Real Estate Information Archive

Blog

Displaying blog entries 1-2 of 2

Little-Known Ways You Can Buy A House With No Down Payment

by The Schnoor Team

The city where you plan to buy a home may offer loans with no money down.

Can you buy a house with no down payment?

Yes, you can.

“Paying 20% down is, quite frankly, a myth,” says Karen Hoskins, vice president at NeighborWorks and bearer-of-great-news. “Most buyers pay only 5% to 10% down — some even pay zero.”

The key to finding a no-money-down home loan is finding the right assistance program. And there’s no shortage of them if you qualify.

Of the roughly 2,500 home-buying programs tracked by Down Payment Resource, a nationwide database of home ownership programs that helps match buyers and properties, 69% offer down payment assistance.

Even better: The average amount of assistance from those programs nationwide tops $11,000 — though amounts would vary greatly between disparate cost-of-living markets like Southern California and Iowa, according to Down Payment Resource. Some 87% of properties are eligible for some kind of assistance.

Here’s where to find the financial help you need to buy a home:

National Government Programs

Because they’re at the national level, they’re often the ones people turn to first:

  • FHA. Helps first-time buyers — especially those with lower credit scores — buy with down payments as low as 3.5% (low-down).
  • USDA Rural Development Loans. For low-to-middle income families buying homes in towns with populations of 10,000 or fewer people or that are “rural in character.” That means some areas with bigger populations have been grandfathered into the program (zero down).
  • VA Home Loans. Helps service members, veterans, and eligible surviving spouses (zero down).
  • Government-sponsored enterprises. Fannie Mae and Freddie Mac, which set the rules for mortgages nationwide, both offer programs allowing eligible buyers to put down as little as 3% of the purchase price. That’s even lower than FHA (low-down).

But those aren’t the only options. Too often, buyers neglect to look for help locally, which may offer even better assistance.

State and Local Home-Buying Programs

Responsible homeowners are vital to a community’s stability and economic health, so municipalities and states have a vested interest in helping you buy a home — even if you don’t have the down payment.

Qualifications vary based on the agency or the community requirements, but assistance programs generally:

  • Have income limits
  • Have purchase price limits
  • Require participants to take home buyer counseling

Other requirements — like whether you’re a first-time buyer, how good your credit is, where you have to buy, whether you have to rehab the home, or if you need to be part of a group, such as active military, veterans, or teachers — depend on the program.

Assistance comes in these forms (Note: Specific programs named as examples below may change or close over time.):

Forgivable loans and grants. These are literal gifts for some or all of the down payment and closing costs, which means there’s no recorded lien or mortgage on that money. Eligibility and terms will vary and funds are limited. Example: The National Home Buyers Fund, Inc. offers down payment and closing cost assistance up to 5% of the mortgage loan amount as a gift or zero-interest second mortgage that’s forgiven after three years.

Second mortgages. As the name suggests, these loans are in addition to your primary home mortgage. They take a variety of forms, and the differences can be confusing. The most important thing isn’t the terminology, though; it’s knowing they exist, because they can offer substantial down payment assistance (DPA) and favorable terms.

  • Soft mortgages. These DPA loans are deferred for some period of time based on a particular program’s requirements. Occasionally, they’re forgivable. Example: The Home Purchase Assistance Program in Washington, D.C., defers payments for five years for moderate-income borrowers.
  • Silent seconds. DPA repayment is deferred until you sell or refinance. The city of Napa, Calif., for instance, offers eligible first-time buyers up to $58,000 or 30% of the purchase price, whichever is less, at 1% interest. The loan can be deferred for the 30-year term if you stay in the home.
  • Hard seconds. You start paying off the DPA loan as soon as you close. Programs offer a variety of loan amounts and interest rates (some below-market) depending on your eligibility.

First mortgages at below market interest rates. Local and state agencies subsidize a mortgage to make it more affordable for the buyer by reducing the interest rate, or offering 100% financing (which means no down payment), and sometimes waiving mortgage insurance, too.

Mortgage credit certificates (MCCs). Issued by some state or local governments, MCCs allow taxpayers to claim a tax credit (Form 8396) for some portion of the mortgage interest paid during a given tax year. A credit, unlike a deduction, is a dollar-for-dollar savings on your tax liability.

You don’t have to itemize to use this credit, according to Greg Zagorski, senior legislative and policy associate at the National Council of State Housing Agencies. It’s capped at $2,000 per year, and you can claim it throughout the life of the loan.

A cool tax benefit of MCCs is that if your tax liability one year is lower than the credit, you can roll over the amount you can’t claim to the next year. If you make more the next year (and therefore have more tax liability), you can claim what you couldn’t before.

How to Find a Program You Qualify For

  • Housing counselors, who are free (!) and can discuss what mortgage options are best for you, are available through housing finance agencies and organizations like NeighborWorks. Find HUD-approved housing counselors by state here. Or contact your state’s housing finance agency.
  • Check your eligibility for a host of DPA programs at Down Payment Resource.
  • Find a good mortgage broker, who should have information about down payment programs in your area and can help you determine your eligibility.
  • Talk to your real estate agent.

A final note: When you put down less than 20%, you pay private mortgage insurance (PMI) each month to protect the lender’s interest. On the other hand, not having to save up for a 20% down payment can get you into a home a lot faster. And you can cancel PMI (except for FHA loans) once you reach 20% equity.

Source: "Little-Known Ways You Can Buy A House With No Down Payment"

Will My Taxes Look Different Now That I’m a Homeowner?

by The Schnoor Team

Magic 8 ball says yes. Here’s what to know to itemize tax deductions as a homeowner.

The federal tax law signed by President Donald Trump Dec. 22, 2017, may affect home ownership tax benefits described in this article. The new law goes into effect for the 2018 tax year and generally doesn’t affect tax filings for the 2017 tax year.

Taxes? Gross! Who wants to think about government paperwork, especially when your hand still aches from signing the 977 forms required to buy your first house? But listen up: As a new homeowner, you can typically wave bye-bye to the 1040-EZ form and say hi to itemizing your deductions on Schedule A.

That means you can combine the thousands you’re now paying in mortgage interest and property taxes with what you’re already paying in state and local income taxes. And bam! Suddenly, you’ve got more to deduct than the $6,300 standard deduction.

For recent first-time homeowners Ben and Stephanie Liddiard, buying a rambler in Layton, Utah, led to tax savings that fattened Ben’s paycheck by $100 every two weeks. If you’re like the Liddiards, home ownership will give you more deductions, so your taxable income will decrease and you could owe less in taxes.

What Deductions Should I Itemize?

  • Loan costs and fees
  • Mortgage interest
  • Property taxes
  • Private mortgage insurance

Not everyone who buys a home will end up itemizing and owing less in taxes, says Anna Berry Royack, an accountant who sees many first-time home buyer tax returns at her Liberty Tax office in Catonsville, Md.

To find out if you’re eligible to itemize, add up your deductions with your handy home closing paperwork, says Berry Royack. The document you’re looking for is either a HUD-1 Settlement Statement or a Closing Disclosure. (Lenders used the HUD-1 until late 2015, when they switched over to the more consumer-friendly Closing Disclosure.)

Here are the details on what you need to look for:

One-Time Deductions

Loan costs and fees. “Different lenders call their loan costs and fees different things,” Berry Royack says. “Look for an ‘application fee’ or ‘underwriting fee.’ Also, if you paid points to get a lower interest rate, that’s often deductible in the first year. Your lender might have called that ‘buying down the rate’ or ‘discount fee’ instead of ‘points.’ Points are easy to find on the Closing Disclosure because they’re at the top of page 2 and labeled ‘loan costs.’”

Recurring Deductions (Woo Hoo!)

1. Mortgage interest. Most homeowners can deduct the interest portion of monthly mortgage payments — not the principle — each year. Exception: When your mortgage is close to being paid off, the interest is less than the principle. So even when combined with other deductions, you might not have enough to exceed the standard deduction. But that’s a loooong way off for most of us.

To see how the mortgage interest deduction plays out in real life, consider first-time homeowners Ben and Stephanie Liddiard. They moved from a $1,000-a-month rental apartment to a $168,000, five-bedroom, two-story, 2,300-square-foot house outside Salt Lake City.

They had some deductions as renters, but those expenses were less than the $6,300 standard deduction they each got ($12,600 for marrieds), so as renters, they opted to take the standard deduction.

When they bought their home, the combination of mortgage interest, property taxes, Utah’s 5% income tax, charitable contributions, and some unreimbursed medical expenses incurred during Stephanie’s pregnancy, added up to more than $12,600. Hello, itemization.

All these deductions reduced their income, so they owed about $2,600 less in federal and state income taxes.

Once they knew how much lower their tax bill was going to be, the Liddiards had two choices:

  1. Leave their payroll tax withholding as it was and get a $2,600 refund the following year.
  2. Adjust their tax withholding so the extra $2,600 wasn’t taken out of their paychecks any more.

The Liddiards went with No. 2. “I changed my withholding so I get about $100 more [in each] paycheck instead of a big refund,” Ben says. That’s smarter than letting the IRS hold on to that until refund season since the IRS pays zero interest on the money you overpay in taxes.

Tip: You know what would be an even smarter move? Opting to automatically divert that $100 per paycheck into a home repair savings account. Once you’ve saved a tidy 1% of the value of your home, you could use that money to fund your 401(k) or your kid’s college costs.

2. Property taxes. Property taxes are also deductible, but they can be tricky in the year you buy the home because both you and the sellers owned the property during that year. Sadly, you only get to deduct the property taxes you owed for the portion of the year you owned the home; the seller gets the rest of the deduction.

This info shows up on the Closing Document as “adjustments for items paid by seller in advance” or “adjustments for items unpaid by seller.”

Tip: Who pays the property taxes in the year of the sale — the buyer or seller — is negotiable, but not who gets the deduction. Say you live in a sellers’ market and to sweeten the deal agree to pay the full year of property taxes for the seller. Nice negotiating! But you still can’t claim the full year deduction under IRS rules.

Other stuff on the not-so-deductible list:

  • Transfer fees for changing title from the sellers to you.
  • Recordation fees to put the title change into public record.
  • Homeowner or community association fees. They feel like a tax because you gotta pay ‘em, but they’re not.

3. Mortgage insurance. Private mortgage insurance, which many homeowners pay each month if they put down less than 20%, is deductible for many every year you pay it.

Private mortgage insurance protects lenders when they accept low down payments. To claim the deduction, your adjusted gross income (AGI) must be no more than $109,000. The deduction phases out once your AGI exceeds $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of more than $109,000 ($54,500 for married filing separately).

Other types of insurance, like homeowners insurance, aren’t deductible unless you can claim a portion of the home insurance because you work at home exclusively. “People can get those two confused,” Berry Royack says.

Other Deductions You Might Overlook

As the Liddiards found, sometimes buying a house is the trigger that, combined with other deductions you might have, makes it worth busting out Schedule A. That stuff you donated so you didn’t have to move it was probably a charitable donation. Those state and local taxes you paid could pay you back via itemization. Hopefully, you don’t have to, but you can maybe tack on medical and dental expenses above 10% of your income and casualty and theft losses.

Special Circumstances to Keep in Mind

If this is your first year doing your taxes as a homeowner, it’s worth splurging on an accountant to make sure everything goes down without a hitch. This is especially true if one of these special circumstances apply:

  1. You work from home. If you take conference calls in the same place your dog lives — that is, your home office is your exclusive, regular place of business — you might be able to deduct a portion of your home ownership costs under the home office deduction. “That’s a $1,500 deduction for a 300-square-foot office. Or you can deduct more if you have a larger office or the actual costs for you home office are higher,” Berry Royack says. The standard home office deduction is $5 per square foot. If you’re self-employed, you’ll be taking this deduction on Schedule C.
  2. Your lender sold your mortgage to a different lender. “That happens to a lot of people about five minutes after they walk out of the closing,” Berry Royack says. “If you’re one of them, you’ll need to remember to look for two sets of year-end disclosures — one from each company that had your loan.”

Add the numbers from both year-end forms to get the amount to deduct. If the numbers don’t look right, call the agency or company that services the mortgage and double-check the figures or ask your accountant to do it. “We see a lot of returns [at our firm], so we usually can tell if your property tax figure looks right, and we know where to check,” Berry Royack says.

Source"Will My Taxes Look Different Now That I’m a Homeowner?"


Displaying blog entries 1-2 of 2

©2017 BHH Affiliates, LLC. An independently owned and operated franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc.® Information is deemed to be reliable, but is not guaranteed. This is not a solicitation if you are currently working with a real estate broker. Equal Housing Opportunity