Mortgage interest deductions and deductions for property taxes are a way to encourage home ownership.

Mortgage Tax Credit – The Mortgage Credit Certificate (MCC) program allows some first time home buyers to benefit from a mortgage interest tax credit.  An MCC, which you first must obtain from your local housing department before you get a mortgage, gives a qualified first-time home buyer a federal income tax credit of up to 20 percent each year the buyer keeps the same loan and lives in the same house.  You can see the tax credit’s benefit immediately in your paycheck by adjusting your W-4 exemption status to reflect the credit.  In some cases, lenders will qualify you for a loan based on the monthly mortgage payment minus the tax credit, enabling you to qualify for a bigger loan.

Mortgage Interest Deduction – With Mortgage Interest Deduction, all but the very wealthy homeowners deduct all the mortgage interest they pay and consider that the primary tax benefit to home ownership.  IRS Publication 936 “Home Mortgage Interest Deduction” says, in general, joint tax filers can deduct all the interest on a maximum of $1 million in mortgage debts secured by a first and second home, plus the interest paid on a maximum $100,000 in home equity loans.  The maximums are halved for married tax payers filing separately.

Points – Home buyers also get to fully deduct all points associated with a home purchase mortgage.  Sometimes called “origination fees,” “loan discounts” and “broker discounts,” each point is one percent of the financed amount.  In many cases, the buyer can also deduct points on the buyer’s mortgage that are paid by the seller.  Points on refinanced mortgages are also deductible, but over time.

Selling Your Home – Even when you sell your home, it continues to be a tax shelter, for a few homeowners.  Your gain is your home’s selling price, minus deductible closing costs, minus your basis.  Thanks to the 1997 Taxpayer Relief Act, many home sellers no longer suffer a taxable gain.  That’s because, under the act, sellers get to keep, tax free, up to $250,000 in capital gains ($500,000 for married sellers who file taxes jointly) on sales of homes used as a principal residence for two of the prior five years.

When you are looking at house listings as well, some of the lingo will be abbreviated and you may find yourself wondering what exactly DOM=67 may mean.

We’d like to share some of the lingo that is often used while searching for a house.

• MLS = Multiple Listing Service. An MLS is an organization that collects, compiles and distributes information about homes listed for sale by its members, who are real estate brokers. Membership isn’t open to the general public, although selected MLS data may be sold to real estate listings Web sites. MLS’s are local or regional. There is no MLS covering the whole country.
• Lock box = locked key-holding device affixed to a for-sale home so real estate professionals can gain entry into the home after obtaining permission from the listing agent
• Listing = an agreement between a real estate broker and a home owner that allows the broker to market and arrange for the sale of the owner’s home. The word “listing” is also used to refer to the for-sale home itself. A home being sold by the owner without a real estate agent isn’t a “listing.”
• Frplc, Fplc, FP = fireplace
• HDW, HWF, Hdwd = hardwood floors
• Fixture = anything of value that is permanently attached to or a part of real property. (Real estate is legally called “real property,” while movables are called “personal property.”) Examples of fixtures include installed wall-to-wall carpeting, light fixtures, window coverings, landscaping and so on. Fixtures are a frequent subject of buyer and seller disputes. When in doubt, get it in writing.
• Contingency = a provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One example is a buyer’s contractual right to obtain a professional home inspection before purchasing the home.
• CMA = comparative market analysis or competitive market analysis. A CMA is a report that shows prices of homes that are comparable to a subject home and that were recently sold, are currently on the market or were on the market, but not sold within the listing period.
• Closing costs = the entire package of miscellaneous expenses paid by the buyer and the seller when the real estate deal closes. These costs include the brokerage commission, mortgage-related fees, escrow or attorney’s settlement charges, transfer taxes, recording fees, title insurance and so on. Closing costs are generally paid through escrow.
• 4B/2B — four bedrooms and two bathrooms. “Bedroom” usually means a sleeping area with a window and a closet, but the definition varies in different places. A “full bathroom” is a room with a toilet, a sink and a bathtub. A “three-quarter bathroom” has a toilet, a sink and a shower. A “half bathroom” or powder room has only a toilet and a sink.

Whether you are selling your house or trying to find a potential renter for your investment property, painting can make a dramatic improvement to the look of your house.

Painting is an easy and inexpensive way to spruce up your house.  Painting your house in appealing neutral colors, can attract buyers to your home.  If the paint is dull or a bright, dramatic color, sometimes potential buyers or renters might skip over your home, looking for a house with zero effort to be put into it.

A fresh coat of paint can make a home look as good as new.  If the paint in your home looks good, you might want to recover the trim with a semi gloss paint to brighten things up a bit.  Another tip is to paint kitchen and bathroom cabinets to give them a new and improved look.  Using a white semi gloss paint to cover up stained or extraordinary colored cabinets is less expensive than replacing the cabinets and it can really make them shine. If you want to take an extra step, you can even purchase new cabinet handles for cheap at any home improvement store.

Painting the front door can also add appeal to the outside of the house, especially if the door looks worn or scratched from daily use.  There are many ways to spruce up your home to make it more attractive to potential buyers or renters.  It is also a good idea to keep these painting tips in mind if you are buying a house.  A simple coat of paint can greatly increase the appearance of the inside of your home and attract potential buyers.

There are a lot of details you should know about and things to prepare for when buying a home – especially the various costs involved with the initial purchase and the monthly payments.

Buying a home is a big decision and there are many other factors other than just the monthly mortgage you will have to be responsible for.  When first buying a home, there are various items that cost money initially, along with recurring monthly costs.

Your realtor, The Lawhead Team, will help explain every detail of what these costs are and where exactly they are going.  The Lawhead Team can help you determine how much you can afford and what you can afford and what exactly you will need to set aside for any extras.

On top of a monthly mortgage, there are other fees such as insurance, taxes and sometimes legal fees.  Below is a list of some various costs you might come across as a home buyer and should keep in mind to prepare for.

–Application Fee – If your lending institution has to charge to process your mortgage application, you will encounter an “application fee”.  Most of the time if you are dealing with a bank you currently have other accounts with, they will waive the fee.

–Appraisal Fee – An appraisal is usually done by someone on the lender’s staff or by an outside professional hired by the lender.  Usually, the lender loans a percentage of the home’s purchase price or the market appraisal of the property, whichever is lower.  In most cases, the cost of the appraisal ends up being the responsibility of the home buyer.

-Home Inspection Fee – An inspection of the home is highly recommended before confirming your final offer on a home.  This will notify the buyer of any potentially large or small costs they will incur once the home is theirs.

–Home Insurance – If you are putting less than 25% down on your home, you will need to purchase mortgage insurance.  There are also other types of insurance that may be required when buying your home such as fire insurance, title insurance, life insurance and more.

–Land Survey Fee – A plot plan or survey of the property is required by lenders.  If your home is in a subdivision in an urban area, lenders will usually accept an existing survey.  However if there has never been a survey done on the land, prepare to pay a significant fee for a new survey.

–Legal Fees – You will need to have a lawyer arrange your mortgage as well as “disbursements” such as title search, drawing up the title deed and preparing and registering the mortgage.

There may be other costs you come across as well which we have not mentioned above.  Of course there are utilities, such as gas, electric, cable, etc along with the possible HOA fees depending on where you live.

We suggest putting away money each month for any necessary repairs or unseen maintenance that may come up.  Even with additional costs, buying a home is definitely affordable for many people.  As long as you know what to expect and budget your money wisely, you will be enjoying your new home in no time!

Helping Your Kid Buy a Home — Before You Write the Check

Dear Carrie: What is the best way for me to help my 30-year-old son buy a house? I’m 64 and about to retire in the next year or so. I have enough in my retirement fund to pay for all my essentials and some extras, but I’m not wealthy. What’s your advice? –A Reader

Dear Reader: The housing boom seems like a distant memory these days, but home ownership is still a worthy aspiration — and a challenge for many first-time buyers. Parental help can be invaluable, but you’re right to think through this issue before you act. So thanks for a great question!

BEFORE YOU HELP…

First and foremost: Be sure you’re truly in a position to help. It sounds like you’re well prepared for retirement but without a lot of cushion. I suggest running your own numbers again, with realistic assumptions about your income requirements and lifespan, before you speak with your son. You’ve worked hard to prepare for retirement, and you don’t want to worry that helping your son might jeopardize your own financial security.

ASSESS THE SITUATION

Let’s assume you do have the resources to help. What’s the best way to go about it?

First, talk with your son about the realities of home ownership, such as the true costs of buying a home. First-time buyers often focus on the mortgage payment to determine affordability, but the actual ongoing cost is much higher (insurance, property tax and maintenance). Does he earn enough to afford all that and still live within his means? Is his job stable? Will he be able to stay in the area for several years?

Second, understand the degree of his financial need. Does he need help with the down payment or would your commitment be ongoing? Help with a down payment strikes me as reasonable; an ongoing need might make me think he’s not financially ready to own a home. And–a more philosophical issue–how much should he be willing to undertake himself? Is this an opportunity for him to assert his financial independence, perhaps deferring the buying decision for a few years?

Obviously, you know your son, but getting these issues out into the open is essential–and will reinforce the idea that financial matters, with a bank or with you, are serious and have consequences.

THE FORM OF YOUR HELP

Now you can make some informed decisions about what kind of help you can provide. If it’s strictly a matter of helping with the down payment (probably the most common form of parental assistance), you can give him $13,000 a year without triggering gift taxes. If he’s married, you can make a gift to his spouse for another $13,000; if you’re married, your spouse can do the same for a total of up to $52,000 in gifts tax-free in any one year.

You can also lend him money for his down payment, but do it properly with documentation. A simple loan agreement outlining the interest rate and repayment schedule can circumvent any misunderstandings between you and your son. Obviously, you have to report interest received on your taxes. (“Imputed interest” refers to the interest you (SET ITAL) could (END ITAL) have earned; it’s the difference between the “applicable federal rate” and the rate you charge. Current applicable federal rates can be found at irs.gov. If you’re unsure about the tax consequences of a loan to your son, consult a tax professional to make sure you’re doing it right.)

If your son’s need is greater — say, for example, he needs a co-signer for his loan — you’ll have some hard thinking to do. Co-signing is a legal obligation; you might be mortgaging (literally) your future for his house. Obviously, this is a hugely personal decision; know the risks and their consequences before you proceed.

There are also more complex arrangements. Some parents buy a house in their name and rent it to their child. Others share equity in the house as co-owners. Don’t be afraid to get some professional help with structuring and documentation. Clear, forthright communications will make everyone involved more comfortable.

In fact, clear, forthright communications should be critical for any substantial family transaction. Spell out the nature of your assistance in writing and avoid a potentially ugly situation down the road. But I cannot stress enough the importance of protecting your own financial future first. It’s commendable to help your children, and if doing so won’t compromise you or them, I’m all for it. Good luck!

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of “It Pays to Talk.” You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2011 CHARLES SCHWAB & CO., INC. MEMBER SIPC DIST BY CREATORS SYNDICATE, INC.

From: http://finance.townhall.com/columnists/carrieschwabpomerantz/2011/12/21/helping_your_kid_buy_a_home__before_you_write_the_check/page/full/