Category Archives: Buyer Information

Know How the Sq Ft Were Measured

Measuring the home“It is amazing all the misunderstandings that occur when buyers are comparing homes on the internet.  You wouldn’t think that comparing the size of two homes would be a difficult task.  They have the Square Footage in the listing, right? However, there are several things to be aware of when reading those listing to make sure you are interpreting the numbers correctly.”

Denise Buck & Ed Johnson – DC Metro Realty Team

In an attempt to compare homes, one of the common denominators has been price per square foot. It seems like a fairly, straight forward method but there are differences in the way homes are measured.

The first assumption that has to be made is that the comparable homes are similar in size, location, condition and amenities. Obviously, a variance in any of these things affects the price per square foot which will not give you a fair comparison.

The second critical area is that the square footage is correct. The three most common sources for the square footage are from the builder or original plans, an appraisal or the tax assessor. The problem is that none of sources are infallible and errors can always be made.

Still another issue that causes confusion is what is included in measuring square footage. It is commonly accepted to measure the outside of the dwelling but then, do you include porches and patios? Do you give any value for the garage, storage or other areas that are not covered by air-conditioning?

Then, there’s the subject of basements. Many local areas don’t include anything below the grade in the square footage calculation but almost everyone agrees that the finish of the basement area could add significant value to the property.

Accurate square footage matters because it is used to value homes that both buyers and sellers base their decisions upon.

Let’s say that an appraiser measures a home with 2,800 square feet and values it at $275,000 making the price per square foot to be $98.21. If the assessor reports there are 2,650 square feet in the dwelling and the owner believes based on the builder, there is 2,975 square feet, you can see the challenge.

If the property sold for the $275,000, based on the assessor’s measurements, it sold for $103.77 per square foot and by the owner’s measurements, it sold for $92.44 per square foot. Depending on which price per square foot was used for a comparable, valuing another property with similar square footage could have a $30,000 difference.

The solution to the dilemma is to dig a little deeper into where the numbers come from and not to take the square footage at “face value”. It is important to recognize that there are differences in the way square footage is handled.

Make Good Offers Better for the Seller

GoodBetterDirectional“We have always believed in making strong offers.  The cleaner the offer the better.  We have used all of these at various points, depending on the situation.  One of the keys to writing a strong offer is to know as much about what the Seller really wants and is important to them.  Don’t make a low ball offer blindly, thinking that the Seller will counter.  Many times that strategy can backfire and Seller considers you difficult and won’t want to even try to negotiate.  So Keep it simple and clean and you’ll get much better results.”

Denise Buck & Ed Johnson – DC Metro Realty Team

It’s disappointing, frustrating and sometimes, discouraging when you lose a home you want to buy.

One of the hardest lessons for today’s buyers is that writing an offer doesn’t mean that you’ll get the home or even a counter-offer. The low inventory affecting many of the housing markets requires a different strategy to give you the best chance to get the home you want.

  1. Make your best offer initially; you may not get a chance to accept a counter.
  2. Submit a written pre-approval letter from the lender.
  3. Increase earnest money above what is considered normal.
  4. Make a larger down payment.
  5. Eliminate unnecessary contingencies.
  6. Don’t ask for personal property not included in the listing agreement.
  7. Pay your own customary closing costs.
  8. Shorten the inspection period.
  9. Buy the home “as is” subject to inspections which still allows you to get your earnest money back if the inspections are unacceptable but doesn’t require the seller to make repairs.
  10. Write the seller a hand-written, personal letter telling them why you want their home; include a picture of your family.
  11. Offer to use the seller’s or listing agent’s preferred title company.
  12. If you can pay cash, do so and arrange financing after closing. Be prepared to show proof of available funds.
  13. Schedule the closing as soon as possible but let the seller know you can be flexible.
  14. Once you decide on a home, act with expedience.
  15. Ask your real estate professional if they have any other suggestions.

Think of making an offer like applying for a job. You want to make your best impression and show why you are the best choice. You won’t always know that there are multiple offers. Approach the process like the competition is doing their best to get the home.

Another Source for a Down Payment

IRADownPayment“Not everyone knows that they can actually withdraw funds from their IRA, penalty free for the purchase of a home, if they haven’t owned a home in the previous two years.  This can be a great way to increase what you have to put down on a home.”

 

Denise Buck & Ed Johnson – DC Metro Realty Team 

Most taxpayers know that they will pay a 10% penalty if they withdraw funds from their IRA before they turn 59.5 years old. There is an exception for first-time home buyers that allows a penalty-free withdrawal of up to $10,000 per person if they haven’t owned a home in the previous two years.

This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.

In many cases, the money would be used for a down payment or closing costs. However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.

If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due. Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn. Since Roth IRAs are made with after-tax dollars, there is no tax due when the funds are withdrawn.

Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents and grandparents.

Homebuyers who are considering using IRA funds for a home purchase should get expert advice from their tax professional concerning their individual situation.

The Worst Mortgage Advise You Can Get

Worst Mortgage advise“It’s amazing how  many people who have purchased a home in the past automatically become ‘experts’ in mortgage advise.  There is an awful lot of bad information out there and most of it out dated.  When considering financing a new home, or re-financing your current home, consult with a lending professional first to get the most current and accurate information.”

Denise Buck & Ed Johnson – DC Metro Realty Team 

Are you thinking about buying or refinancing a home in the near future? If so, chances are you’re getting all kinds of advice from well-intentioned friends and family.

Just remember to keep this important piece of advice in mind: Don’t listen to everything you hear. According to industry professionals, some words of wisdom are not wise at all.

To help you separate the bad advice from the good, check out five common statements that should cause you to cover your ears immediately.

Bad Advice No. 1: “A 30-year fixed-rate mortgage is best for everyone.”

The common perception is that a 30-year fixed-rate mortgage is always the best option, because it typically offers lower monthly payments than other shorter-term mortgages. But the kicker is that interest payments over the course of the loan can be quite substantial when compared to mortgages with shorter terms and lower interest rates.

Consider this example based on rates from Freddie Mac, as of March 20, 2014:

A 30-year loan on a $200,000 property with a 4.32 percent interest rate has a monthly payment of $992 and interest payments totaling $157,153 over the life of the loan. On the other hand, a 15-year loan for the same property with a 3.32 percent rate has monthly payments of $1,412 and yields $54,187 in total interest paid. So by opting for the shorter mortgage, you could save more than $100,000 in interest, which is worth it if you can meet those higher monthly payments.

Whether or not a 30-year fixed mortgage is the right choice depends on the borrower’s goals and financial situation, says Houtan Hormozian, vice president of Crestico Funding, a Los Angeles-based mortgage brokerage firm.

For example, if you have cash saved up for job, family, or medical emergencies and you already have college and retirement funds set up, then a 15-year mortgage might be a better option. Without money saved up, losing a job or an expensive surgery could deal a hard blow to someone’s finances, including their ability to make mortgage payments.

Bad Advice No. 2: “Stay away from adjustable-rate mortgages.”

An adjustable-rate mortgage (ARM) is a loan with an interest rate that is fixed for a period of time then adjusts, causing the ARM payments to increase or decrease.

ARMs get a bad rap, because they’re seen as risky products that contributed to the housing bubble, easy credit, and ultimately, the subprime mortgage crisis.

“The 30-year fixed-rate mortgage is the most popular type, because everyone is afraid of adjustable [rates],” Hormozian says.

In fact, only 3 percent of homebuyers chose adjustable-rate mortgages in the first half of 2013, reports Freddie Mac. With that low figure it’s easy to get scared off, too. But the fear associated with ARMs is somewhat unjustified, according to Hormozian.

“Depending on the consumer, circumstances, and knowledge of their economic situation, there could be an ARM that fits them,” says Frank Percival, board president of the Washington Association of Mortgage Professionals.

One major benefit of an ARM is that it typically will have a lower interest rate than fixed-rate mortgages at the outset. For example, a 5/1 ARM will have an initial fixed rate for the first five years then adjusts afterward.

This is a great option for homeowners who plan on moving out of their house before the rate adjusts. However, this does carry some risk, since personal finances and the condition of the housing market may make moving difficult in a set amount of time.

So choosing an ARM may come down to your financial situation and your aversion to risk. Percival explains that if a homebuyer with a 5/1 ARM saves $200 a month in interest compared to a 30-year fixed mortgage, it may make sense to choose that type of loan. However, if someone wants to err on the side of caution, given the risks discussed, a 30-year fixed mortgage might be the more sensible choice.

Bad Advice No. 3: “If your home is underwater, consider a short sale.”

“When the housing market was bad a year or a year and a half ago and the values of homes were low, people were encouraged from realtors [and] buddies at work to walk away from their home,” says Percival. He calls this “one of the worst pieces of advice in recent history.”

If desperate homeowners took that advice, they would usually do a short sale on their home. What exactly is that? It’s a real estate transaction in which a lender agrees to let the borrower sell his or her property for less than – or “short” of – what is owed on the mortgage.

Even if your home is underwater, it’s a bad idea, asserts Percival. If homeowners can still afford to make their mortgage payments, then they shouldn’t do a short sale.

“People who didn’t have medical emergencies or lose their jobs were dropping their keys and leaving their homes,” Percival says. This is a dumb choice, he adds, since it’s possible that their home value could go have gone up.

Plus, if you do a short sale, you may have to wait several years to qualify for a home again, says Percival. The reason? Because a short sale usually lowers your credit score just as a foreclosure would, according to myFICO, the consumer division of FICO. Shortsellers may be able to qualify for a mortgage in as little as two years, but this may depend on a variety of factors, like how much you are able to put down.

Beyond your own finances, short sales have a far-reaching effect, according to Percival.

“Every short sale or foreclosure reduces the value of every home in the neighborhood,” he says. “If folks would have waited for the recovery to kick in and housing prices to go up, they could have sold it at a profit. People just wanted to walk away from debt.”

Bad Advice No. 4: “An FHA loan is your only option.”

First-time homebuyers are particularly susceptible to bad advice. For example, homeowners who can’t afford a large down payment may hear that a government-backed FHA loan is their only option, since the down payment requirement can be as low as 3.5 percent of a house’s purchase price. But that’s not necessarily the case.

Some homeowners might be surprised that getting a conventional loan might be better suited – and easier – for them than an FHA loan, says Aaron Vantrojen, president of the Arizona Association of Mortgage Professionals, says.

The standards to qualify for an FHA loan have tightened, says Vantrojen. Plus, the FHA loan has become more expensive in recent years due to its rising mortgage insurance premium (MIP).

According to the U.S. Department of Housing and Urban Development, the mortgage insurance on an FHA loan must be carried for the life of the loan. On the other hand, the private mortgage insurance (PMI) on conventional home loans can be dropped when equity in the home reaches 20 percent, Vantrojen says.

As a result of dropping the insurance premium, homeowners can save thousands of dollars in the long run. “The annual mortgage insurance for FHA loans is so high, we are trying to get people into conventional loans if they qualify,” Vantrojen says.

The biggest advantage FHA loans have over conventional loans is the low down payment requirement. But conventional loans, with a 5 percent down-payment required, might be a better deal when you factor in the mortgage insurance payments, says Vantrojen.

“I will always look at options for conventional loans [for homebuyers],” says Vantrojen, president of Geneva Financial, a mortgage banking firm based in Tempe, Arizona. “The guidelines for conventional loans are changing, and a person who couldn’t qualify for one a month ago might be able to qualify now.”

Bad Advice No. 5: “Trust me, I know what I’m talking about.”

If you’re in the market for purchasing a home loan and in need of a little guidance, you might want to think twice about listening to someone who tells you: “Trust me, I know what I’m talking about.”

“One of the most common mistakes is not getting advice from a mortgage investment advisor,” says Hormozian. “Any time you don’t seek advice from a professional, you could be in trouble.”

But not all mortgage professionals are created equal, which is why Hormozian says homebuyers should make an effort to consult and get the opinions of established mortgage advisors, licensed mortgage companies, and reputable professionals when they are ready to purchase a loan.

“At the end of the day, my job is to make sure my client will have a comfortable life and a sound investment,” Hormozian says. “If I feel they are going to have a hard time making a payment or living up to that liability, I have to advise against it.”

For example, if someone tells you it’s a great idea to buy investment property as a source of instant income, you better consider the source. Instead of talking to real estate agents, homebuyers should talk to unbiased resources, who could help them avoid potential mortgage heartaches, says Vantrojen.

 “Do your due diligence, talk to industry professionals – people who have been real estate investors and [who] can tell you the highs and lows of owning real estate,” he explains.

If owning a new home for you and your family is a main objective, Percival says it might be a good idea to check whether you are dealing with licensed mortgage professionals. He suggests verifying mortgage loan originators (MLOs) and their MLO license numbers through the National Mortgage Licensing System (NMLS), which performs this service for free.

Originally appearing on Yahoo! Homes.com

Be a Considerate Buyer when Buying a New Home

Handing over keys“As a Buyer, when you are looking at homes, and especially when deciding to make an offer, always remember to be considerate of the Seller.  More than once we have seen deals go south because one or both parties thought the other was being unreasonable or inconsiderate.  In contrast, we have also seen offers and negotiations go very well when the Seller ‘liked’ the Buyer.  Even though in the end this is a business transaction, it is also a very personal and emotional time for those involved.  Please follow these tips when you set out to buy your next home.”

Denise Buck & Ed Johnson” – DC Metro Realty Team 

Consideration associated with a contract is generally thought to be the price and terms but being sympathetic and courteous towards the seller could make a difference in getting the home you want.

Business people, like store owners, expect to deal with customers and even come to expect behavior that might not be accepted in a purely social atmosphere. Homeowners, on the other hand, may not be aware of what to expect. They are opening the sanctity of their home to the public for review and criticism. Buyers may be detached from emotional feelings while the sellers might react unfavorably to comments that are taken personally.

  1. Be on time for appointments; cancel if necessary. The sellers may be rearranging their schedules and making an additional effort to make it convenient for you to see the property.
  2. Be a good guest and respect the seller’s privacy. Look at the home and avoid looking at the seller’s personal items; there is no reason to look in refrigerators or furniture drawers.
  3. Don’t sweat the small stuff. Try to focus on critical items of a home like location, floor plan, layout, size and not dwell on cosmetic items that are easily and inexpensively changed.
  4. It’s not a good negotiating technique to list the defects. Most people become defensive when presented with a list which could have the opposite effect of helping you get a better deal.
  5. Limit your visits until you actually own the home. It’s natural to be excited and making plans to move into your new home but it is still the seller’s until closing and they’re making plans to move too.
  6. Negotiations are generally finished when a contract is completed. It can be frustrating to continually be asked for “one more thing.” Make a deal with the seller and live with it. If there’s something you’re not sure about, specify it in writing in the contract.

Some things are obvious: the seller wants the most for their home and the buyer wants to pay the least possible. Showing consideration to the seller about things that don’t have anything directly to do with price can actually benefit the buyer.

Don’t Ignore Adjustable Rate Mortgages

ARM“After everything that happened in the Market a few years ago, most people decided that ARMs (Adjustable Rate Mortgages) were just plain bad.  That isn’t always the case.  Don’t write them off until you’ve talked to a lender about all the options available to you.  Depending on your situation it might just make sense.”

 

DC Metro Realty Team – Denise Buck & Ed Johnson

94% of purchasers last year opted for a fixed-rate mortgage at some of the lowest rates in home buying history. Yet, some of them will pay more in interest than necessary based on the time they’ll own the home.

If a person only plans to be in the home a few years, the adjustable-rate can offer significant savings.

Not only is the interest rate on the adjustable-rate lower than the fixed in the initial period, amortization on a lower interest rate amortizes faster than a higher interest rate.

In the example shown below, a $200,000 mortgage for 30 years is compared using a 4.25% fixed-rate to a 3.25% 5/1 FHA adjustable rate. The first five years of the ARM generates a $113.47 a month savings which accumulates to $6,808.20. In addition, due to faster amortization on lower interest rate loans, the unpaid balance at the end of five years will be $3,001 lower on the ARM for a total savings of $9,801.

Assuming the adjustable-rate mortgage was to escalate the maximum allowed at each period, the breakeven would occur in 8 years and 6 months. If a person were to sell the home prior to this point, the ARM would provide a lower cost of housing for the homeowner.

For some people, the uncertainty of how the interest rate may change is not acceptable. On the other hand, for the risk tolerant individual who may be more confident in financial matters or who may know when they’ll be moving next, the ARM can be a smart choice.

To make projections using your individual numbers, see the Adjustable Rate Comparison.

InTouch ARM.png

Investment Property Exchanges Save $’s

Exchange 1031“Many of our clients become landlords by renting out their 1st home when buying a new one.  The following article provides some information on benefits of using a Section 1031 when buying and selling your rental or investment properties.”

DC Metro Realty Team – Denise Buck & Ed Johnson

 

Section 1031 exchange for rental and investment real estate is a tool that allows investors to move the gain from one property to another without immediate income tax consequences.

An instant benefit is to postpone the tax due which gives the investor a larger amount of proceeds to invest. In the example shown, the investor has 21% more proceeds to invest and grow over time than if he had paid the taxes due instead of exchanging.

A legitimate long-term goal might be to make qualified exchanges from one property to another until the investor dies. The heirs would then receive a stepped-up basis on the property based on the market value at the time of the decedent’s death and possibly avoiding taxes altogether.

There are specific requirements to be met in order for the exchange to qualify. For more information on exchanges, see IRS publication 544. In addition to enlisting the services of a real estate professional familiar with investment property, seek the help of Qualified Intermediary to facilitate the intricacies of the exchange. Your real estate agent can help you locate one.

 

Smart Moves to Improve Your Credit Score

Credit Score Image“Often when working with clients they are concerned about their credit score, as they should be.  That’s because the higher your credit score, the better chance you have of securing the best loan terms.  To find out how to improve your score before buying a home please read the following article.”  

DC Metro Realty Team – Denise Buck & Ed Johnson

Is your credit score a mystery to you?  Well, it may be time to demystify that three-digit number, since a good credit score is a key factor in getting a better interest rate on your mortgage.

“Your credit score is the foundation of your financial health,” says Anthony Sprauve, senior consumer credit specialist for Fair Isaac Corporation (FICO), an analytics software company and owner of the FICO Score.  The FICO score is a standard for measuring credit risk in the credit card, banking, retail, and mortgage industries.

With a high credit score, you can secure more credit as well as a cheaper interest rate on a mortgage, says Sprauve. So, it’s worth investing the time and energy to improve it.

Read on for five little-known ways to improve your credit score and ultimately get you the best interest rate possible for a home loan.

Tip #1: Increase the limit on your credit cards

Let’s say you have four credit cards in your billfold. Each of them has only a $1,000 limit. If you ask your credit card companies to increase those limits, it could give a nice boost to your credit score, says Jim Garnett, CEO of AskMrG Consulting, a financial consulting company in Ankeny, Iowa. But here’s the catch: You’ll still need to keep your credit card balance low.

For example, if you have a credit card with a limit of $5,000, but only use $500 of that credit, it shows that you are responsible. You don’t go crazy and buy everything in sight, he explains. In a lender’s eyes, that means you can handle a home loan and pay it off responsibly.

But if you have a $1,000 limit and still have that same $500 balance, it makes you seem less responsible. It communicates that you wouldn’t be able to manage a mortgage and could be more of a risk, Garnett says.

He warns, however, to beware of high limits. “People who get $10,000 and $15,000 credit card limits seem to have a sense that they have money in the bank. That’s not true,” he says.

In order to avoid that temptation, you should contact your credit card companies once you’ve secured your mortgage and have those limits reduced back down, he advises.

[Shopping for a mortgage or looking to refinance? Click to find the right lender now.]

Tip #2: Only use 7 percent of your revolving credit

Credit scores run from 300 to 850. About 25 percent of people with credit scores – approximately more than 50 million individuals –  have scores greater than 785, according to myFICO, a subsidiary of FICO.

So what can we learn from these high credit score achievers?

For starters, they have an average of four credit cards or loans with balances, notes myFICO. However, high credit achievers keep a low balance on those credit cards and loans.

In fact, high credit scorers only use an average of 7 percent of their available revolving credit. Revolving credit is a type of credit that has a predetermined credit or spending limit, like a credit card. And unlike a loan, a revolving account doesn’t automatically close once its balance reaches zero.

“While people with high FICO scores are not perfect, their consistently responsible financial behaviour pays off over time,” Sprauve says. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson of these high achievers is that it’s never too late to rebuild and score high.”

Tip #3: Don’t cancel older credit cards

Credit cards that you have kept for years are like fine wine. They get better with age – as long as you pay your bills on time.

“If you had a particular card for 14 years, and you haven’t been late on a payment, that’s a good sign that you are responsible to the lenders,” Garnett says. If someone can responsibly pay their credit card bills on time, they’re probably more likely to pay their mortgage payments on time as well.

In fact, he adds, your credit cards don’t even need to have any balances on them to look good on paper, since they contribute to your overall available credit. On the other hand, closing old credit cards reduces your available credit and increases your balance-to-limit ratio. That’s a sign of risk that could lower your credit score and ultimately keep you from getting the best interest rate possible on your mortgage.

[Shopping for a mortgage or looking to refinance? Click to find the right lender now.]

Tip #4: Don’t apply for more than two credit cards each year

While keeping credit card accounts open can be a good thing, that doesn’t mean you should go and apply for a handful of credit cards at the same time, says Garnett.  When you apply for a credit card, you authorize lenders to make an inquiry for a copy of your credit report from a credit bureau. And a large number of inquiries, especially within a short period of time, means greater risk to a lender, notes myFICO.

What kind of risk do lenders see? Well, statistically, people with six or more inquiries on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports, according to myFICO.

Garnett sees this problem a lot with college students who apply for multiple credit cards just to get that free umbrella or free hat.

Credit inquiries can look especially risky to lenders if they see that you applied and were denied for a line of credit, Garnett says. “They wonder why you applied for all this credit and never received it.”

Tip #5: Give yourself at least six months to review and fix your credit report

Like anything worthwhile, improving your credit score will take time to improve. But you can’t change your credit score if you don’t know that something is wrong. And if you give yourself enough time, you can correct any mistakes and change any bad habits, says Sprauve.

“We recommend that you do things a year in advance. Nothing is going to be fixed or changed overnight,” Sprauve says. “The minimum is six months to get things changed around. But give yourself a year.”

You can order a credit report for free once a year from all three nationwide consumer credit reporting companies at annualcreditreport.com. Or you can order one for a small cost at MyFICO.com, TransUnion.com, Experian.com, or Equifax.com.

Just keep in mind that the FICO score has a different name at each credit reporting agency. At Equifax it is called the BEACON® SCORE, while at TransUnion and Experian it is called Classic FICO® Risk Score.

Next, you’ll need to review the reason codes, which detail why you have a certain score, says Garnett. “It will tell you if you had too many late payments or other reasons,” he explains. “They have a road map on how to improve your score.”

 

Originally published on Yahoo Homes

Yahoo Homes

By Lee NelsonApril 7, 2014 1:23 PM

Is the Window Closing on Low Interest Rates?

Window“We’ve been watch the fluctuation in the market over the past year and the general consensus is that rates are going up the rest of the year, along with the prices of homes.  This means that buyers who wait will have less buying power”

DC Metro Realty Team – Denise Buck & Ed Johnson

With interest rates lower than they’ve been in over 40 years, it may be difficult to think of a “window of opportunity” closing. However, it isn’t difficult to understand that it may very probably cost more to live in a home in the near future due to rising interest rates and prices.

Zillow recently reported results from a nationwide study that home values are expected to appreciate by 4.5% through the end of the year. Coupled with Freddie Mac’s projection that rates are going up, the cost of housing for buyers by the end of the year will be higher than it is now.

While uncertainty of the future can stagnate some people, the fear of loss can be much more devastating when a person realizes that the amount they pay to live and enjoy a home could have been considerably lower had they acted when prices and mortgage rates were lower.

The following example considers a $250,000 purchase today with a FHA mortgage compared to what it might be at the end of the year with a higher price and interest rate as discussed earlier. The net effect is that it will cost $191.87 more each month to live in the very same home based on the cost of waiting to buy.

To see what the cost might be for your price range, use this Cost of Waiting to Buy spreadsheet.

cost of waiting.png

Which Tax Deduction is Best for You?

“Here are some basic tips on determining whether to itemize your deductions or to take a standard deduction on your taxes.  There’s more to consider than just whether or not you have a mortgage.”

DC Metro Realty Team – Denise Buck & Ed Johnson

 

IRS allows taxpayers the option to take the standard deduction or the itemized deduction. The astute taxpayer will compare to see which one will result in the greatest deduction and the election can be made each year.

The 2013 standard deduction for a married couple filing jointly is $12,200 and $6,100 for a single taxpayer. It doesn’t require any proof of actual expense and has no requirement for home ownership.

Items that can be included on Schedule A for itemized deductions include:

  • Certain taxes paid for state and local income tax, general sales tax, real estate property taxes, personal property taxes or other taxes paid
  • Qualified home mortgage interest, investment interest or possibly, mortgage insurance premiums
  • Charitable contributions
  • Casualty or theft losses
  • Medical and dental expenses that exceed 7.5% of adjusted gross income if born before 1/2/49 or 10% if born after 1/2/49
  • Job expenses and other miscellaneous deductions that exceed 2% of adjusted gross income

A non-homeowner taxpayer who has been taking the standard deduction needs to consider that it isn’t just the ability to deduct the mortgage interest and property taxes.

While the standard deduction might be the obvious choice for a non-homeowner, the combination of the mortgage interest and the property taxes plus other allowable deductions not recognized previously such as charitable contributions, now makes taking the itemized deductions significantly more advantageous.