Your Mortgage: Your Biggest Debt, Your Biggest Tax Deduction

Many people out there are considering buying a home, but are wary to incur what is most likely their largest debt ever. But you should know, that this debt can work to your advantage when the tax man comes knocking…….

It’s almost April 15th, and my husband just bounded down the stairs to announce that he finally finished up what needed to be done to submit our taxes for the year. Some years we make it by the deadline, some years we don’t. We both work on commission, and depending on the how the year went, we’re less excited about this time of year than others. When we actually don’t file an extension, we’re kind of proud of ourselves. It got me to thinking about paying Uncle Sam, and what one advantage we have working in our favor. We are homeowners.

So what’s the big deal about being a homeowner when tax time rolls around? Well, what many people who have never owned a home may not know is that your mortgage is not only your largest debt, but also it can be your largest write off as well. (And honestly, there are probably plenty of homeowners out there whose accountants prepare their taxes for them, and they never really noticed how much this write off counts!).

This time of year, many folks are digging through file folders, nooks and crannies to find charity receipts, business receipts and any other write off they can remember. How does the old saying go? You can’t escape death or taxes. And tax time can make you feel like your facing death anyway. But what some people who’ve never owned a home don’t realize is that you can deduct all the interest from the past year you’ve paid monthly on your mortgage payment from your annual gross income. Yep. You read that correctly. And may I remind you that during the honeymoon phase of your mortgage repayment, the majority of what you pay (unless it’s an interest only loan) goes toward interest, not principal reduction. So think about it: potentially, this tax deduction could pop you into a lower tax bracket if the numbers work out.

In January of every year, your mortgage servicer will send you a statement that reflects the amount of interest you paid, and you can reflect this amount on your 1040 as a deduction (or you can tally up the amount from your checkbook). What’s more, unlike the majority of deductions, you get to count ALL of the interest portion of your payments you made last year. So, buying a home versus renting can make even more sense for you. Not only are you living in a home that will increase in value over time, you also have all that interest to write off in April. Sounds like a win-win situation to me.

Understandably, the tax break is only a side benefit to owning a home. The biggest value is having a place to call your own that you and your family love. But, writing a smaller check come April sure would feel good, too. Don’t you agree? So, if you’ve been considering buying a home, perhaps this bit of knowledge will be the final nudge that makes you move forward. And next year, you can look forward to a new advantage at tax time.
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Let My Experience Work For You!Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.

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Mortgage Loan Approval Sometimes Need A Human Touch

The mortgage industry can usually tell you in a matter of minutes if you are approved for a loan by inputting your information into an automatic underwriting system. But what if your credit profile doesn’t fit inside the standard guidelines? You may be eligible for a manual underwrite, where a real person eyeballs your credit file…….

In the mid 1990’s, the mortgage industry saw the credit score and its predictive power to assess a borrower’s ability to repay a mortgage step into the limelight as one of the most indicative factors for loan approval. After conducting statistical test after statistical test, Fannie, Freddie and Ginnie, the 3 big lending institutions, mandated that the credit score should be used in conjunction with manual underwriting to assess loan approval. Not too long after, automated underwriting systems (AUS) were developed that expedited and streamlined the underwriting process even further for lenders. A loan officer today simply inputs a borrower’s key information into the preferred underwriting automatic engine, such as his/her credit score, income, amount being borrowed, cash reserves, employment and housing history, and the value of the property. A response is returned by the underwriting engine recommending approval or denial for the loan.

If your loan receives a denial from an AUS, the buck doesn’t necessarily stop there. Life happens to people, and oftentimes it’s going to take a real live person understanding the nuances of a file to make an underwriting decision. That’s when your lender may suggest submitting your file to underwriting for a manual review. After all, not everything in life can be automatic, right?

A perfect scenario for a manually underwritten file would be someone who has no credit scores. No credit scores? Yes, it is possible. I’ve had customers who, being old school and always having paid for everything in cash, had never established traditional credit lines that reported to credit reporting bureaus. In a case such as this one, I had to submit non-traditional lines of credit to underwriting, something a machine can’t assess. This means I had my customer bring in bills he had paid on time for the past year to create a credit history. Typical ones used are car insurance, utility bills, cell phone bills and cable bills. You can expect to have to provide 3-4 different trade lines if you haven’t established a traditional credit history and score.

“The most typical reason we see a file submitted to us for manual underwriting is for either no credit score or an error reported on a credit report,” reflects Patricia Haynes, onsite Government Underwriter at Mortgage Investors Group. “For instance a judgement that doesn’t really belong to the borrower. Maybe it’s really Dad’s judgement reflected on the son’s report because Junior and Dad have the same name. That’s when I can overwrite an AUS decision because I have the documentation to support my decision to do so in front of me.”

Another very common reason to submit a loan for a manual underwrite is when your customer’s credit score is below 620 and gets an AUS denial. If this is the case with your loan, be prepared to provide more than average documentation about your credit history, as well as written explanations as to why your credit score has suffered recently. Maybe two years ago you had a financial meltdown due to a medical illness, but in the last twelve months, you can prove you are back on your game and have been repaying debt. However, your credit scores haven’t exactly caught up with your actions. An underwriter is going to piece together the different aspects of your file and see if it makes sense. Your home lender should be able to review your file and guide you as to what documentation an underwriter will want from you to grant you loan approval.

Naturally, if your credit score is really low and you have very little explanation for your state of credit affairs other than you failed to pay your bills on time, don’t hold your breath for loan approval. An underwriter can see through smoke and mirrors. After looking at files as long as they have, they can basically sniff out a loan that has merit from the ones that are too risky.

So, even as our world gets more and more automated every day, it’s nice to know that you can’t replace genuine common sense, even in the mortgage industry. And it’s nice to know that you can plead your case for credit worthiness to a real live human being.


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Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.

Is Your Arm Adjusting and Your Mortgage Going Through the Roof? – FHA to the Rescue!

ARM Loans and foreclosures seem to be the news of the day. This is a very real problem and thankfully the FHA has come up with a temporary program known as “The FHA Secure Initiative,” that may give some relief.

A gentleman called me the other day about what he could do about his adjustable rate mortgage (ARM) that would soon be adjusting or in plain talk, reflecting a significant payment increase. Like so many homeowners, he did not anticipate the tightening of underwriting requirements and being stuck with his dramatic mortgage payment reset he couldn’t possibly afford.(go to the articles section of www.kristinmortgage.com for more information on ARM loans). Most of us sweat when we go to the grocery store and find out we spent $250.00 on groceries instead of our budgeted $150.00. Facing a huge jump in our mortgage payment would give a large majority of us heart palpitations! This situation is difficult for those with ARM loans about to reset. To make matters worse, many of these homeowners are boxed out of conventional financing because of recent, more stringent underwriting guidelines imposed.

What can be done?

The Federal Housing Administration (FHA) has released a new initiative which enables homeowners to refinance their mortgage when faced with adjusting mortgages that they can no longer afford. The program, known as “The FHASecure Initiative,” is a temporary program, and applications must be signed no later than December 31, 2008. I am going to repeat this point because it is important. An application must be signed no later than December 31, 2008. If you even think this program is something you should consider, do your homework now. Get a mortgage specialist to help you through the details of where you are today, what could happen tomorrow and what you can expect from this FHASecure Initiative program. If you do not have a mortgage specialist go to your bank, ask a friend or realtor for a name of a mortgage specialist, or call me.

The FHASecure Initiative allows lenders and homeowners to refinance mortgages which may result in delinquency once the loan is reset, or in some special circumstances, even if the loan has already become delinquent.

The mortgages in question must involve non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of late payments. If there is sufficient equity in the home, with some further strings attached, you may be able to refinance even if you’re currently behind in payments. The lender must prove that with an FHA refinance, the borrower has enough income and reserves to make payments under FHA’s guidelines. Still confused? Contact a mortgage specialist to help you sort through these guidelines as they apply to your situation. Remember, asking the questions is simply educating yourself and will not obligate you in anyway. It’s about protecting your hard earned investment and safeguarding your credit history.

In the East Tennessee market, FHA will loan money based upon 98.75% of the appraiser’s estimate of value. As well, the maximum mortgage amount allowed for a single family home in our market is $200,160 (higher for multi-family dwellings up to four units). There is no income limit for this product, and individuals with credit scores below 620 may qualify for financing. FHA will allow you to roll the first lien, and second mortgage used to purchase the home originally, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. In a nutshell, it is a fairly flexible product that might be just what the doctor ordered for some of us.

In summary, this product is an excellent solution for many of those subprime mortgages or ARM products we’ve heard so much about on the news. Hopefully, if you are one of those borrowers, this article can open a door for you were afraid was about to slam shut! Oh, and by the way, did I mention that the FHA Secure Initiative is a temporary program, and applications must be signed no later than December 31, 2008?

Please email your home loan financing questions to Kristin Abouelata, Mortgage Specialist, at question@kristinmortgage.com. Kristin will try to answer all questions on her website www.kristinmortgage.com. Some questions and answers may be published with future articles.