Should the Mortgage Interest Deduction be eliminated?

There is a lot of talk on Capitol Hill about eliminating the Mortgage Interest Deduction (MID). The federal government is facing a huge gap between the money they take in versus what they spend. I know there is a ton of waste going on in the government but that is a discussion for later. The fact is, law makers are looking to get more money from us tax payers and just about every tax deduction is on the table for elimination or overhaul. According to CNN Money, MID is costing  the government $573 BILLION in tax revenue from 2009-2013. Can’t you see them rubbing their hands together, with an evil laugh and drooling when they see that number?

Looking further into what the MID includes, I think there are some things that can be done to the MID without eliminating it completely.  Did you know a second home’s mortgage interest can be deducted? According to the IRS, a second home is considered a second residence and not an investment property. If you have a second home you are probably making enough money to lose that the tax deduction on the second home. Did you know that a yacht qualifies as a second home? Me neither. I get that some people choose to live on a boat and it actually sounds kind of cool. What I don’t get is that you can claim that yacht as your second residence and get a tax break on the mortgage interest.  Come on now! I don’t think eliminating the yacht interest write off from the tax code is going to have much effect on the rich or super rich buying a yacht. They all still want to be on their boat feeling like Captain Jack Sparrow or screaming “I’m the king of the world” from the front of it. Well, at least that’s what I would do.

I don’t see how the elimination of the MID helps the home owners or the already fragile Real Estate market. I am sure there are other things that can be done to modify the MID in the tax code (the National Association of Realtors is 100% against changing any of it) but I think a complete elimination of the MID is a bad idea. There are many homeowners that are still making payments on homes that are worth 50% of what they owe because the tax deduction makes it worth it for them. Would you still pay on your upside down mortgage if can’t use the deduction?  If you are in the market to buy your first home, would you still want to buy if there was no more MID?

 

So You Wanna Buy a House?…

Great! So you’ve decided that you want to buy a house? You’ve never done this before, or maybe you have but it’s been a long time or maybe last time you bought your house directly from the owner when the market was high… What do you do? Where do you start?

Most people start by looking on the Internet. They start looking, maybe send an email or two to a listing agent, check Craigslist, etc… When they find something they want to see, they might call the listing agent and ask to see it. The listing agent may or may not even answer their phone (that’s the truth). The prospective buyers may get lucky, get a listing agent on the phone who agrees to show them the property without even knowing if the buyers are qualified to purchase the house. Two hours later, they see the house, but realize it doesn’t quite fit the bill. Repeat that scenario several times and just tote up the hours wasted. You can bet the buyers feel pretty discouraged at that point.

Here’s a few tips that I counsel prospective buyers to use:

• Interview buyer’s agents to find a qualified Realtor® who knows their market, has a proven track record, and with whom you are comfortable working with. Some good questions to ask yourself are: Has this professional demonstrated a comprehensive knowledge about the market and area in which you would like to buy? Are you confident that they have your best interests at heart? Are you confident in their negotiating skills? Do they have a strategy for helping you find the best deal?

Now, why would a buyer want to use a Realtor®? WHY NOT? For one, it’s free to the buyer (the seller pays the commission out of the listing agreement). Secondly, you want their expertise! Realtors® are market experts bound by their agency agreement with you to represent you and your best interests in the transaction. Third, if you don’t work with a Realtor®, you may not be able to see most of the homes on the market as you would not have access to the MLS lockboxes.

• Get pre-approved with a reputable lender. If you don’t have a reputable lender, usually your Realtor® can point you in the right direction. This is crucial to do before you start looking at homes. It will prepare you for the purchase price you can afford and tell you what you can expect your payment to be. Plus, by getting pre-approved, you will have an edge over buyers who just get pre-qualified. You will demonstrate to a seller that you are serious about purchasing, qualified to purchase the house they are selling, and that you have a certainty to close (no suprises since the lender has already approved your application).
• Set clear expectations with your Realtor® so you know what to expect and to ensure that you are all working together to meet your goal of home ownership. For example, if you need to bring Mom or Dad along for a second opinion, make that known so arrangements can be made. Or if you need to move by a certain date, make that known up-front to avoid a last minute dash to find a place to live.
• Communicate with your Realtor®. Eliminate assumption and ambiguity by asking all the questions you have (no question is dumb and if they’re experienced they’ve probably heard it all before anyway). If you are not happy with something, tell them. Allow them the chance to make it right and give you the service you deserve. Sometimes that can be hard, but better than starting all over with someone new. Go to them with you questions first before soliciting feedback from friends and family who aren’t the market experts. Better to get the right information than misinformation, even from people who mean well.

These tips may seem simple, but they can save you so much time and energy. I’ve met many clients who started looking online, got nowhere and ended up in a time crunch at the end to find a home. Think of all the time they could have saved by doing a little homework up front! As always, if I can help you find the home or your dreams or the Realtor® to help you get that home of your dreams. Drop me a line! Happy Hunting!!!

I Lost My Job, Now What?

You thought you were secure and prepared to dig in and ride out the economic downturn. Then, the unthinkable happens; you get laid-off or receive a notice that your company is downsizing and your position has been eliminated. Ahh! Take a breath, don’t panic! You’ll need your wits about you to act quickly to save you and your family from a financial disaster. It could get worse? Oh yes! Losing your job or being laid off is just the start. If you don’t make some quick changes,this loss of income will affect you for a long time to come.

What to do?

First, sit down an update your budget. Yes, I talk a lot about budgeting and mention it all the time. It’s so important to have pre-set spending limits. But most importantly, you need to reconcile your budget against your actual spending habits. With the invention of the debit card, a lot of us have gotten away from balancing the old checkbook register. Time to get with the program! A really helpful tool to help you track your spending is www.mint.com. This is a fabulous online resource (they even have an app for the iphone to allow you to track your expenses on the go)!  It’s safe & secure because it does not allow you to make transactions, it just reports information.  Be sure to read their security policy for more information.

Secondly, cut your budget (and still allocate money towards savings) to equal the income you have coming in. Don’t immediately start dipping into your savings cushion to maintain your lifestyle while you look for a job. Whoa! Radical, yes. Over-reacting, no. If you’re reading this post and have not lost your job, I would highly recommend that you seriously look at your budget, expenses, and your savings. If you don’t have at least 6 – 9 months worth of reserves saved up, you need to slash as much as you can from your budget to prepare you for the unthinkable. If you cannot get your expenses down to equal the amount of income you have coming in, pick up the phone and start dialing. Start with your mortgage company and inform them of what has happened and ask for help. There are several options that the lender can offer, if they don’t – ASK them and prepare to be persistant.

Options you can ask about include:

• Loan Extension – where your lender “freezes” your loan for periods of up to 3 months, during which time no payment is due. The payments are then added on to the end of your loan at your normal monthly payments.
• Forbearance – this option allows you to work out an alternative payment schedule with your lender, details of this arrangement will vary by lender and the type of loan you have. If you have a government loan such as FHA or VA you may qualify for additional help.
• Loan Modification – the terms of your loan are modified, usually this involves changing the term of the loan and the interest rate (if you are unemployed, you may not qualify since you need to show an ability to re-pay the loan).
• Loan Refinance – if you have a higher interest rate or adjustable rate mortgage, you may be able to refinance your mortgage down to a lower monthly payment. But this option requires you to be able to pay closing costs, equity in your home, and be able to prove you have the income to re-pay the loan. This might work if you have one borrower still working who can qualify for the mortgage on their own.
• Assistance under the Homeowner Affordability & Stability Plan. In February the Government announced a new plan designed to help homeowners avoid foreclosure and stay in their homes through several different avenues. For more on the overall plan see the press release. To see if you qualify, click here where you can take an online self assessment quiz and find links to speak to a HUD-Approved housing counselor for additional help.

Third, continue calling all your creditors to negotiate lower payments, interest rates on credit cards or other payment arrangements. Even on your services like phone, internet and cable call your provider and ask for a discount or explain your situation and ask what they can do to help you. The economic downturn has affected almost everyone and rather than lose your business, they’d like to retain your future business by helping you today.

It goes without saying, but I’ll say it anyway – file for unemployment benefits as soon as you lose your job. Don’t wait, it may take several weeks for them to process your application and get your paperwork in order. Many states allow you to file for unemployment benefits online. To find links to your state’s unemployment office, click here. Recent changes in the stimulus bill passed by the Government extends the amount of time you can collect unemployment from 26 weeks to now 33 weeks. Some states are even extending that time period based on state initiatives. Another facet of change to the unemployment benefits under the new stimulus bill is an extra $25 per week calculated into your benefits. The final change is making the first $2,400 you receive federally tax-free. After that amount, you pay your normal federal income tax on it.

In closing, the quicker you act the less devastating the results are going to be. Even if you haven’t lost your job, prepare for it anyway because it could very well happen to you or someone you love. Be prepared to monitor your finances weekly and monthly to stay on top of your spending. Get everyone in the family involved and on the same page right at the beginning so that there are no surprises down the road. As always, please let me know if you have questions or need further assistance on this topic by utilizing my Contact Page. If you have some tips or resources to share, please post them here to help your fellow readers! We want to hear from you!