Posts Tagged ‘mortgage insurance’

Tax season Q and A

March 2, 2010

It is upon us… one of the two guarantees in life – death and taxes. For this post, we’ll focus solely on taxes as I provide some answers to common questions I receive this time of year.

Let me start this list by stating that I am not a licensed tax professional. For information on how to file tax returns, how to write off the items listed below, etc., please consult a licensed tax professional. If you would like a referral, I know some excellent CPAs, including this one.

  • Is mortgage interest tax deductible? – Yes! Home owners are allowed to deduct interest paid on their mortgage. The IRS requires the mortgage lender to provide the documentation (form 1098) showing the interest paid by the borrower. Bottom line – check your mail and then look at Schedule A on the federal return!
  • Is mortgage insurance* tax deductible? – Possibly. Under the current tax code, mortgage insurance is tax deductible for households with adjusted gross income less than $100,000 ($50,000 for single file). The benefits begin to faze out once crossing the $100,000 ($50,000) threshold, and is entirely gone once adjusted gross income surpases $110,000 ($55,000).
  • How do I file for the home buying tax credit? – Whether a first time OR repeat home buyer (see the IRS website for complete details), anyone claiming one of these tax credits must file a paper (non-electronic) return, include a copy of the HUD-1 settlement statement, and a completed Form 5405. Note that while the form 5405 says “first time home buyer”, it is the form for both tax credits. Filing a paper return may not be as fast as an e-file, but the payoff ($8,000 or $6,500) will definitely be worth it!

While this is by no means an exhaustive list, these are by far the most common questions I’ve received this year. Remember, I’ll be glad to answer any questions and help however I can, but I am not a licensed tax professional. See a tax professional to complete and file your 2009 return.

* – Mortgage insurance is required for borrowers who buy a home with less than a 20% down payment. For conventional loans, mortgage insurance is more commonly referred to as PMI or private mortgage insurance. For FHA loans, it is known as mortgage insurance premium.


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More on the new good faith estimate

February 17, 2010

Since blogging about the new good faith estimate in January, I’ve had the chance to listen to clients and other loan professionals’ feedback on the new three-page form… and the feedback has been consistent.

As the recent post states, there are some great benefits to the new good faith estimate:

  • the terms, interest rate, and loan amount are clearly stated on the first page leaving no room for confusion
  • lender fees quoted must match at closing
  • other fees (attorney, credit, etc.) are also clearly identified leaving no room for ambiguity

The areas needing improvement are still there:

  • there is no signature line/page on the new good faith estimate for borrowers to acknowledge they received the form
  • total closing costs are not shown. Instead, prepaids and closing costs are mixed together.
  • total cash required to close is nowhere to be found
  • monthly mortgage payment is also nowhere to be found

Solving the first problem is easy – all mortgage professionals must create a form for borrowers to sign acknowledging they received the good faith estimate.

In order to help our clients with the rest, we created another form. This additional page shows the itemization of closing costs and prepaid items along with the cash required for closing and the monthly mortgage payment – problems solved!

The one item out of our control is how other mortgage professionals quote estimates for property taxes and homeowners insurance. This is one area that the burden is on the borrower to ensure the good faith estimates they review use the same amounts for property taxes and insurance. Only then will a borrower have a true apples-to-apples comparison.

As with all things in life, there are pros and cons, and the new good faith estimate is no different. As a colleague of mine said in one of his recent posts, the keys to helping our clients through the pros and cons haven’t changed – be simple, honest, and professional:

  • quote closing costs honestly and don’t try hiding or under quoting fees
  • quote real interest rates and not something abnormally low to get the phone to ring
  • keep your word!

Mortgage professionals able to do that will help to keep themselves, their realtor partners, and clients happy as we all navigate the new (and sometimes confusing) three-page good faith estimate (oh, and don’t forget the extra page showing the itemization of closing costs, and one more page to confirm receipt of the new good faith estimate).

New Year, New GFE, New Problems

January 27, 2010

As of January 1, 2010, the new, standard Good Faith Estimate (GFE) implementation was underway for all banks, lenders, and brokers was underway. The new estimate design was to clear up any misconceptions or misunderstandings about a borrowers loan terms, interest rate, closing costs, etc.

Some of the highlights of the new GFE include:

– providing a summary of the loan showing the interest rate, term, if the interest rate can rise, if the loan balance can increase even with regular monthly payments, and if there is a prepayment penalty
– showing a total fee for all services required for a loan including lender fees, attorney fees, recording fees, etc.
– containing a graph showing the fees that can’t increase for any reason at closing along with the fees that can change so long as they do not exceed a 10% tolerance limit

The benefits?  That is easy – gone are the horror stories of dramatic increases in closing costs at the closing table… no confusion about the terms of the loan… makes comparison shopping easier than before.

However, nothing in this world is perfect and there are couple of items that could use some improvement on the new GFE.

– Borrowers must receive the new GFE within 3 business days of a completed loan application. Ironically, there is not a signature page for borrowers to sign and acknowledge they received it.
– The total monthly mortgage payment for the loan is not listed anywhere on the new GFE.
– The required cash needed at closing (combination of the down payment, closing costs, and prepaids) is also not listed on the new GFE.
– The new GFE shows an itemized list of the costs for services rendered (total attorney fees, total lender fees, etc.), but does not show an itemized summary of those costs. For example, say the GFE shows the attorney fee is $1,000.  That would include the cost of the attorney’s services, title exam, title insurance, etc., but it doesn’t show the dollar amount for each of those items.

Change can be a good thing, and overall, the new GFE is a good thing for consumers and a step in the right direction. That said, it will take some time to adjust – especially for borrowers looking to buy their second or third home. This format is completely different from their prior experiences!

Be sure to work with a loan originator who knows the new good faith estimate, can explain it, but also offer you some of the missing information – like the total monthly mortgage payment!

more junk mail

September 30, 2008

Owning your own home is a wonderful thing, but it does have its drawbacks. For instance, when renting an apartment, there are things that you don’t have to worry about such as normal upkeep on the home, maintaining a yard, etc.  Now that you own a home, you get to “enjoy” those aspects to their fullest potential.

An additional frustration is junk mail.  It doesn’t matter how you answer the privacy policy questions with your lender, you will still receive more junk mail. Here are some reasons why:

#1 – When you take out a mortgage to buy a home, the mortgage information is placed in public records and is recorded at the county courthouse.  The transfer of title is recorded in the form of a Warranty Deed and the fact that you have collateralized the property with a mortgage is recorded in the form of a Security Deed. Since this information is in public records, anyone (and I mean anyone) can access it. Companies and solicitors have access to your name, your property address, your lender/investor, whether or not your loan has Private Mortgage Insurance, or PMI, and your original loan amount.

Junk mailers and solicitors gather the information from the courthouse (or purchase it from a directory-consumer list company) and use it to send you everything from coupons, to flyers, to notices about refinancing.  Some of the refinance and second mortgage solicitations are the worst and most misleading going so far as using phrases like, “Please call immediately concerning your Hillside Lending mortgage . . .

#2 – A lot of loan services offer ancillary services as part of their affiliate companies.  The most popular (and in my opinion, the most annoying) seems to be the mortgage-life-insurance product sold TO the consumer as a way “to protect their loved ones”.

Please don’t misunderstand me. I DO think that it is a good idea to have enough life insurance to cover your mortgage balance, but there are better options than mortgage-life-insurance. Mortgage-life-insurance is usually a declining value life insurance premium that decreases at the same pace as your mortgage balance. In the event of your death, the policy is used to pay off the mortgage and nothing more.  A better investment of your time and money would be looking into getting term life insurance that never declines in value.

#3 – Depending on how a privacy policy statement is worded, the lender may still be able to share some of your information.  This is a particularly frustrating point to consumers who do their best to protect their information.

In summary, congratulations on buying your new home, but get ready for junk mail. Some of these offers are scams, and the “legit” ones are typically not a great deal for you to use.  So, be careful.  Hide the women and children.  They are coming…