Understanding Loan Sources for House Buying (investment property specialist)
No commentsBy Luat Tran Van
Today, there are many loan sources from which to choose. Shopping for a loan by visiting more than one lender or mortgage broker is a good idea. Like anything else, comparison-shopping and referrals may lead you in the right direction. Ask your real estate broker, friends or family to suggest some companies they have used in the past.
Generally national banks offer many mortgage options and services and may have competitive rates, but may also be stricter with their lending guidelines. Credit unions and local or regional banks may be more flexible in underwriting loans, but may not offer the range of services that a national bank can. For example, on-line banking, where you perform banking functions on your computer, is a great service many banks now offer.
Perhaps, you may already be comfortable with your bank and a loan officer. Applying for a debt at your bank where you currently have an account may be more convenient, particularly if your financial condition is solid. They are more familiar with your situations, and the application procedure may be a lot easier.
Using a mortgage broker is a good option because they can connect to many different lenders and loan programs. Their role is to act as a middleman between a lender and a borrower. Frequently, first-time home buyers will have better success with a mortgage broker because they will be able to choose between many loan programs to find the best one. Less-than-perfect financial profiles may mean higher interest rates or other charges, but the chances of securing a loan may be better. Real estate or mortgage brokerage offices have Computer Loan Origination systems that help sort through the various types of loans offered by different lenders. The CLO operators may charge fees for their services, and the selected lender or the buyer may pay the fee.
The lender, the borrower or both may pay the mortgage broker. Comparing the fees that mortgage brokers charge for their services can save you thousands of dollars in the long run. A good way to do this is to compare the Annual Percentage Rate (APR) from lender to lender. The APR includes the interest rate, mortgage broker, fees, points, and other fees you may have to pay. Points are usually paid to the lender, mortgage broker or both, at the settlement or completion of escrow. The Truth in Lending Act (Consumer Protection Act), also known as Regulation Z, requires lenders to show the borrower what the APR is and detail other payment information associated with the loan.
Mortgage banks or mortgage companies now generate the majority of mortgage loans. Unlike traditional banks, they do not offer savings or checking accounts. These are banks that specialize in mortgages, packaging and selling them in the secondary market to investors. These investors can be life insurance companies, commercial banks, savings and loan associations, mutual savings banks, or pension, trust or retirement funds. Institutional lenders are often in the position of a mortgage banker. In some cases, they will sell the loans to other investors, usually in the secondary market, and then service the loans for the investors. In compensation, they receive a fee based on the principal balance of the loan each year from mortgage buyer-investors.
Today, there are more types of mortgages available than ever before. We will detail only the most common types of mortgages, but there are many others that may work for you. Each year, lenders who want to make loans more attractive are inventing new and creative mortgage programs. With names like graduated payment mortgage, shared appreciation mortgage, reduction option mortgage, price level adjusted mortgage, package mortgage, or reverse annuity mortgage, the mortgage game can be complex and confusing.
Deciding which mortgage is right for you have a lot to do with predicting where you may be financially in the future. For example, some mortgages have payments that balloon or increase in size as time goes on. Being able to handle this future financial burden and hoping that your income will continue to increase can be a stressful way to live. Yet it can also be a way to afford a home now when your income may be at a lower level.
Community Home Loan Programs are now also offered. They are ideal for first-time home buyers and can offer more flexible guidelines with smaller down payments. Usually associated with a county or state program, specific terms vary from area to area. The government is now making it easier for a first-time home buyer to purchase, so ask your local mortgage professional about these types of programs in your area.
Denver Real Estate
Highlands Ranch Homes
Understanding Tax Advantages for House Buyers
By Luat Tran Van
Home ownership is becoming more and more profitable, thanks to many of the new tax laws that encourage home buying. The tax benefits associated with owning residential real estate are superior to most other investments. Homeowners can claim basic items as deductible, such as property taxes and mortgage interest charges. Deductions for home mortgage interest can apply to first or second homes. Rental properties also qualify for depreciation allowances as a tax benefit.
Tax laws are frequently changing and your personal tax situation may be unique. It is important to consult a tax advisor before purchasing so you stay current and know how real estate ownership affects your personal tax return.
Some of todays real estate tax codes have been in effect for a while. Specifically, interest paid on mortgage loans of up to 1 million dollars that is used to buy, build or substantially improve your property is fully deductible. Presently the mortgage limit is $500,000 for married couples filing separately. Interest on home equity loans is deductible for loans up to $100,000, and $50,000 for married persons filing separately.
Points are also allowed as itemized deductions. A point is equal to a percentage of the loan amount. The borrower is sometimes charged points by the lender. Points may be part of the up-front costs you are required to pay in order to get a mortgage loan. The government considers points as pre-paid interest, because they are payment for the use of money. It is important to remember that points can be deducted the year they are paid. If you borrow to pay these points, you can also deduct the resulting interest payments as part of your first mortgage deduction.
Another big advantage of home ownership, a “rollover benefit,” occurs when you sell your property. The tax on the profit of a sale of a primary residence can be deferred completely if you buy or build another house and meet a principal test and a time test. The time test requires that you live in a residence two of the last five years for it to be considered your primary residence.
A couple now can gain up to $500,000 and an individual can gain up to $250,000 in profits from the sale of a home tax-free. If you lose money on the sale of your home, you cant deduct that loss from your taxes.
There are also tax breaks for home buyers who are having difficulty coming up with enough money for a down-payment on their first home. The government is allowing first-time home buyers to use their Individual Retirement Accounts to make initial down payments without paying a tax penalty. Gifts can be accepted to buy a house from the IRAs of parents or grandparents under the age of 59 with no penalty. Income tax must still be paid on any amount withdrawn.
A couple now can gain up to $500,000 and an individual can gain up to $250,000 in profits from the sale of a home tax-free.
In a few states, homestead laws are also in place which protect a familys primary home, or homestead, from being seized by creditors, assuming your mortgage payments have been paid. Homesteads can also qualify for a partial exemption from property taxes. In Florida, for example, homeowners are allowed to deduct $25,000 from the assessed value of their primary residence. Since the property tax on a home is based on its assessed value, the effective tax paid on a homestead is reduced. This exemption may not be automatic and an application may have to be filed with your local governments property appraisers office.
Because tax laws are frequently changing, and everyones situation is different, discover what deductions you qualify for by hiring a good tax professional.
Denver Real Estate
Highlands Ranch Homes
Your Source For Information On Investment Property Experts
Building Wealth with Rental Income
By Luat Tran Van
Rental income is another way to build wealth. Many investors build a portfolio of rental properties so large that they live off rent payments exclusively. The greater the positive cash flow from rent, the greater the income.
Renting while on vacation is like throwing money out the window, but many people still rent because they are not willing to make the commitment of additional home ownership or have not been able to save enough for the payments.
Owning a rental property or a vacation home that can be rented out to short-term tenants during the off season may be a solution. Instead of renting while on a vacation, many people are opting to own a vacation or second home due to the tax advantages and investment potential of owning real estate. Wealthy people do not own second homes only because they can afford to do so; they also own second homes for tax write-offs or for long-term investments. Many wealthy individuals intentionally maintain mortgages strictly for the tax deduction, even though financing the deal is unnecessary.
Mortgage interest and property taxes are also tax-deductible on a second home. Vacation homes, especially those on the water or on a golf course, will most likely appreciate in value. In Florida, vacation homes are an extremely popular way for many to invest and maintain a get-away shelter. Businesses that own vacation homes for the enjoyment of their associates and clients deduct costs as a business expense.
Some buy residences strictly to rent to long- or short-term tenants. Rental payments help pay off the mortgage while the property appreciates in value, thus building equity. At the same time, landlords may enjoy a positive rental income. Rental properties also qualify for depreciation allowances as a tax benefit.
If you want the benefits of both a second home and a rental property, you can buy a multi-unit apartment and live rent-free in one of the units while the tenants pay the mortgage. In this way, one can act as an on-site owner landlord. Some individuals rent out to tenants for part of the year while remaining up north, then fly south to live in the residence for the other part of the year.
An arrangement offering similar benefits is a time-share, where several individuals retain part-ownership interest in one residence and take turns actually residing in the home. This reduces an individuals risk, commitment and investment, while offering use of a great part-time vacation home.
Denver Real Estate
Centennial Homes
Friday, October 30th, 2009 at 7:45 am and is filed under realestate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
