The Mortgage-Interest Deduction: Should It Be Reduced in Favor of Jobs?

September 20th, 2011

Mortgage Interest Deduction Last week the National Mortgage News ran an article, “How to Pay for the Obama Jobs Bill? Answer: Cut the MID,” in which it talked about how the White House budget office is proposing to reduce the amount of mortgage interest that homeowners, making more than $250,000 a year, can deduct from their income taxes in order to help pay for the $450 billion American Jobs Act.

What this means, according to the article, is that if a married couple, who makes more than $250,000 a year, paid $10,000 in mortgage interest and deducted $3,300 from their taxes in 2010, beginning in 2013, they would only be able to deduct $2,800.

While talk about cutting or eliminating the mortgage-interest deduction has been discussed on Capitol Hill for a number of years, it is still a popular tax break with homeowners. So, what exactly is the mortgage-interest deduction?

The mortgage-interest deduction allows taxpayers who own a home, have a mortgage and itemize deductions on their tax return to reduce their taxable income by the amount of interest paid on the loan. Mortgage interest includes interest paid on the mortgage for a principal residence and a second home, home equity lines of credit, and construction loans. Interest cannot be deducted on more than two homes. According to the IRS, “a home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking and toilet facilities.”

You can deduct the interest on only the first $1 million of mortgage debt, regardless of whether it is your principal or second home. You can also deduct the interest on up to $100,000 in home-equity loans, even if the money isn’t used for home improvements.

The mortgage-interest deduction is offered as an incentive to encourage home ownership, especially for people who continuously rent. With the availability of this tax deduction, you should consider whether purchasing a home is right for you. Contact Grandview Lending for more information on the various home loans available. Our mortgage calculator will help you determine how much interest you’ll pay on your mortgage over the lifetime of your loan.

In Case of Loss: Do You Have Enough Home Insurance?

September 13th, 2011

House on Fire This year in the U.S. we’ve seen many devastating events, such as wild fires, tornados, flooding, and a hurricane, which have affected many homeowners. In the aftermath of these events, it is even more devastating for homeowners to find out that their property is underinsured.

As I’m sure most people are aware, the severe economic downturn has resulted in declining real estate market values. However, the replacement cost to rebuild your home following a loss has not declined.

In many areas of the U.S., the cost to rebuild a home now exceeds its market value. While some homeowners may think their insurance coverage amounts should decrease due to lower home values, this is not the case.

The difference between the market value and the replacement cost of your home is:

Market value is the current price at which your house, the surrounding land, and all included structures, such as detached garages, sheds, or swimming pools, can be bought or sold. This value varies based upon the supply and demand of real estate in your area. Some factors that determine the value include: the condition of the home, location, the condition of neighboring properties, the quality of the school district, and property taxes.
Replacement cost is the current price to rebuild your house as it is now, in the same spot, using the same type and quality of materials, and at the same level of craftsmanship. The replacement cost doesn’t include the value of the land or any of the structures on the property. This price will vary depending upon the materials, labor, and equipment used to reconstruct the house. The replacement cost is not the home’s purchase price, the outstanding amount owed on the mortgage loan, or the property assessment figure used for taxes.

In a fourth quarter 2010 study of several metropolitan areas, large disparities between the market value and the replacement cost can be seen. This is especially evident in the Sunbelt area where real estate values have taken a big hit.

Metropolitan Area	Sale Price	Reconstruction Cost	Percentage Difference
Cape Coral – Fort Myers, FL	$86,000	$222,800	159.1%
Phoenix – Mesa – Scottsdale, AZ	$132,300	$207,200	56.6%
Las Vegas – Paradise, NV	$134,200	$202,400	50.8%
Riverside – San Bernard, CA	$186,300	$258,800	38.9%

While some homeowners want to save money when buying insurance, you need to make sure you have adequate coverage in case of loss. Who wants to only replace part of a home because that’s all the insurance coverage they have? Therefore, regardless of where you live, you should insure your home for at least its full replacement value. Additionally, you should keep track of current market conditions in your area, reviewing and adjusting your coverage amount periodically. For more information on your coverage, consult your insurance agent. If you’re purchasing a new home and need mortgage information, contact your mortgage broker.

Home Buying Considerations for Couples Without Kids

September 7th, 2011

First Time Home Buyers Are you and your spouse/significant other planning to purchase a new home? While there are several important steps to consider to ensure you’re making the right decision about buying a home, one thing you should take into account is whether you plan to have kids in the future.

Why does this matter? Everyone’s needs are constantly changing. While a one- or two-bedroom condo may be plenty of space for you both now, if you’re thinking of having children in the future, then your condo may become too small once your first child is born. Additionally, if you want to recoup your investment, it’s best to plan on staying in your home for at least five years or more.

So, if you don’t want to experience buyer’s remorse, you should consider the following questions to help you determine what kind of home is right for both of you and your future needs.

1. Do we plan on having children? If you want to live in your new home for the long-term, then you need to choose a house that will give you plenty of room for a growing family. You should consider:

How many bedrooms will you need?
How big are the rooms?
Does the home have a laundry room?
Does the home have a back yard?

2. Where is the home located? When you’re in your ‘20s, a home near restaurants and nightlife may be ideal, but once you have a family, this may not be as appealing. You should consider:

The quality of the neighborhood – Is it economically safe (i.e., low crime rates and well maintained homes and yards)? You want to sustain the value of your home in case you do want to sell in the future.
Are there young families in the neighborhood?
Is it close to shopping and parks?

3. Within what school district is the home located? A good school district not only determines the type of education your future children will receive, but it also affects home values. Plus, if you do eventually plan to sell your home, a good school district may be of great interest to potential home buyers.

4. Where do you both work? Not only do you need to consider your current jobs, but you should keep in mind any future jobs. A home that is centrally located, or near main roads or public transportation, will reduce commuting times. Also, is the home located near shopping and doctors’ offices?

By keeping these considerations in mind, you can make a smart decision in buying a new home for both your present and future needs. If you have other questions about buying a new home, contact a reputable mortgage broker. They’ll be happy to review your situation with you.

What is a Prepayment Penalty?

August 31st, 2011

House and Money Perhaps you’re selling your home or thinking of refinancing now that the interest rates are so low, do you know if your current mortgage has a prepayment penalty clause?

While prepayment penalties are not as common as they once were, depending upon when you took out your current mortgage, your bank or mortgage company may have given you this option when you completed your paperwork.

A prepayment penalty is a provision in your mortgage that states you will pay a fee, or penalty, to the lender in the event that you pay off the loan, or a portion of it, before a specified time period (for example, less than 5 years) or the end of the loan term.

Typically, the penalty is a percentage of the outstanding principal balance at the time of prepayment. For example, if the penalty is 3% of the balance, and you owe $100,000 at the time of prepayment, the fee would be $3,000. However, another prepayment formula uses a declining percentage that may call for a 3% penalty during the first year, a 2% penalty during the second year, and a 1% penalty during the third year. This calculation is based upon the amount of interest that would be paid on the balance during a specific time period – for example, 6 months of interest on 80% of the balance at the time of prepayment. In this scenario, if you have a $100,000 loan that has a 10% interest rate that you want to prepay, the penalty is determined as:

80% of the balance equals $80,000.
One year of interest at 10% is $8,000.
$8,000 divided by 2 (to get 6 months of interest) equals $4,000.

Reasons you may prepay your mortgage include when you:

Refinance your mortgage for a lower interest rate, and your current loan is paid in full, so the new mortgage loan can be issued.
Make a payment against the mortgage’s principal.
Sell your house and the loan is paid off.

Generally, most lenders only require you to pay a prepayment fee if you pay back the loan early, such as during the first 3 to 5 years of taking out the loan, and they don’t require a fee when you sell your home. A prepayment due to refinancing is considered a “soft” penalty.

A “hard” penalty is when you have to pay a fee regardless of the reason for paying off the loan. However, with most loans, you can make partial prepayments of up to 20% of the loan balance within any one year without paying a fee.

Prepayment penalties are not necessarily a bad thing. In exchange for accepting the prepayment penalty clause in your mortgage, you may receive a lower interest rate and/or lower closing costs. While your lender has the assurance that you’ll keep the loan for a specific time period or you’ll pay the fee.

To determine if your current mortgage has a prepayment penalty, you should carefully review your mortgage paperwork. You should look for the words “prepayment penalty terms” or a “prepayment penalty rider.”

If you have any questions regarding an existing prepayment penalty clause or the terms on your new mortgage, contact your mortgage broker for answers, so you can make an informed decision.

Questions to Consider If You’re Thinking of Refinancing

August 24th, 2011

Refinance Calculation With the recent drop in mortgage rates (Zillow Mortgage Marketplace reported 3.92 percent for a 30-year-fixed in the last week), you may be thinking about refinancing to take advantage of lower rates. Refinancing is essentially paying off an existing loan with a new loan, using the same property as collateral. When refinancing, you will go through the same process and incur the same types of costs as you did when you financed your home the first time. So, sometimes a refinance can cost you more money than it will save you. If you’re not sure if you should refinance, take a look at the following questions to help you make your decision.

What are your reasons for refinancing? The type and terms of your loan will depend upon your refinancing goals.
- Do you want to save money with a lower interest rate?
- Do you want to lower your monthly payment by stretching out your remaining loan term?
- Do you want to switch from an adjustable-rate mortgage to a fixed-rate mortgage so your monthly payments are consistent?
- Do you want a shorter loan term so you can build up more home equity?
- Do you want to use your home equity to get cash for your children’s education or a major purchase?
Will it be worth it to refinance? If your current mortgage interest rate is at least two percentage points higher than the market rate, it usually makes sense to refinance in terms of costs versus savings. However, it depends upon how long you plan to stay in your house. Generally, it takes a minimum of three years to offset the costs associated with refinancing.
How much home equity do you have? Most banks require a certain amount of equity in order to refinance your mortgage.
What is your credit score? A low credit score will affect your ability to obtain refinancing and the interest rate you will get.
What is your property value? If your property value has dropped, you may not be able to refinance unless you have been paid down your mortgage substantially.
Does your existing mortgage have prepayment penalties? Any prepayment penalties should be considered against the potential savings you may obtain from refinancing.
What are the costs of refinancing? Typically, you will encounter the following fees when refinancing:
- Application fee – covers the initial loan processing costs and your credit report assessment.
- Title search and title insurance – covers the cost to confirm your ownership of the property, and the cost of a policy. Ask your title company if you qualify for a refinance rate in order to save additional money.
- Lender’s attorney’s review fees – covers the lender’s lawyer fees for conducting the closing.
- Loan origination fees – covers the lender’s work in evaluating and preparing your loan.
- Discount points – are prepaid finance charges the lender requires at closing, depending upon market conditions and the interest rate being charged. One point equals one percent of the loan amount. In some cases, you can add them into the loan amount be financed.
- Appraisal fee – covers the property appraisal.
How many quotes should you get? Mortgage rates and lending standards vary between institutions, so obtain multiple quotes requesting the same terms, as much as possible, for comparison. Make sure to ask each lender for a full disclosure of all points, closing costs, and other fees. Also, ask each lender how long they’ll commit to locking in a rate.
How do the quotes compare against each other, and against your existing mortgage? Make sure that your monthly savings will eventually compensate for the refinancing costs.
Will the refinanced mortgage have any prepayment penalties? Since you may want to refinance again in the future, if the conditions are right, it might be advisable to avoid future prepayment penalties.

If you’re still not sure whether you should refinance, or if you have additional questions, contact a mortgage broker. They will be happy to answer your questions, provide you with cost calculations, and clarify the refinancing process.

How to Improve Your Credit Score

August 16th, 2011

If you’re thinking of buying a home, it’s important to have a good credit score to qualify for a loan. Banks and mortgage companies look at your credit score to determine whether or not they’ll approve a loan based on your credit history.

Before the housing collapse, you could get the best rates on loans with a score of 620 or higher. But now, it’s not that easy to obtain credit, and it’s likely with the S&P downgrade that it’s going to get even harder. So it’s critical that you maintain a good credit rating if you want to buy a home. Current research from Zillow Mortgage Marketplace indicates that you’ll need a credit score of 720 or higher in order to get the best rates on loans.

While building, improving, and maintaining a good credit history can seem like a daunting task, there are steps you can take to improve your credit score.

Set clear financial goals and establish a plan to reduce your expenses.
Pay all your bills on time – not just credit cards and loans. Any reported late payments can lower your credit score by as much as 100 points. Set up automatic payments to pay your bills before their due date.
Pay more than the minimum. Pay down credit cards with the highest interest rates and balances first.
Keep your credit card balances low – within 30% of your credit limit. Balances near the top of your credit card limit decrease your credit score, since they signal you’ve maxed out your line of credit.
Consider using your savings to pay down any high credit card balances a couple months before you plan to apply for a loan. Also, avoid using your card(s) in the time period between paying down your balance(s) and when you apply for the loan.
Limit opening new lines of credit. When you apply for new accounts (credit cards or loans), your credit score loses points (10% of your score). If you must open new accounts, try to space them out by at least 6 months or more.
Manage your debt, but don’t move it around. Too much debt from loans and lines of credit can lower your score. However, combining two credit cards into one card, so you can close an account, can decrease your score, too.
Don’t close old credit cards. By closing old accounts (10+ years), you can shorten your solid credit history, causing a decrease in your credit score.
Monitor your credit report. Inaccurate information on your report can affect your credit score. Check for and dispute any errors immediately with the credit reporting agency (Equifax, Experian, and TransUnion).
Use bankruptcy as a last resort. Bankruptcy can reduce your credit score by hundreds of points and will stay on your file for up to 10 years.

By practicing discipline while building and/or improving your credit score, you can establish and maintain a good or excellent score. With time and patience, you can eventually qualify for a mortgage.

For more information on credit basics or qualifying for a home loan, contact Grandview Lending.

Beware of Mortgage Payment Transfer Scams

August 10th, 2011

Scam Alert A common mortgage scam has resurfaced again that dupes unsuspecting homeowners out of a couple months of mortgage payments. Since mortgage institutions are continually consolidating, borrowers can quickly become victims to the scheme and not realize it until they’ve missed several months of actual mortgage payments.

The scam works like this: Homeowners receive official-looking letters telling them that another (fictitious) company has assumed the management of their loans, and they should begin sending their payments to the new (fictitious) company. The borrowers, who fall for the ruse, will send one or possibly two payments to the fake company before realizing that they’ve been conned. By this point, homeowners have lost the money for a couple house payments, have seriously damaged their credit rating since they’re late on their payments, and may possibly be on the path to foreclosure.

To keep from falling victim to this scam, you should know the rules concerning the transfer of mortgage-servicing rights. By law:

Your current service provider must send you a letter notifying you that your mortgage will now be serviced by another company. This letter will state when you should begin sending payments to the new company.

Within a couple weeks, you’ll receive a letter from the new mortgage servicer. This letter will tell you what your monthly payment is, with a breakdown of the principal, interest, and escrow. You should also receive a few payment coupons or a new coupon book, along with several self-addressed printed envelopes, so you can begin making payments.

Both letters should include your loan number. If they don’t, or the information provided in each doesn’t match up, you should call your original loan provider to verify the account transfer. Also, if you only receive one letter, contact your previous lender. When calling the original servicer, you should use the company’s toll-free number listed on the copies of your previous payment stubs or on their website. In this way, you’ll protect yourself if you did receive a letter from a fraudulent company. Many of these fake companies often have people answering the phone line for the number given in the letter, and they can provide information that sounds convincing.

This scheme may seem simple, but borrowers may not know they’ve been conned until their current lender notifies them that they’ve missed a payment. Unfortunately, since most homeowners will probably just tell their lender that the payment has been mailed, it may take another missed payment before the homeowner realizes that they’ve been a victim of mortgage fraud.

If you receive a letter transferring your mortgage to another servicer that you suspect may be fraudulent, call a trusted mortgage broker to verify the information before you get conned out of your hard-earned money.

What Is a VA Loan?

August 2nd, 2011

Are you one of the 30 million Americans who is an active military professional, veteran, or the unremarried widow or widower of a veteran? Do you want to buy a home and use your Veterans Administration (VA) benefits? Are you unsure about what a VA loan entails?

Whether you’re a first-time home buyer or not, the loan process can seem overwhelming and difficult. We suggest you contact a reputable mortgage broker to help guide you through the process of qualifying for a VA loan and finding the right mortgage solution for you and your family.

However, the following are some key points you should know about VA loans.

You can use a VA loan for a single-family house, farm, duplex, condo, or townhome – the only stipulation is, you must live in the home yourself. You cannot use it as a rental property.
Depending upon the county and state that the home is located in, you may be eligible for a VA loan up to $1 million.
You must still qualify for a VA loan based upon certain military service requirements to receive a VA Certificate of Eligibility, and you’ll be subject to an income and credit analysis.
With a VA loan, you can qualify for lower interest rates, which means your monthly payments will be lower.
No down payment is required, but you do have the option to make a down payment if you have some money saved.
You’ll be required to pay, or finance into the loan, an up-front VA Funding Fee, which is a small percentage of the loan, depending upon how many times you have used your VA Certificate of Eligibility to buy a home.
You’ll pay lower closing costs, since certain fees cannot be charged to veterans.
You don’t have to pay for private mortgage insurance unlike conventional borrowers.
Your home will need to be inspected by a VA-approved appraiser to ensure it is in move-in condition when you buy it.
You’re not subject to pre-payment penalties with a VA loan.
You can use your VA benefit more than once.

To learn more information about VA loans, contact a mortgage broker. Your broker will review your situation with you and help walk you through every step of the process.

The Big Question - Move or Stay?

July 26th, 2011

Home Questions The economy continues to prevent people from making important key financial decisions. Many who would otherwise be ready to place their house on the market with the intent to move have become basically paralyzed in their decision-making process.

There are a plethora of life changes that spark homeowners to consider relocating, whether that relocation is across the street, across town or across the country.

Some primary reasons for wanting to move include:

Their current house has become too small.
They want the children to go to a different school.
A new job location has create an extensive commute.
It's time to remodel.
They have a 2-story and want one level, or vise-versa.

Normally, any of these would be enough to immediately say, "Let's move!" But it appears that currently, more are choosing to stay where they are. According to Mortgage News Daily, The Mortgage Bankers Association reported last week a huge increase in applications for refinancing.

These refinances showed more than a 23% jump - the largest since January of 2010! Does this mean more people are choosing to stay put and just wait it out? Are they choosing to add on rather than purchase something larger? Is the commute a better alternative than taking a loss on their current house? Does it make more sense to remodel rather than move?

How about you? Have you faced this decision and chose to stay in your current home?

Whatever your choice - move or stay - working with a professional mortgage broker will make the process easier, and you'll also be able to learn of the many options available.

The Price is Right - Or is It?

July 19th, 2011

Chart We talk about mortgages a lot, which makes sense since we are a mortgage lender. But today I am sharing information about the current housing market and pricing your house. After all, without people buying houses, there would be little need for a mortgage lender, would there?

We all know it's a buyer's market, so pricing your house appropriately when you list it is essential for a timely sale. Zillow’s latest research has found, however, that sellers aren't on the same page when it comes to proper pricing of their home. This variation has a lot to do when they bought the home they are now ready to sell.

Zillow did some major research - to the tune of 1 million homes currently for sale. They found that homeowners who bought:

in 2007 or after believe their homes are worth 14% more than current market value.
before the housing run-up, prior to 2002, they overpriced their home by almost 12%
during the run-up, from 2002-2006, these sellers are pricing their homes 9% over market value.

Why are all so many sellers pricing their houses from 9% to 14% over market value? Many people use the price they paid for their home as a basis for determining the value of it today. Unfortunately, home values are back to 2003 levels. Values have dropped every year since 2006.

These are startling facts to some people. The best way to prepare is to do some research. Find out what the true value of your home is today before placing it on the market. Then you'll price your house correctly, based on today's market.