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Posts Tagged ‘property taxes’

I owe back taxes on my home and have medical debt. Should I sell my house?

Q: I Have a Property About to Be Put on Sale for Tax Delinquency in Florida. I Have Medical Debt Due to a Spinal Injury and Was Diagnosed Disabled by the Government Rehab Serv Admin. I am Going to School and Have no Job. My Debt is About $15,000. I Live off an Annuity Pension I set up for my Retirement Before My Injury. I am 56 Years Old. Should I Sell My Property?

A: If you can not afford the property, yes, you should consider selling it. And by “afford” it, I mean cover all the costs associated with owning the property – including any mortgage that may exist, insurance, and certainly the property taxes on the home. You did not state whether this is your primary residence or whether this was a rental property/second home. You also did not indicate whether the home is owned free and clear. I suspect that may be the case, otherwise you would have likely mentioned that you could not afford a mortgage, which is almost always more expensive than property taxes. If you are a landlord, it could be the case that tenants are effectively paying the mortgage on the property and that’s why you’ve been able to keep it this long, considering that you do not work. Lastly, you did not say how much the property might be worth. All of these factors should weigh into your decision-making. If the home has substantial equity, and you can sell it, pay off your $15,000 in debt and find another affordable place to live (if necessary), then a sale is a good idea.

How to know if you should pay off your debt or start saving for the future

What I’d suggest at this point is that you get a local real estate agent to visit the property and give you a comprehensive market analysis. He or she will evaluate the home and tell you what “comps” – comparable homes in the neighborhood – are selling for. This would give you a good idea of how much your property might fetch. Obviously, many parts of Florida are flooded with foreclosures and prices are way down. So if a quick sale is necessary, you’ll have to price the property very aggressively, in order to avoid the house being put on the auction block due to your tax delinquency.

How Can I Lower My Income Taxes?

Author: The Money Coach

Q: How Can I Lower My Income Taxes? My Wife and I Make About $140,000 Combined a Year. We have Two Young Children. We Live in Massachusetts. We Owed Money Last Year and This Year We Owe About $4,600.

A: I know it hurts to get a big tax bill, and it’s not fun to find out that you owe the government nearly five thousand bucks. But there are some ways you can start to lower your taxes in the future. Here are six strategies I’d recommend:

Adjust Your Withholdings At Work
Since you said that you owed money last year also, and that your wife was recently laid off for two months, it very well could be the case that your W-4 withholdings need to be tweaked at work – possibly at both of your places of employment. In essence, you need to adjust your withholdings so that more taxes are taken out over the course of the year. Even though this is still paying taxes, it’s spread out. So you’re less likely to feel the sting of it. Also, by prepaying the proper amount of taxes due over the year, you’ll avoid those nasty IRS penalties for under-payments. Publication 919 from the IRS has more details about properly adjusting your withholdings to that you don’t wind up paying too much tax. The IRS also has a Withholding Calculator available online. Click the following link for more info. http://www.irs.gov/individuals/article/0,,id=96196,00.html.

Max Out Your 401(k)
If you have a 401(k), a 403(b) or any other type of employer-sponsored retirement plan, try to contribute the maximum allowable. Not only might you get a matching contribution from your employer, but you will also reduce your taxable income because money put into a 401(l) plan is contributed on a pre-tax basis. In 2010, the maximum contribution for a 401(k) plan is $16,500. People who are 50 and older can put in an additional $5,500.
The 2010 maximum contribution amount is $5,000 for IRAs, and an additional $1,000 contribution to an IRA is allowable for those 50 and older. So max out that 401(k) plan. Ditto for your wife at her job.

Take Advantage of Health Savings Accounts and Flexible Savings Accounts
If your company has a Health Savings Account, and you haven’t already done so, do sign up for it. Since you have two young children, you can contribute up to $6,150 to an HSA on a pre-tax basis. If you’re going to have to pay for certain health-related costs anyway, why not get a tax break for doing so? Do the same thing with a flexible spending account, which currently has a maximum contribution of $5,000. So get prepared for your next open enrollment season at your job, when you’ll be able to make 2011 selections for your FSA.

Itemize and Boost Deductions
One other way to lower your taxes is to ramp up your deductions. If you don’t take the standard deduction, you obviously need to itemize your deductions. This calls for some good record-keeping. Even though many taxpayers could benefit financially from itemizing their deductions, the IRS reports that lots of people don’t do it – simply because of the extra work involved.

To boost your deductions, here are some ideas about what you can claim:

•   charitable contributions
•   mortgage interest
•   interest on student loan payments
•   business use of a home
•   state, local and foreign income taxes
•   real estate taxes
•   personal property taxes
•   state and local sales taxes
•   qualified motor vehicle taxes
•   any estimated taxes you paid to state or local governments during the year
•   any prior year’s state or local income tax you paid during the year
•   miscellaneous deductions (in excess of 2% of your adjusted gross income)

In your case, your 2010 miscellaneous deductions could be significant. Since your wife was recently out of work, she can claim job-search expenses (like resume preparation, headhunter services, postage for mailings, unreimbursed travel and hotel bills for interviews, etc.). Under the category of “miscellaneous deductions,” you can also take deductions for things like tax and investment advice, as well as unreimbursed employee expenses.

Fund a 529 Plan for Each of the Kids
Since you mentioned having a 5-year-old and an 8-year-old, it’s possible that you’ve already thought about saving money for their future. One great way to do it is by opening a 529 Plan. That’s a state-sponsored college savings plan. Money invested in a 529 plan grows tax free and when you later take the money out to pay for college, the appreciation or gains that have been racked up in a 529 plan are also tax free. Best of all, many states offer a tax deduction for 529 Plan contributions. In 2009, you could put up to $13,000 in a 529 plan without triggering any federal gift taxes. In Massachusetts, where you live, unfortunately there is no direct state tax deduction or credit for contributions. However, according to SavingforCollege.com, which offers great information about 529 plans, Massachusetts does exempt qualified distribution from 529 plans, in conformity with federal law. The state also allows for tax-free treatment of 529 rollovers (i.e. earnings rolled into or out of a 529 plan). Again, if you’re already saving for your kids’ college education, or had planned to do so, you can get some serious bang for your buck with these tax-advantaged 529 plans.

Professional Help Wouldn’t Hurt
In addition to the strategies I’ve just recommended, as a practical matter, it would certainly not hurt you to also do some front-end planning with an accountant or financial advisor. This means you should get going now on tax-reduction activities, ahead of the April 15th tax filing deadline, and continue to make some smart money-moves all year long. A qualified CPA or other tax/financial expert should be able to review your overall financial picture, and give you even more specific advice about how to lower your tax bill.

If you use all these options, chances are by the time next year rolls around, you won’t find yourself having to write yet another big check to Uncle Sam.

Can I Really Get a “No Cost” or “No Point” Mortgage From a Home Lender?

Author: The Money Coach

Even if a bank says you’re getting a “no cost” mortgage – perhaps because they are not charging points on the loan – that doesn’t mean the loan itself is truly “free” or really being offered at zero cost to you. Banks aren’t in the business of loaning money, and doing all the work required to close a mortgage loan, free of charge. So here are examples of the common fees you might see when you obtain a mortgage – along with estimated costs. These costs can apply to both initial home purchases and refinanced home loans. Obviously, prices for different products and services can vary based on where you live and other factors. Nevertheless, the numbers presented below will give you an estimate – or in some cases a range – of what you can typically expect to pay for your mortgage.

Typical Closing Costs on a New Mortgage:

Description of Fee Cost

Application Fee $150-$400

Appraisal $200-$400

Closing Fee $250-$350

Credit Report $15-$50

Document Prep Fee $150-$300

Flood Certification $10-30

Legal Fees $250-$750

Loan Origination Fee Usually 1% of the loan

Points Each point is 1% of the loan

Recording Fee $25-$50

Survey $150-$300

Taxes Varies (See more info below)

Termite Inspection $50-$100

Title Insurance Varies (See more info below)

Some loan costs – like interest on your loan and property taxes – must be escrowed, meaning that you pay for them for a few months, up to a year in advance. The same is true for homeowners’ insurance, which covers the house in case of a fire or another disaster.

Insurance Costs for Your Home Loan

Other insurance you have to pay includes title insurance, which is an indemnity policy that provides protection against any loss that arises due to problems with the title (or ownership) of your property. Lenders require you to have title insurance because if the title is “faulty” – due to a tax lien, judgment or some kind of encumbrance on the title – then title insurance covers the lender. As is the case with mortgage insurance, you bear the costs of title insurance (in a single, up-front payment), but your lender receives the protection for this coverage.

Title Insurance Varies Based on Several Factors

Title insurance costs vary greatly nationwide, partly because the title insurance premium you pay often covers different services, depending on the company you use and where your home is located. For example, in some places your premium simply covers the lender for any title-related losses. In other places, though, the premium covers losses, as well as the cost of a title search, title examination, and closing services. Title insurance also varies based on the size of the mortgage.

Watch Out for “Junk” Fees Charged By Some Lenders

Junk fees are those charges imposed solely to add to a lender’s profit margins. In many cases, these fees have legitimate or official sounding names, like “document preparation fee.” In truth, however, they’re really just creative ways for lenders to pad their bottom line at your expense. Many lender charges that have the word “fee” slapped on the back of them are a dead giveaway that you’re being charged for services that lenders are supposed to provide anyway. If you get charged for an “underwriting fee,” a “loan review fee,” a “warehousing fee,” or other such nonsense, do not hesitate to ask the lender to waive those fees – or at least substantially reduce them. Even things like the “application fee” or the “loan processing fee” can be eliminated or cut, if you are savvy enough to ask.

How to Decipher Your Good Faith Estimate

When you obtain a mortgage, you will pay four sets of fees: Lender Fees, Title and Third Party Fees, Escrow and Interest Fees, and Government Fees. Each set of fees will be outlined in your Good Faith Estimate. Remember, however, that the GFE is not binding on a lender. In fact, it’s likely to change at least once – right after your loan is approved. Later, when you go to the closing, take your Good Faith Estimate with you and compare it against the final bill you get at closing. That final bill is described as a HUD-1 Settlement Statement. For now, however, let’s take an in-depth look at the fees you’ll pay at closing as revealed in your initial Good Faith Estimate.

Lender Fees

Payments you make to a lender in order to obtain a mortgage can range from loan discount points to mortgage broker fees or underwriting costs. In general, lender charges include any fees that go directly to the financial institution providing your home loan.

Title and Third-Party Fees

Third-party fees for home borrowers include the costs for flood certification, appraisals, pest inspections, your title search, and title insurance. Third-party fees are paid to outside vendors or other companies, not your lender. In many cases, however, your lender might be affiliated with those third parties.

Escrow and Interest Fees

Lenders often require you to make advance payments into an escrow account to make sure you don’t fall behind on your property taxes, homeowner’s insurance, loan interest, or private mortgage insurance. Other escrow items include so-called “interim,” interest, which is the daily mortgage interest cost you pay from closing through to the end of that month.

Government Fees

Most city, county, or state agencies require property transfer taxes or other levies for real estate purchases. Other government agencies charge for your mortgage deed to be recorded. These fees will all be detailed in your Good Faith Estimate. You can tell which fees are likely to be negotiable by carefully reviewing your Good Faith Estimate. On the GFE, you’ll notice that fees are grouped into numerical categories that range from the 800s to the 1300s. Your lender’s charges fall into the 800s category, and will include anything from application fees to loan origination charges or underwriting fees. These are the items that are most open to negotiation.

Questionable Fees You Should Contest

Anything classified as a “review,” an “administrative” or a “document prep fee” should be questioned. Lenders will say that they charge for these items because loans have to be processed, underwritten, and reviewed. However, there’s no justification in charging these junk fees to consumers for several reasons. First, lenders use automated underwriting systems, which spit out approval or denials in a matter of minutes. It’s not as if some underwriter is spending weeks working on your mortgage application. Additionally, administrative and underwriting services are part of the normal course of a lender’s business. Lastly, even if you should have to pay for these expenses – which you shouldn’t – many lenders inflate these charges, saddling consumers with $500 “processing” or “administrative” fees – costs that far exceed the lender’s actual incurred cost.

Fees Required to Be Paid In Advance

Fees that fall in the 900s category on the Good Faith Estimate represent items required by your lender to be paid in advance. Examples include pre-paid interest on your loan, mortgage insurance premium, or a hazard insurance premium. Likewise, fees in the 1000s category on your GFE are for reserves you must deposit with the lender, for expenses like property taxes or flood insurance. Generally speaking, you won’t be able to negotiate away pre-paid costs that your lender mandates. However, you can save money on these items in other ways. For instance, you can schedule your closing toward the end of the month to reduce the number of days of prepaid interest you pay at closing. Also, you can shop around for the best rate on hazard insurance – the cost of which will be listed as item 903 on your Good Faith Estimate.

Beware of Costly Mark-ups

Most title charges and third-party fees will show up on the 1100s section of your Good Faith Estimate. Here you will the costs you must pay for title insurance or for title searches, notary fees, attorney fees, and perhaps other expenses, such as overnight courier service. Sometimes, third-party fees – like charges for an appraisal or the cost to run your credit – might appear in the 800s section instead of in the 1100s area of your Good Faith Estimate. These are legitimate third-party fees because your lender does incur these expenses. However, you have to watch out for lenders or brokers who try to pad these charges and impose a markup on them. To reduce the risk of this, let your lender know upfront (i.e. after you’ve been approved for your mortgage) that you want receipts for all third-party expenses you incur.

In states like Texas and Florida, title insurance premiums are set by the state. But in other places, you can save yourself money by shopping around for title insurance, a title exam, and attorney’s fees. Many lenders will suggest that you use their title company or lawyers, but you don’t have to – especially if you can find better deals on your own.

What Are Some Do’s and Don’ts When Refinancing My Home?

Author: The Money Coach

After owning your home for some time, you might start to consider whether or not you should refinance your mortgage. If interest rates have dropped considerably as they have in recent years, or if your credit has improved dramatically, it’s possible you might be able to get a much better deal on a new mortgage than your original loan. Before you commit to refinancing, however, make sure you realize the implications of doing so.

The Realities of Refinancing a Mortgage

To begin with, refinancing can eat away at your home’s equity because refinancing is not free. A refinancing entails paying off your old loan and replacing it with a new one, and banks aren’t in the business of making loans free of charge. Even if you hear lenders talk about a so-called “no cost” refinancing, don’t believe it. A lender might not have an application fee, or charge you points to refinance, but those costs and others associated with refinancing are essentially priced into a loan with a higher interest rate. As you’ve heard many times before, “There’s no such thing as a free lunch.”

A Refinance Doesn’t Offer as Many Tax Deductions As You May Think

You probably remember that points you pay to obtain a mortgage are tax deductible. When you refinance, however, any points you pay must be amortized over the life of the loan. In other words, you can’t take the full deduction for the points in one year, as you can do when you buy a house.

Avoid These Home Refinance Pitfalls

As with a home equity loan, you should never refinance into a larger loan than is necessary. Unfortunately, scores of homeowners do this all the time when they sign on the dotted line for a “cash out” refinance, which allows you to not only get a better rate or more favorable loan terms, but which also allows you to get some dollars back in the deal as well. A cash out refinancing saps equity from your home, so you should only take that money if you plan to use the proceeds wisely. Guard against frequent refinancing, too. If rates drop a half point or even a full percentage point, do the math to figure out if any monthly savings you can generate will really outweigh the closing costs and other fees associated with a refinance. I can’t help but wonder if many consumers are really just cheating themselves out of the opportunity to build wealth due to excessive refinancing.

Don’t Refinance Your Way Under Water

Consider these facts: In recent years, nearly nine out of 10 consumers who refinanced their home loans took cash out in the transaction. In 2006 alone, Americans cashed out $352 billion worth of home equity – more than a 10-fold increase in the amount cashed in the year 2000. Moreover, when the Joint Center for Housing Studies (JCHS) at Harvard released its annual survey of housing, called the “State of the Nation’s Housing 2007,” the results were especially sobering. The JCHS report indicated that 13% of individuals and families who bought homes in recent years (in 2003 and 2004, to be exact), already had “negative equity” or were “under water” in their homes. This means their outstanding mortgage debt exceeds the market value of the houses in question. Unfortunately, the news is even worse for more recent buyers.

Multiple Refinancing “Deals” + a Real Estate Downturn = Negative Equity

A November 2007 survey by Zillow found that nearly 16% of homebuyers who purchased houses in 2006 had negative equity, as did 17.5% of those who bought in 2005. As real estate prices continued to fall through late 2009, the number of homeowners facing negative equity now stands at 23%, according to First American CoreLogic, a real estate information company. Therefore, as of early 2010 roughly 1 in 4 U.S. homeowners are “upside down” or their mortgages and owe more on their homes than the homes are actually worth.

Remember Your Due Diligence

As with all financial products, you should shop around for the best loan terms you can get in the event you decide to refinance your mortgage. Don’t just accept the first offer that comes your way. In considering a refinancing, follow the same vigilant standards you used to evaluate lenders and their offerings when you bought your house. This means you should know the annual percentage rate on your new loan, all fees charged, as well as key payment terms, such as whether a prepayment penalty exists.

Don’t ever sign any loan documents that you don’t understand and don’t agree if any loan officer or mortgage broker asks you to put your signature on a blank document with the promise that he or she will fill it in later. You don’t know what they could insert into those loan documents. Also, make sure you get copies of everything in connection with a new mortgage, including a Good Faith Estimate, a Truth in Lending form, as well as the mortgage, note, and/or promissory document you must sign.

Excerpted from Your First Home: The Smart Way to Get It and Keep It

Ask The Money Coach

Posts Tagged ‘property taxes’

I owe back taxes on my home and have medical debt. Should I sell my house?

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How Can I Lower My Income Taxes?

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Can I Really Get a “No Cost” or “No Point” Mortgage From a Home Lender?

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What Are Some Do’s and Don’ts When Refinancing My Home?

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