Your partner’s credit history can influence your future interest rate.
Whether you’re a seasoned or first-time home buyer, be prepared to know your FICO score and have a firm understanding of your credit history. And if you’re buying with another person, their credit history can affect your joint home purchase.
What is a FICO score?
First things first — what’s a FICO score and why does it matter? FICO is an acronym for the Fair Isaac Corporation, the company that developed the most commonly used credit scoring system. Everyone is assigned a number ranging from 300 to 850. The number assesses your credit worthiness through previous payment history, current debt, length of credit history, types of credit and new credit. For the purpose of buying a home or obtaining a loan, it’s the score most commonly used by lenders to determine the borrower’s level of risk. Many people simply refer to the FICO score as “credit score,” so we’ll do that moving forward.
Which score do lenders look at?
Typically, your lender will look at three credit scores reported from each of the three credit bureaus — Experian, TransUnion and Equifax — and then take the median score of the three for your application. Borrowers should hope for at least a 680, which is generally the minimum score for getting approved for conventional loans. For borrowers with lower credit scores, FHA loans allow a 580 score, or even as low as 500 if a 10 percent down payment is made. In any case, the higher the score, the better interest rate you’ll be offered.
Should I apply with my spouse or alone?
Deciding whether or not to include a spouse or a co-borrower on a mortgage application often comes down to whether it makes the most financial sense.
There’s not a ton of wiggle room when it comes to qualifying for a loan. You typically qualify or you don’t. If the only way you can qualify for the loan is by applying jointly to include the total income of both borrowers, then that might be your only option. But even if your credit and income are good enough to qualify for a loan on your own, applying together still might be a better option, as each scenario has its tradeoffs.
My partner has bad credit
When applying jointly, lenders use the lowest credit score of the two borrowers. So, if your median score is a 780 but your partner’s is a 620, lenders will base interest rates off that lower score. This is when it might make more sense to apply on your own.
The downside in applying alone, however, limits you to just your income and not the combined amount from you and your partner. While your credit score might be better, having a lender evaluate you on only your income could lower the total loan amount you qualify for.
If having your name on the home is a big deal, don’t worry. You can still be on the title of the home, just not on the mortgage.
Thinking about buying? Be sure to include these five items in your calculations.
Homeownership may be a goal for some, but it’s not the right fit for many.
Renters account for 37 percent of all households in America — or just over 43.7 million homes, up more than 6.9 million since 2005. Even still, more than half of millennial and Gen Z renters consider buying, with 18 percent seriously considering it.
Both lifestyles afford their fair share of pros and cons. So before you meet with a real estate agent, consider these five costs homeowners pay that renters don’t — they could make you reconsider buying altogether.
1. Property taxes
As long as you own a home, you’ll pay property taxes. The typical U.S. homeowner pays $2,110 per year in property taxes, meaning they’re a significant — and ongoing — chunk of your budget.
Factor this expense into the equation from the get-go to avoid surprises down the road. The property tax rates vary among states, so try a mortgage calculator to estimate costs in your area.
2. Homeowners insurance
Homeowners insurance protects you against losses and damage to your home caused by perils such as fires, storms or burglary. It also covers legal costs if someone is injured in your home or on your property.
Homeowners insurance is almost always required in order to get a home loan. It costs an average of $35 per month for every $100,000 of your home’s value.
If you intend to purchase a condo, you’ll need a condo insurance policy — separate from traditional homeowner’s insurance — which costs an average of $100 to $400 a year.
3. Maintenance and repairs
Don’t forget about those small repairs that you won’t be calling your landlord about anymore. Notice a tear in your window screen? Can’t get your toilet to stop running? What about those burned out light bulbs in your hallway? You get the idea.
Maintenance costs can add an additional $3,021 to the typical U.S. homeowner’s annual bill. Of course, this amount increases as your home ages.
And don’t forget about repairs. Conventional water heaters last about a decade, with a new one costing you between $500 to $1,500 on average. Air conditioning units don’t typically last much longer than 15 years, and an asphalt shingle roof won’t serve you too well after 20 years.
4. HOA fees
Sure, that monthly mortgage payment seems affordable, but don’t forget to take homeowners association (HOA) fees into account.
On average, HOA fees cost anywhere from $200 to $400 per month. They usually fund perks like your fitness center, neighborhood landscaping, community pool and other common areas.
Such amenities are usually covered as a renter, but when you own your home, you’re paying for these luxuries on top of your mortgage payment.
When you’re renting, it’s common for your apartment or landlord to cover some costs. When you own your home, you’re in charge of covering it all — water, electric, gas, internet and cable.
While many factors determine how much you’ll pay for utilities — like the size of your home and the climate you live in — the typical U.S. homeowner pays $2,953 in utility costs every year.
Ultimately, renting might be more cost-effective in the end, depending on your lifestyle, location and financial situation. As long as you crunch the numbers and factor in these costs, you’ll make the right choice for your needs.
In early 2011, you may remember there was a lull in foreclosure activity – a lull that was prompted by nationwide scrutiny into lenders’ home-seizure practices. But in more recent months, as barriers that have been holding foreclosures back have been removed, banks, anxious to rid their books of long-delinquent mortgage loans, have been stepping up foreclosures — all over the country.
Granted, we’re well below the peak levels we saw from 2007-2010, but even so, consider this: In March, 2012, foreclosure filings were reported on nearly 200,000 properties — that’s 7.4 out of every 10,000 homes. With many more foreclosures in the pipeline, here’s how to avoid becoming a statistic:
Buy a home you can truly afford
Ok, so this is an obvious point, but reiterating the numbers is never a bad idea: Your housing costs (mortgage, insurance, taxes) should be no more than 25-28% of your monthly take-home pay. Use Zillow’s affordability and mortgage calculators. They’ll estimate the monthly costs of home ownership within the context of your monthly budget. If the payments seem too unruly (Give them a test drive!), you may need to come up with a larger down payment or shelve your purchase plans altogether.
Contact your lender immediately!
Doesn’t look like you’re going to be able to make that payment .. again? You need to let your lender know about your financial woes immediately, and, ideally, while your head is still above water and your credit is in tact.
Consider temporary relief
If you think that your inability to your make your mortgage payments is going to be temporary, see what kind of temporary relief your mortgage servicer can offer. They may be willing to accept reduced payments over a certain period of time; they may allow you to skip payments over a certain period of time; they may extend the grace period for late payments. Just remember: these solutions are temporary, so in the interim, try to find new ways to slash spending and save more. You must also prioritize your bills, paying attention to the ones that are the most essential.
Look into a modification
If your financial situation has permanently changed, then temporary relief is not going help much. You may need to have your loan modified. And while there are many different ways to do a modification, they generally incorporate interest rate cuts, term extensions and principle reductions – or a combination of these methods. Yes, there is a lot of paperwork involved, and yes, it can be complicated, but banks are under pressure to do these modifications and as a result, we are seeing higher success rates: the average savings, per modification, is about $500 a month. To see if you are eligible for a modification, go to makinghomeaffordable.gov.
Explore a short sale
If you’re underwater (as 23% of homeowners are today), cash-strapped, desperate for relief, and foreclosure is looking imminent/speed is of the essence, then you might want to consider a short sale. This where you’re selling your home, for less than what you owe on it, to your mortgage lender. The upside: No more negative equity burden; it’s not as damaging to your credit as a foreclosure is; you can purchase a home again in as little as 3 yrs; and you’re selling your home with your pride in tact.
Prominent tax advisers still don’t agree on whether all those people who prepaid 2018 property taxes can deduct them in full.
The debate on such deductions arose after Congress passed the largest tax overhaul in three decades late last year. In a landmark change, lawmakers capped write-offs for state and local taxes at $10,000 per return for both single filers and married couples. The provision takes effect for 2018 and will lower these write-offs for millions of Americans.
The overhaul barred deductions for many prepayments of 2018 state and local income taxes, but it was silent on deductions of prepaid property taxes. After Christmas, long lines of people rushing to prepay their 2018 property taxes before year-end gathered at local government office.
Then on Dec. 27, the Internal Revenue Service warned that not all prepayments of 2018 property taxes would be deductible on 2017 returns. The agency said that to qualify for a write-off, the tax liability actually had to have been known at the time.
Right away, some tax specialists strongly agreed with the IRS but others strongly disagreed. The IRS and its supporters argued that those who prepaid all their 2018 property taxes can only deduct the portion that was known or determined at the time. In many cases, that means only for a few months of the year or not at all.
The IRS’s opponents argued for higher deductions of reasonable estimates. They based this argument on prior tax rulings and regulations that they think apply to this issue.
Now, three months later, little progress has been made.
Leading the opposition against the IRS’s position is Lawrence Axelrod, an attorney at Ivins, Phillips & Barker.
“The IRS position is misguided because it doesn’t take into account Treasury’s own regulations,” he said.
These regulations allow taxpayers to deduct amounts paid that will be due within 12 months. The IRS and its supporters disagree. They cite court decisions which say that to be deductible, taxes must have been imposed and the amount must be known.
Stephen Baxley, who heads tax planning for Bessemer Trust, a prominent multifamily office, agrees with Mr. Axelrod.
“If the amount is a reasonable estimate made in good faith, it’s deductible,” he says. The firm is responsible for preparing nearly 1,000 individual returns.
Other tax preparers agree with the IRS.
Brian Lovett, a certified public accountant with WithumSmith+Brown in New Jersey, where property taxes tend to be high, says his firm is following the IRS’s guidance: “We think the amount due must be determined for a prepayment to be deductible.”
The correct answer matters.
More than 80% of property-tax revenue is collected by local governments with a fiscal year other than Dec. 31, according to the latest data compiled by the Lincoln Institute of Land Policy. Frequently, the fiscal year ends on June 30.
As a result, total property tax bills for 2018 weren’t determined by year-end in many areas of the country. Many could reasonably be estimated, however.
For example, say John lives in a county with a fiscal year ending June 30. By the end of 2017, he knew he would owe $6,500 in property tax due by June 30, 2018. He could likely assume that his bill for the second half of 2018 would be about the same. So in late December, he prepaid $13,000 for 2018 to his county.
According to the IRS’s position, John can only deduct a prepayment of $6,500—because the amount due for the second half of the year hadn’t been set.
But if Jane lives elsewhere and knew she would actually owe $13,000 in property tax for 2018, she can deduct a prepayment of that amount on her 2017 return.
Some advisers allow both approaches. David Lifson, a CPA with Crowe Horwath who has many high-earning clients, says he recommends that clients deduct prepayments of known amounts. But he will allow a deduction of an estimate, “if I feel the client understands the risk that the IRS will disagree.”
The debate is ongoing. In March, Democrats on the Ways & Means Committee wrote acting IRS Commissioner David Kautter to protest the IRS’s interpretation of the law.
The good news for taxpayers who want to deduct prepayments of estimates is that neither Mr. Lifson nor Mr. Baxley thinks these write-offs need to be disclosed on IRS Form 8275. On it, taxpayers are supposed to disclose risky positions to avoid certain penalties. Supporters of the IRS’s position think the form should be filed, however.
Some taxpayers are also pushing preparers to take the deduction because the audit risk is low, given constraints on IRS resources.
Emily Matthews, a CPA with Edelstein & Co. in Boston, says she explains the IRS’s position to clients. But she says, “I think we’ll see a lot of people who prepaid estimated taxes opt to deduct them.”
Most real estate investors are missing out on the bulk of potential returns due to one major mistake…
Is real estate leverage your most dangerous enemy or best ally?
Fear resulting from the last bubble is neglecting many investors from realizing their full potential and greater returns by snubbing real estate leverage.
Many are afraid to use real estate leverage, as taking on increasing debt is associated with bad business practices. However, not all borrowing is bad. In reality, it’s an investors’ best friend and tool. Used well, real estate leverage can make all the difference in returns, success, lifestyle and ultimately financial freedom. In addition, attracting a private money lender has never been easier.
Paying cash, keeping down debt and refusing to take on overhead can be smart. Subsequently, it can seriously diminish returns, cap growth and permanently cripple top end potential!
Compare paying $800k cash for a property, putting in $150k in repairs and walking away with $50k in profit after flipping the house versus diversification and using leverage.
Consider the interest and returns on that can be compounded again and again over time, adding years of additional returns in a matter of weeks. Plus, this doesn’t even discuss the advantages diversification and leverage has for liability protection and preserving wealth.
Embrace leverage; reach your full potential!
Having an estate plan in place is critical to ensure your wishes are carried out and that your loved ones are provided for when you pass away. While the creation of a living trust can resolves a number of legal and financial questions, sometimes people do not consider their pets.
Many people overlook their pets in their estate plan because they assume they will outlive the pet, but as one reaches his or her 70's and beyond, that is less likely to happen. The assumption of outliving a pet can and often result in your furry friend ending up in an animal shelter or being taken by a family member that may not want him.
When someone dies, it can take some time to iron out details, so it’s important to have a temporary plan for your pet. When it comes to long term care, having a formalized plan will ensure the pet will be cared for in a loving home and with trusted people. In some cases, people have left money specifically for the care of their pets. If this is something you would like to consider, please contact your attorney to make sure your furry friend is loved even after your gone.
Whether or not you have a will, your estate will go through probate. Probate is a court proceeding that formally distributes the assets from an estate when a person dies. Assets will include any property, bank accounts, investment accounts, and more. During the probate process, the court will examine the validity of the will and determine who will be the executor. Probate can be a very frustrating time, and can take years. Plus, it’s very costly.
During probate proceedings the assets in an estate are frozen, meaning you cannot use them. Even though the estate is frozen, the executor is still responsible for paying debts and taxes, which can often be very difficult because of the large amount of expenses.
Yes, probate is a pain. The good news is that there are ways to avoid probate – one of which is to set up a California living trust. If the size of an estate doesn’t warrant a trust, having a properly drafted will can help probate these proceedings run quicker and smoother. Proper preparation pays off immensely when dealing with estate planning. You will be happy you took the steps you did to prepare.
Virtual Transaction Coordinator
Estate taxes are commonly referred to as “the death tax.” While it’s quite a morbid term, it’s something you need to be prepared for. Will your loved ones be prepared to pay the tax expenses when you pass away? Do you know the value of your estate? These are important questions when concerned about the estate tax.
The estate tax, also known as the death tax, is the tax the government imposes on the transfer of the taxable estate of a deceased person to any beneficiaries. The taxable estate is derived after certain deductions are removed from the gross estate amount (some deductions may include mortgages, estate administration expenses, etc).
When assessing the estate tax, any property or assets that are being taxed will be valued at the fair market price. This means they will be taxed for what they are valued at, not at the price you paid for it. Keep this in mind when evaluating your assets.
The federal government also allows for a base amount to be tax exempt. As of 2015, any estate valued lower than $5.43 million dollars are considered exempt from the estate tax. However, any excess amount over this limit will be taxed at the current year’s rate of 40%. The exclusion amount limit and tax rate change almost every year, so it is a good idea to keep in touch with a professional to ensure you are up to date with the current numbers and to check how the changes may affect your estate.
When dealing with taxes from the federal government, there are a lot more rules and exceptions that can hurt or help you. It is important to contact your attorney for complete information and guidance over the protection and well being of your or your loved ones estate.
Real Estate Transaction Coordinator
One big choice you have to make when estate planning is choosing your executor. Executors have a variety of responsibilities, so it’s important to select a person who has shown financial responsibility, stability, and honesty.
It’s best to pick someone that can avoid a conflict of interest, meaning they do not have any stake in the estate. We recommend a friend or trusted business acquaintance, but not a family member named in the will, or a business partner. Be sure the person you select understands the extent of the commitment.
Here’s a list of some of the tasks the executor performs:
The job of executor can be large, but the executor doesn’t have to do it alone. Often times an executor chooses to pay a professional to take care of most of the administration.
Ultimately, the most important advice we can give is to take the time to select someone (and a backup, if possible). Otherwise the government will choose someone for you.
Virtual Real Estate Transaction Coordinator
At first it seems like the easy, smart, money-saving path to take. Simply add your children to the deed of your home, bypass the probate process, and minimize costs to the children. This strategy is very common. The idea is to hold real property jointly with family members who are given what is called “rights of survivorship.”
There are major disadvantages to adding your children directly to your deed, and is not recommended. One such disadvantage is due to tax implications. As an illustration: if you purchased the home for $100,000 then at some point added a name to the deed, then passed away, your child would own the home. If that child later sells the house for $500,000, a capital gain of $400,000 would be taxed. This is not the case if the home is given to the child through proper estate planning.
If you have questions or concerns about how to best hold title to a home, consult with a legally qualified estate planning attorney before making any decisions. Your attorney can guide you through the best options given your unique financial situation.
Virtual Real Estate Assistant
Probate is necessary when an individual dies without the proper estate planning documents and his/her assets exceed $150,000. The cost for probating an estate is based on the estate’s gross asset value, which generally means including all that you own, but nothing that you owe. See the chart below for an example of probate fees:
By setting up a properly drafted will and trust you can avoid probate, prevent estate taxes, and even gain tax benefits.
One way to lower estate taxes is through gifting. When assets are transferred as ‘gifts’, these gifts are not considered inheritance and therefore do not face taxes. Also, the removal of these gifts from your estate lowers your estate’s taxable value, ultimately reducing the amount of tax you may have to pay. Assets can be gifted directly to beneficiaries, into a trust, or even into closely held business entities. You should consult a professional for the best option for you.
Donating assets to charity is another way to reduce estate taxes and gain tax benefits. If you are thinking of donating to charity to reduce your estate taxes, you may want to consider a charitable remainder trust. To find out if this is right for you, contact your attorney today. As everyone’s situation is different, a professional should be consulted on which estate planning tactics suit your situation best.