Tax-Deductible Mortgage Insurance

mortgage insurance, tax deductionsAs we talked about in yesterday’s post, home ownership comes with some pretty nice tax deductions for homeowners who decide to itemize. One of the deductions that homeowners have taken advantage of for the past few years is the mortgage insurance deduction.

A mortgage insurance policy compensates the lender for losses in case the borrower goes into default. Mortgage insurance is typically only required for home buyers who put down less than 20 percent of the home’s value. Additionally, it can be cancelled once a buyer reaches that 20 percent mark during the life of the loan.

While no one wants to pay mortgage insurance premiums, the good news is that the amount you pay on mortgage insurance is partially tax deductible.

This hasn’t always been the case, however. The deduction was first passed into law by Congress in 2007. It expired at the end of 2011, but was revived again at the end of 2012 in a bill called the American Taxpayer Relief Act of 2012, or as it is better known, the “fiscal cliff deal.”
The fiscal cliff package extended the mortgage insurance deduction for two years—retroactively for 2012 and currently for 2013.

What this means for you is that when you receive a 1098 form from your lender, you’ll see a little box that says “Mortgage Insurance Premiums.” Whatever amount you see in there is probably tax deductible. If your adjusted gross income is less than $100,000, your premiums are 100 percent tax-free. For every $1,000 you make over $100,000 the deduction is phased out by 10 percent. For individuals who make over $110,000, the deduction isn’t available.

If you paid insurance premiums in 2012, be sure to take advantage of this tax break this spring. To learn more about tax deductions for homeowners, contact Georgetown Mortgage today.

Standard or Itemized Deduction?

texas home loan, texas mortgage lenderAs a first time homebuyer you may be a bit confused when it comes to filing your taxes this spring. You’ve probably heard that there are certain tax deductions associated with mortgages and homeownership. But do you know what they are and how to take advantage of them?

To begin with, there are four main deductions that homeowners can claim.

  • Mortgage Interest
  • Property taxes
  • Points paid on a home loan
  • Mortgage insurance

All four of these expenses are tax deductible, meaning that they reduce how much of your income is subject to taxes. To claim them, however, you’ll need to itemize your taxes on Schedule A (Form 1040).

Every taxpayer is entitled to a standard deduction set by the IRS. In 2012, the standard deduction amount was $5,950 for individuals and $11,900 for couples. For non-homeowners, it’s easier and sometimes more financially savvy to simply take the standard deduction and not waste a bunch of time filling out extra forms.

As a homeowner, however, you should definitely consider itemizing your taxes. The big question is whether the amount you can deduct on Schedule A is more than what you’ll get with the standard deduction. Hint: It usually is.

To calculate the amount you can deduct by itemizing, add together all the expenses on the 1098 form you received from your lender as well as any other tax-deductible expenses such as charitable donations. If your final tally is greater than the standard deduction amount, fill out Schedule A.

Note: you cannot file for both a standard deduction and itemized deductions. You have to choose between one or the other.

To learn more about the tax benefits of owning a home, contact Georgetown Mortgage Bank today to speak to one of our Texas home loan originators.

How Will the Sequester Affect Housing Markets?

With the sequester deadline nearly upon us, it looks like Congress won’t be making any compromises to avoid the $85 billion in budget cuts that the sequester brings with it.

One of the industries that the sequester will likely hit is the housing market. Because the sale of homes is tied in closely to the Federal Government, any cut in government spending will inevitably slow down operations.

The Department of Housing and Urban Development (HUD) oversees a number of housing initiatives that would face cuts due to sequestration. Shaun Donovan, the current secretary of HUD, said that cuts could come from programs that help low-income families find homes, programs for the homeless and Superstorm Sandy relief efforts.

The FHA (a division of HUD) will also be facing sequester cuts. Trimming the FHA’s budget could set back the agency’s capacity for processing new mortgages and refinances as well as selling the foreclosed properties that it already owns.

In addition, the FHA’s sequester problems come on top of its own $16.3 billion deficit which it is working to fix by changing up its policies on insurance premiums and reverse mortgages. In 2012 the FHA backed 23 percent of all mortgage originations.

To learn more about how to apply for an FHA loan, contact Georgetown Mortgage Bank today.

Confusing Mortgage Acronyms

fha loans, arm loansThe mortgage industry uses a lot of acronyms that may be confusing for homebuyers. So to help you out, we’ve listed some of the more common acronyms that you’ll hear thrown around and give a brief definition of each.

  • ARM (Adjustable Rate Mortgage) – An adjustable rate mortgage is a home loan with an interest rate that fluctuates over time.
  • PMI (Private Mortgage Insurance) – In some instances, a lender will require you to take out mortgage insurance on your loan. This shields the lender from incurring heavy losses if you default.
  • APR (Annual Percentage Rate) – The APR on a loan shouldn’t be confused with the note rate. The note rate is what you pay every month. APR factors in closing costs and other fees to give you an effective rate. The idea is that consumers can easily compare APRs to get the best deal.
  • LTV (Loan to Value) – The loan-to-value ratio describes the relationship between the value of a home and the amount of a lien on the home. For instance, if you took out an $80,000 loan on a $100,000 home, the LTV would be 80 percent.
  • DTI (Debt to Income) – Before you take out a loan, your lender will look at your debt to income ratio. In most cases, your DTI should be no higher than about 36 percent. This means that your debts (car payments, rent, student loan payments, etc.) should be no more than 36 percent of your total income.
  • FHA (Federal Housing Administration) – The Federal Housing Administration insures millions of mortgages across the country. To keep things simple, the many different loan types are sometimes just called FHA loans.

Didn’t find the acronym you were looking for? Give Georgetown Mortgage Bank a call today to speak to a residential loan originator who can answer any questions you may have.

Texas’ Borrowing Limits on Home Equity Loans

texas cash out refinancing, texas refinancingWhen it comes to home equity loans, Texas has some of the toughest laws in the nation. In fact, until 1997, home equity loans weren’t even available in Texas. That year voters approved a provision passed by the Legislature which allowed the loans, but kept some pretty tight restrictions in place.

In Texas, the total of all mortgage debt (not just the home equity loan) cannot exceed 80 percent of the fair market value of the home. What this means is that if you have a $40,000 mortgage on a $100,000 home, you can’t borrow more than $40,000 in the form of a home equity loan because $80,000 (40,000 + 40,000) is exactly at 80 percent of the home value. Anything $40,000 puts you above the limit.

Another one of the rules states that you can’t have more than one home equity loan against your home at the same time. Likewise, you also can’t make more than one home equity loan per year.
So why does Texas have these unusual rules?

Well it goes all the way back to Stephen F. Austin, the Father of Texas and namesake of the capital city. Before Texas became a state Austin successfully petitioned the Legislature of Coahuila, the Mexican state that included Texas, to protect land purchasers from having their homes seized to pay off other debts. Otherwise he feared that settlers from the East would be hounded by creditors. Similar provisions have been in every Texas State Constitution since then.

To learn more about Texas home equity loans and a similar option, Texas cash-out refinancing, contact Georgetown Mortgage Bank today.

Understanding ARM Interest Rate Caps

texas arm, texas adjustable mortgageWhenever you take out an adjustable rate mortgage (ARM), the loan comes with an interest rate cap structure. Usually you’ll hear it listed as three numbers such as 5/2/5 or 2/2/6.

Each number refers to a different component of the cap structure. The first number is the initial cap which limits the amount that the interest rate can adjust at the mortgage’s first adjustment date. The second number is the period cap which limits the amount that the rate can adjust at each subsequent adjustment date. The third number is the lifetime cap. This sets the total amount that the rate can adjust over the life of the loan.

So let’s take a look at a 5-1 fixed period ARM with a rate cap structure of 5/2/5.

  • First Five Years. During the first five years, you’d be locked in at your initial interest rate. That’s what the 5-1 refers to. The initial rate is fixed for 5 years. Afterwards it adjusts every 1 year.
  • First Adjustment Period. At the first adjustment period, your rate would swing no more than 5 percent up or down. That’s the first 5 of the 5/2/5 cap.
  • Subsequent Adjustment Periods. At the second adjustment period—a year after the first—your rate could only increase or decrease by 2 percent. That’s the 2 in the 5/2/5 cap. The same rule applies to every adjustment period after.
  • Over the Loan’s Lifetime. At no point during the loan’s lifetime can the interest rate swing 5 percent more or less than your initial interest rate. That’s the final 5 of the 5/2/5 structure.

While ARMs are a little more risky than fixed-rate options, interest rate caps guarantee that you won’t be paying extravagant rates a few years down the road. To learn more about Texas ARMs and other loan options, contact Georgetown Mortgage Bank today.

FHA Changes Rules on Reverse Mortgages

texas reverse mortgages, texas home loansLast week we reported on some of the changes being made to the Federal Housing Administration’s mortgage insurance policies. But increasing premiums isn’t the only way that the FHA is working to shore up its finances and get out of its $16.3 billion debt.

As of April 1, the FHA said, homeowners will no longer be able to apply for the agency’s standard, fixed-rate reverse mortgage.

So what does this mean for seniors looking for a reverse mortgage? Well, you still have quite a few options available.

  • Apply Now. If you were really hoping to get a standard, fixed-rate mortgage there’s still time to apply, however, you’ll have to act quickly. According to the FHA, you’ll need to submit an application, complete a reverse mortgage counseling program and receive a case number by March 31, and then close the loan by July 1.
  • HECM Saver. The FHA offers another type of fixed-rate reverse mortgage called an HECM Saver. The saver won’t pay out as much as the standard (10% – 14% less), but it does come with a lower upfront insurance premium. Instead of the 2 percent charged by the standard option, a saver charges just 0.01 percent. On a $200,000 home that’s $20.
  • Adjustable Rate Standard. The standard option hasn’t been totally scrapped. You can still apply for a standard loan, but it’ll come with an adjustable rate. No rush, no hurry, but you won’t be able to lock in at the current rates.

If you think you’re ready for a reverse mortgage, contact Georgetown Mortgage Bank today to speak to one of our Texas reverse mortgage loan originators.

New America the Beautiful Quarters for 2013

austin mortgage bank

The first of the 2013 America the Beautiful Quarters made its debut recently, featuring the White Mountain National Forest of New Hampshire on its reverse side.

Five new quarters will be released this year, featuring emblematic designs of national sites:

#1 The White Mountain National Forest Quarter (New Hampshire) was released into circulation on January 28th. It features the easternmost peak of the Sandwich Range—Mt. Chocorua. The mountain is framed by birch trees.

#2 Perry’s Victory and International Peace Memorial Quarter (Ohio) will be released April 1st. It depicts the statue of Master Commandant Oliver Hazard Perry with the Peace Memorial standing in the background.

#3 The Great Basin National Park Quarter (Nevada) will be released June 10th. A single Bristlecone Pine tree and its surrounding glacial moraines fill the picture.

#4 The Fort McHenry National Monument and Historic Shrine Quarter (Maryland) will be released August 26th. A depiction of a fireworks display bursts above that of Fort McHenry, symbolic of the “rocket’s red glare” from the British bombardment of the fort in 1814.

#5 The Mount Rushmore National Memorial Quarter (South Dakota) will be released November 4th. The reverse side of this quarter shows two men working on the construction of the face of Thomas Jefferson.

2013 marks the fourth year in the America the Beautiful Quarters Program, a series of 56 new quarter designs issued or soon-to-be issued by the United States Mint that commemorate America’s national parks and sites. There will be one coin per state, federal district and territory.

Should I Get a Mortgage Right Out of College?

texas home loan, texas mortgageAfter graduating college and landing a steady job you may be thinking about the towns and neighborhoods you want to settle down in. But should you take out a mortgage right away or wait a few years?

Before you make a decision, there are few things you should consider.

  • Your Future Plans. Before shopping for a home, make sure you’re comfortable staying in the same location for quite a few years. You shouldn’t plan on moving anytime soon, as most mortgage loans are intended to last 15 to 30 years.
  • Employment Status. In order to make your mortgage payments, you’ll have to hold down reliable employment. You want to have a job you can count on five years from now, not just five months.
  • Your Income. While your work may be reliable, does it pay well enough to afford the kind of home you’d want to live in? Check out our mortgage calculator to see what kind of loan you could afford.
  • Your Debts. If you’re paying off a bunch of student loans, now may not be the time to get a mortgage. Your total debts (car payments, student loans, rent, etc.) should be no more than about 36% of your income.
  • Your Savings. You should have enough money saved up to make a sizeable down payment on your home. A down payment of less than 20% will require that you pay mortgage insurance premiums for a few years after you make the purchase.

While taking out a mortgage can be a little scary, there are some benefits to owning a home. For instance, instead of handing over money to a landlord every month, you’d actually be increasing your equity in a property. Plus, what you do with your home is entirely up to you. No need to ask a landlord if you can repaint a wall or install a counter. Those decisions are yours to make.

To learn more about Texas home mortgages and see what kinds of loans you qualify for, contact Georgetown Mortgage Bank today.

Buying a Foreclosed Home

foreclosed home, texas mortgageBuying a foreclosed property is a little different from buying a regular home. Instead of purchasing the home from an individual seller, you’ll be buying it from a bank. And instead of finding your own buyer’s agent you’ll probably contact an agent closely associated with the bank.

The upside to buying a foreclosed home is that you’ll probably get fantastic pricing and won’t have to wait for the previous owners to move out. The downside is that negotiations can be difficult and it’s up to the buyer to pay for any repairs.

However, that doesn’t mean you should rush the purchase or settle for whatever price the bank offers. You should treat a foreclosed property just like any other property. Visit the home at different times during the day, take a walk around the neighborhood and study the prices of other homes in the area. Check out the schools, talk to neighbors, and get the home inspected. Make sure you do a title search on the property to find any existing liens. You don’t want to make a bad decision because you feel rushed.

One way to show a seller that you’re serious about purchasing is to get preapproval from a lender. Contact Georgetown Mortgage Bank today to learn more about the types of loans available and how much home you can afford.