simple and be direct, but above all, know that my team and I are here to assist you.

Call me directly for a free Greensboro, High Point and Thomasville North Carolina consultation!

How Much Money Should You Borrow?

While it might be tempting to borrow whatever amount of money your lender is willing to give you, it’s important to think carefully about how much you’ll actually need to borrow in order to purchase a new home. From the down payment to taxes to insurance and interest rates, there are many factors to consider when making this important, life-changing decision.

Contrary to popular sentiment, there is no standard formula for accurately calculating the specific dollar amount you should borrow when purchasing a new home. Many websites do offer special borrower calculators that claim to factor in important variables, and yet final results vary vastly from one site to the next. Other websites offer general rules of thumb, suggesting that you should never borrow more than 2 1/2 to 3 times your gross annual income, or that 28%, 32%, or even 40% is the maximum amount of debt you should ever take on.

And, while these insights may be helpful as you begin thinking about the overall borrowing process, meeting with a reputable loan professional and getting yourself pre-approved (not pre-qualified) is really the only way to know the exact amount of money you can and should borrow. By getting pre-approved, you not only increase the chance of finding the perfect house for your needs, you also become a “cash buyer”, instantly increasing your bargaining power.

As a mortgage professional, I see my role differently than a traditional loan officer. While my job is to match you with the best mortgage available for your specific needs, I feel that it’s also my duty to make sure it’s the most responsible product as well. After all, what if something unforeseen or unexpected were to occur? What if you have an accident or you lose your job?

Whether you choose to work with me or not, be aware. A lender will often offer you the maximum amount of money that you qualify for, whether you actually need the full amount or not. Because of this, it’s vital to sit down with a professional you can trust to figure out your complete financial picture.

If you or someone you know in the Greensboro, High Point and Thomasville areas of North Carolina could benefit from this type of free consultation, give me a call. I would be happy to assist you! 336-880-5825