Tax Tips for Home Buyers

It's that time of the year again! Every year, on or before April 15, taxpayers must file their federal income taxes. There are a number of tax deductions available for home buyers that can significantly reduce one's taxable income.

Here are some things that home buyers need to know when filing their Income Tax:

1.Itemize your Return to Claim Your Deductions.
Not itemizing your income taxes may result to missing out on tax advantages. If you own a home and have a simple return, it's tempting to file for just the standard deduction. Sometimes, filing for standard deduction might outweigh your homeowner's deductions. But you'll never know if you're losing out on the tax advantages of itemizing unless you try. You can use tax software like Turbo Tax, which will automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill -- or the highest tax refund -- for you.

2. Tax Relief for Loan Modifications, Short Sales and Foreclosures is Only Around Through 2012.
While there is a positive outlook on the housing economy, 2011 is projected to be the peak year for foreclosures. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance is taxed as what the IRS calls Cancellation of Debt Income or CODI. However, under the Mortgage Debt Foregiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI through 2012.

3. Some Closing Costs are Tax Deductible.
If you bought or refinanced your home in 2010, you may be eligible for tax deductions on your closing costs, even if the seller has paid for them.

Take note that not all closing costs are tax deductible. Some closing costs that are tax deductible are mortgage points; prepaid mortgage interest paid at closing; and transfer taxes for rental or investment property.

Mortgage Points is a percentage of the loan amount you pay your lender at closing to basically "buy down" your interest rate. If you are purchasing a home, the total amount of loan points are fully deductible for that year’s tax returns. If you are refinancing, the points can still be deducted, but the deductions must be amortized or spread out over the course of the loan.

If you prepaid any mortgage interest as part of your closing costs, that interest will be tax deductible. You may have to prepay if you close on any day other than the first of the month. This is typically the day your future mortgage payments will be due and if your home loan closes on the 15th perhaps, then your lender will require you to prepay interest for the 15 days before the next month begins. Since this is still interest, even though it is included in your closing costs you can deduct it from your yearly tax returns.

If the transfer taxes are part of your closing costs, it will be tax deductible too. Things like hazard insurance or association dues for rental properties are also tax deductbible.

4. Moving Costs Due to Job Relocation are Tax Deductible.
If you have purchased a home and are moving due to job relocation, you can deduct some of the moving expenses (I.e. storage expenses, hotels and travel expenses, moving services and other incidentals) from your tax. However, for you to qualify for the deduction, your new job must be 55 miles away from your old home. And the move must take place within a year of your job relocation.

If you encounter some problems, you may call the IRS toll-free number at 800-829-1040 or check out http://www.irs.gov.

If you have further questions or if you would like to get more information, you may consult with a tax accountant or a CPA. If you are looking for a CPA or a tax accountant, please contact me for a list of reputable companies.

What You Need to Know About Credit Score

Home buyers who are seeking a mortgage should deeply understand what a credit score is.  What is a credit score?  Credit Score is a three-digit number that is used to predict how you will pay your bills. The creditor or lender uses the credit score on whether to grant or disapprove your loan application.   It also determines the interest rate that a lender or creditor offers.  The score ranges from 300-850 and is calculated using your credit history information from your credit report. Past history has shown that borrowers with higher credit scores are less likely to default on a loan.

There are several different versions of computing for your credit score, the most commonly used version is the FICO score developed by Fair Isaac Company.

There are 3 main credit bureaus, organizations that track credit histories and related information of individuals, namely Experian, Equifax and TransUnion.

Here's an approximate breakdown of how the credit score is determined:

Payment history includes:

-    Number of accounts paid, negative collections.
-    Delinquent accounts - total number of past due items, how long it's been past due, and how long it's been since you had a past due payment.

Outstanding Debt Information includes:

-       How much you owe on accounts and the types of accounts with balances.
-       How much of your revolving credit lines you've used -- looking for indications you are over-extended.
-       Amounts you owe on installment loan accounts vs their original balances - to make sure you are paying them constantly.
-       Number of zero balance accounts.

Length of Credit History:

-      Total length of time tracked by your credit report.
-      Length of time since accounts were opened.
-      Time that's passed since the last activity.
-      The longer your (good) history, the better your scores.

New Credit

-    Number of accounts you've recently opened and the proportion of new accounts to total accounts.

-    Number of recent credit inquiries. There will be a negative impact if there were numerous inquiries on your credit.
-    The time that's passed since recent inquires or newly-opened accounts.
-    If you've re-established a positive credit history after encountering payment problems.
-    In general, they want to make sure that you are not attempting to open numerous new accounts.

Mix of credit

-      Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
-      A mixture of account types usually generates better scores than reports with only numerous revolving accounts or credit cards.

How to Improve your Credit Score:

 
1. Pay your bills on time! Punctual payments are most effective way to improve your score.
2. If you are planning on applying for a mortgage, don't open new credit card accounts.
3. Maintain at most 25% credit on your credit card.
4. Do not allow inquiry on your credit report unless you absolutely have to.  In general, the more inquiries, the lower your score.  However, if you are shopping for a loan, make sure multiple inquiries occur within a few weeks, so that they can count as one inquiry on your score.
5. Review your credit report and correct any errors you find. One study concluded that as much as a quarter of reports list wrong information that hurt an individual's score. Correcting the mistakes can improve a score dramatically.
6. Keep old credit accounts, even if you're not using them. Creditors look at the debt-to-credit limit ratio and the average age of your accounts.

Housing Made Affordable So Why Rent When You Can Buy!!

It's a good time to buy a home or invest in a property. with the falling home prices and all-time low mortgage rates - owning your own home has become definitely affordable at this current time.

In a report from National Association of Home Builders/Wells Fargo Housing Oppountunity Index for the fourth quarter of 2010 indicates that 73.9% of all new and existing homes sold were affordable to families with median income.

So, if you are interested in buying a property and waiting for the best deal, now may be the time to search. With the increase in annual mortgage insurance to take effect in more than a month from now, you'll be able to save a substantial amount of money if you close the contract just before April 18.

Check your resources, even if the houses are at affordable prices, you will still need to think about down payment, closing costs, insurance, etc..

Spinell Homes is the largest builder in Alaska. They have built nearly 3,000 homes throughout South Central Alaska since 1987. Spinell has received numerous awards for building excellence from both the Anchorage and Mat-Su Home Builders Associations. Spinell Homes was awarded the "Award for Excellence" given by the Better Business Bureau and being voted "Best Home Builder in Alaska" by the readers of the Anchorage Daily News.

Hearthstone is the newest project of Spinell Homes. Hearthstone offers luxury yet affordable townhouse-style condos located near Lake Otis.  It's in a midtown location close to universities, hospitals and bases.

The condo price starts at $229,900 - unbelievable for a new construction!  Options could include carpet or hardwood flooring or tiles; cabinets, counter tops. You could also customize your home and build it according to everything you've dreamed of. It has an open kitchen layout where the family/guests can hang out. Condos are energy efficient. Home buyers can also upgrade to 5 Star plus energy efficiency if they choose to or they have the option to have 98% Energy Efficient Furnace. The condo includes a seperate laundry room.

And even better - Some units are coming out with a floorplan upgrade. They can have the option to have a half bath or the 2nd bath to have a dual vanity which couples love.

The deal gets better and better, in addition to being affordable for a luxurious condo, the builder, Spinell Homes is also willing to pay all closing costs with their preferred lender program for the next (5) buyers - that could save the home buyers thousands of dollars. The money could go into upgrades, furniture, appliance purchase and many more!

If you want to learn more about Luxurious yet affordable properties, call me at 907-242-SOLD (7653) and we'll discuss your options. Or you can visit www.hearthstonealaska.com and spinellhomes.com.

Things To Do Before Moving (Part 3 of 3)

1 Week Before the Move

- Separate the items which you will be moving yourself and what the movers will take.

- Make an inventory sheet of all the items to be transported. So you'll know if all your things have been transported completely and nothing has been lost.

- Empty, defrost and clean your refrigerator, freezer and clean your stove at least 24 hours before moving to let the air out.

Moving Day

- Take the children and pets to daycare facility that you have arranged.

- Supervise the move yourself, if you will not be available, assign a family member or a friend to make sure that all stuff are being transported and nothing is left behind.

- Ask the mover to sign the inventory sheet.

- Hand in your key, alarm codes, garage door openers to the new owner or Realtor.


It's advisable to have a checklist when you're moving. That way you'll know what to do on a specific date and make the necessary arrangements on your end and the people around you.

FHA Announces an Increase to the Annual Mortgage Insurance Premium

In August 2010, President Obama signed a bill allowing HUD to charge an annual .85% of Annual Mortgage Insurance Premium for loans with a down payment equal to or greater than 5%.  For loans with a down payment of less than 5% is charged an Annual Mortgage Insurance Premium of .90%.  The rates are applied for loan term of 15 years or more. The Mortgage Insurance rates applied before President Obama signed the bill was at .50% and .55% respectively for loans payable in 15 years or more.   And just after a few short months, an increase in Annual Mortgage Insurance Premium will take effect again.

Effective April 18th, 2011, the FHA annual mortgage insurance premiums will increase by one-quarter percent.   While the Upfront Mortgage Insurance remains at 1%.  Mortgage Insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA requirements include mortgage insurance primarily for borrowers making a down payment of less than 20 percent.

Under the new term, borrowers will pay 1.15% of the mortgage amount instead of .90% as they have paid recently for 30 year loans with the standard minimum 3.5% down payment.  FHA Commissioner David Stevens explained that “After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA's capital reserves and help private capital return to the housing market.”  He added, “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments." 

The comparison of the old and new Mortgage Insurance Premiums is illustrated below:

Mortgage Insurance Premiums
Loans > 15 years
UFMIP = 100bps	Annual Premium
LTV (Loan-To-Value)	Through 4/17/2011*	On/After 4/18/2011**
≤ 95.00 percent	85 bps	110 bps
> 95.00 percent	90 bps	115 bps
Loans ≤ 15 years
UFMIP = 100bps	Annual Premium
LTV (Loan-To-Value)	Through 4/17/2011*	On/After 4/18/2011**
≤ 90.00 percent	None	25bps
> 90.00 percent	25 bps	50 bps
* For case numbers assigned on/before April 17, 2011 ** For case numbers assigned on/after April 18, 2011
Table 1: Mortgage Insurance Premiums (Source: HUD Mortgagee Letter 11-10)

Example of Annual Mortgage Insurance Premium Increase 30-year Term
Average Loan	>95.0 percent LTV
	October 2010 90 bps	April 2011 115 bps
Sale Price	$163,000	$163,000
Minimum Down payment (3.5%)	$5,705	$5,705
Mortgage Amount without UFMIP	$157,295	$157,295
FHA Annual MIP (monthly payment)	$118	$151
Change in payment (monthly)		$33
Table 2: Sample Computation of Monthly MIP (Source: HUD Mortgagee Letter 11-10)

Below are some various examples using various loan amounts to illustrate how much the increase is going to effect the monthly Mortgage Insurance payment. 

$100k base loan amount       

  .90 monthly MI= $75.00

1.15 monthly MI=$95.83

$150K base loan amount

   .90 monthly MI=$112.50

1.15 monthly MI=$143.75

$200K base loan amount

  .90 monthly MI=$150.00

1.15 monthly MI=$191.67

$250k base loan amount

 .90 monthly MI= $187.50

1.15 monthly MI= $239.58

$300k base loan amount

   .90 monthly MI=$225.00

1.15 monthly MI= $287.50

$350k base loan amount

   .90 monthly MI=$262.50

1.15 monthly MI=$335.42

$400k base loan amount

  .90 monthly MI=$300.00

1.15 monthly MI=$383.33  

The insurance payment may be cancelled if the borrower has completed the payment of 20% of the total property amount.

The April 2011 mortgage insurance premium change will not affect the homeowners who already have FHA loans.

Starting April 18^th, the increase can have a substantial impact on the monthly mortgage insurance. It will be more expensive for you to buy or refinance a home using FHA loans as a result of this change. Therefore, if you are looking for a home, it is better to get into contract before April 18, 2011 to save the .25% of loan amount every year (for at least five years).

If you need full details on Mortgage Insurance Premium new law, you may contact your loan officer.

Things To Do Before Moving (Part 2 of 3)

2-3 Weeks Before the Move

- Pack like items together. Clothes go in one box. Kitchen things in another. Make sure to label each box on multiple sides to avoid confusion later on. You may also label them according to its new destination i.e. garage, kitchen, master bedroom.

- Contact or visit local post office to obtain Change of Address form. The form is also available online at www.usps.com.

- Make sure to inform the following people and businesses of your new address:

   1. Friends and family
   2. Banks
   3. Insurance companies
   4. Credit card companies
   5. Doctors, dentists and any other service providers
   6. Clubs or Associations
   7. Magazine and Newspaper subscriptions

- Contact all utility providers (electricity, telephone, gas, electric, cable TV, internet connection etc.) in your new and old of your moving date to make arrangements for connection and disconnection.

- Complete all banking arrangements in old and new location to transfer any funds to your new bank if necessary.

- If you are transferring to another state - Check requirements for new drivers license and auto registration in your destination state.

Things To Do Before Moving (Part 1 of 3)

Relocation can be a real headache. It takes up so much of your time and it's a very tedious process. But with a little planning and organization, you can make it a smooth process.  Here are some tips that will make your moving day like a walk in the park:


4-6 Weeks Before Moving ....

- Decide which items you wish to transport to your new home and what items you want to dispose of. You may either donate them to a charity or organize having a garage sale. Contact a local charity or pick a date at least two weeks before moving date for the garage sale. During this time, you may advertise the garage sale in your neighborhood.

- Make sure to shop around for the best movers. Ask your relatives, friends, neighbors and coworkers for recommendations or who to avoid.

- Start accummulating packing supplies. Make sure that the boxes you purchase are specially designed for moving to prevent any damages to your belongings.

- Make all necessary travel arrangements (hotels, flights, car rental, etc.). Making the reservations ahead of time will make sure that your preferred flight and hotel are still available.  Early booking can also save you a lot of money. Remember, moving can get very expensive, it is best to save whatever you can.

- Finalize all real estate and rental needs.

- If you have children, notify the schools in the old and new location and arrange for the transfer of school records and begin the process of registering in new schools.

- Many moving expenses are tax deductible. Obtain necessary formS in IRS. Form 3903 is the form to fill out for deducting your moving expenses from your taxable income. You will also need to fill out Form 8822 or IRS Change of Address Form. You may either go to IRS office or visit IRS website at www.irs.gov to download and print the form.

- Make arrangements with sitters or daycares for pets and children. It is easy for the children and pets to get hurt or lost on moving day. It's going to be easier for you to concentrate on the task of moving your stuff when you don't have to mind other things.