Texas Mortgage & Real Estate Thoughts

I'll often receive this question from new buyers and even homebuyers that have refinanced. Most recently, a Realtor wrote a post and said YES they Loan Origination WAS tax deductable.

"Are Mortgage Loan Origination Fees Deductible....." 

Don't assume this is correct. My suggestion is to read further, talk with your Loan Originator, and always talk with your CPA.

Within the post, the Realtor (Lenn) points out that Loan Origination Fees ARE deductible. The fact of the matter is that not ALL situations are the same. To her credit, Lenn does provide the IRS website and instructs her readers to check it out for more details. She even states to not listen to your Realtor or Loan Originator, but to contact a CPA or Tax Expert for clarification.

I too suggest contacting a CPA, but I wanted to share some helpful tips for when a Loan Origination is Tax Deductible and when it is not.

In today's market, the Loan Origination is more often the fee paid to the lender/loan originator for doing business with that company. The "Discount Point" is typically the fee that is applied towards getting a "below PAR" interest rate. In essence, paying a fee specifically to lower the rate from XXX to XXX. This is typically called a Discount Point or Discount Fee.

According to the IRS Site, a 'POINT' is defined as:

The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.

As you can see, a POINT could be called many things. The first thing you ask your Loan Originator is 'Does this CHARGE (no matter what the name) Lower The Interest Rate?'. If the answer is YES, then this is step one to writing off this charge on your taxes. Why? Because the fee is a direct result of a Lower Interest Rate. If the charge is just a charge paid to the Originator, then the fee is NOT deductible. You can not always tell by just looking at the Fees Breakdown.

In some cases the buyer (or homeowner that is refinancing) will pay a Loan Origination Fee AND a Discount Fee. In this scenario, it is very clear that you are paying a fee to drop the rate... although its not always obvious which is which. Ask your Loan Originator, make a note of it, and then discuss it with your CPA when the time is right.

What is extremely helpful for buyers today is that the new GFE (Good Faith Estimate) clearly states "Borrower Pays a Charge Of XXXXX.XXX For This Interest Rate Of XX.XX%". This was placed on the new GFE to make it very clear and helpful to buyers. As long as the buyer has received the GFE (which they always should) then it should also be clear that they paid a FEE to get the lower rate (Discount Fee).

When reading a post, article, newspaper, etc... always be sure to do some research yourself. Understand the entire process, how it relates to you, and consult a professional. Don't always assume the article is 100% accurate.

I have attached the IRS site for further explanation and examples of 'Points'. Feel free to contact me with any questions.

In case you have not heard, the First Time Home Buyer (and Move Up) Tax Credit deadline has been extended.

Recently, the Senate has approved this extension to ensure that the First Time Home Buyers and Move-Up Buyers that are under contract will close/fund their loan and receive their tax credit. Based on reports, it showed that over 180,000 home buyers would have missed out on their extension if the tax credit deadline was not extended.

Now, this does not mean that any 'new' contracts would be honored. This extension is specific to home buyers that had a contract signed by April 30th, 2010 and will not be able to close on their loan until after June 30th 2010, which was the original deadline date.

I was shocked at the number of loans that could not close within that original 60 day window, but was not as shocked after I heard how many of these purchases were Short Sales or Bank Owned property. Those transactions do tend to take much longer, especially when the Lender and/or Realtor are not familiar with the process.

So, if you have been under contract since April 30th, there is still time to take advantage of the tax credit, up to $8000.

Texas Relocation - Part 3

If you have followed the other two parts, then you are mentally prepared to move and have found a home in your new area. In Part 3 of 9, we will discuss Temporary Housing. A temporary home is used when there is a gap between the date you move our of your old home/rental and when you move into your new home.

Having a gap in your move can be caused by a few things. For example, if you purchased a brand new home that is being built. The home may not be ready for another month or two, but your company needs you at the new location now. During this two month period you may find a home or apartment that is available now and will allow you to keep a short lease.

How do you find a temporary home?

Finding the right rental is very similar to finding the right home. If you are relocating for your company, check your employer's policy on rentals. In some cases, the company will pay the deposit and may pay for the termination of the lease (should there be one)

You may also consider talking with the Real Estate Agent or Relocation Specialist you worked with when finding your home. Since they are familiar with the area, they could probably find a temporary home that is in a great location, is the right size for your family, and can accommodate your short term living arrangement. In bigger cities, apartment locating services are available. Two other solutions can be the local Newspaper Classifieds which can be hit-or-miss if you don't know the territory, or a co-worker in the new area may be able to direct you.

Just like when you were looking for your home, be specific with your needs. Even though it will be temporary, you still do not want it to 100% inconvenient. How many rooms do you need? Do you need public transportation? How much rent do you want to pay? What services / amenities are important to you? The more specific you are, the easier it will be to find a home that will fit your temporary needs.

Naturally, you want as much comfort and convenience as you can find. You may not have all of the conveniences of a permanent home, but you can come close. Look for something with pleasant surroundings and sufficient space. You don't want your family to feel inconvenienced, cramped, or depressed with the decor - even if this is temporary.

Many 'Short Term' rental properties come equipped with china, linen, and some may even have maid service. You'd be surprised with how far 'temporary housing facilities' have come due to their popularity. This is especially common in newly developed areas. Look for assistance from the Relocation Specialist or Real Estate Agent. More than likely, they are familiar with these developments and point you in the right direction.

If you wait a few more days or weeks to purchase a home, you could lose thousands of extra dollars. Why? Because the Housing and Urban Development (HUD) is implementing several changes for loans guaranteed by the Federal Housing Authority (FHA).

These changes are coming shortly before the April 30th First Time Home Buyer Tax Credit deadline, and just after the March 31st experation of the Federal Reserve Board's mortgage backed securities purchase (which has kept home loan rates artificially low for over a year now), these FHA changes make it even more important to act now to save BIG!

In case you have not heard about these changes, here is a quick explanation:

• March 30, 2010 - Federal Reserve Board is no longer purchasing Mortgage Backed Securities (MBS) which has been keeping mortgage rates at historic lows.
• April 5, 2010 - HUD is implementing new requirements for Up-Front Mortgage Insurance (UFMI). Currently, the amount of UFMI is 1.75% and is increasing to 2.25%. What does this mean? For a borrower purchasing a home for $200,000 with a $7,000 down payment, the UFMI will increase by $965. Typically, this amount is financed into the loan, so the mortgage payment increase will be minimal, but overall the fee is increasing for the buyer.
• Later this Sping - HUD will implement the reduction fees allowed to be paid by a seller. Currently, the seller can pay up to 6% of the buyers closing costs. This percent is decreasing to 3% maximum. Using the same example above, a home buyer purchasing a $200,000 home will lose on "seller concessions" by $6,000.

How do you avoid this loss? GET OFF THE FENCE! Submit your FHA Mortgage Application by the last week of March.

Texas Relocation - Part 2

In part 1, I discussed the importance of 'Getting Ready' for your Texas Relocation. No matter your reason for relocating to Texas (or any state for that matter), you want to be prepared and you want to narrow down your location specifically.

Part 2 Finding a House in Your New Area

Before you sell your existing home or give notice to your landlord (if you are renting), my first suggestion is to contact a Relocation Specialist in your new area. As I mentioned in my previous post, this specialist could be someone within your company (generally within your Personnel Department). Or you can ask the Real Estate Agent that is listing your current home because they will tend to have connections outside of their direct area. As a matter of fact, most agents maintain a close relationship with affiliated agents across the country who may specialize it helping out-of-town home buyers.

When you contact this specialist, be prepared with provide all of the information needed to make your search easier. This information includes, but is not limited to, the following:

• A brief breakdown of your family members
  • Number of members
  • Children's ages
  • Any needs for elderly members
• What are your interest
  • Golfing
  • Boating
  • Gardening
  • Volunteering
  • Religious Activities
• Special Family Needs
  • School Requirements
  • Public Transportation
  • Distance to work
• Your employer and work location
• What are your target dates for house hunting and moving in
  • Looking at homes listed today may be a waste of time if you are not considering a relocation until the middle of next year. However, viewing homes in a specific neighborhood may still be helpful.

If you do currently own a home and have it listed for sale, you should talk with your listing agent about your financial stituation. No, not what amount is in your checking and savings account. I am talking about the amount of equity you have in your current home. This will help you determine what your downpayment will be and ultimately, what your loan balance will be on your new home. The listing agent can complete a Broker's Pricing Opinion of Value (BPO), which will help you determine your equity.

The next big question is, "what TYPE of home do you want?".  You have prepared your list of 'special requests' above, but let's talk about the style, size, etc. Here are some things to consider:

• Price Range
  • Knowing your down payment will help you with this determination.
  • When shopping for a home and ultimately for a mortgage, be sure you are comfortable with the mortgage payment. If its seems a little hight, consider lowering your price range or increasing your down payment.
• Style Preference
  • There are many styles to choose from, but not all home styles are offered in a specific area. Your real estate agent will be able to help you with this further.
• Room Requirements
  • What do you 'want' from your home? Family room, fireplace, separate and formal dining rooms, office space, three car garage, etc.

With some companies, your relocation specialist will match you with a Real Estate Agent that is familiar with your new area. Once you have updated them with your needs from above, they can guide you efficiently through the house-hunting process.

Something else to remember is to ASK questions. Remember this is a new location to you and the real estate agent you are working with is very familiar with this area. Ask about local parks, communities, home values in the area, local attractions, new constuction in empty lots, or anything else that may come to mind.

Stay in touch with this 'Texas Relocation' series here.