5 Important Tips To Save Money On Your Tax Bill

April 15th seems a long way off, but it will be here before you know it.

Now is the perfect time to start getting your paperwork in order.

Owning real estate can make a big difference on your tax return, so make sure that you're taking advantage of all the deductions you're entitled to.

We've outlined a few below:

Mortgage Interest

Unless you paid cash for your purchase, you probably took out a loan to buy your Kent home.

Mortgage interest is one of the best tax deductions available, so be sure to hang on to that 1098 Mortgage Interest Statement from your lender.

You can almost always deduct the entire amount of interest paid per calendar year.

Real Estate Taxes

Depending on where your property is located, you are likely paying real estate tax, either to the state or to a local governing authority.

Taxes based on property value are generally deductible as well. You may have an escrow account to hold these funds during the year, so be sure that you only deduct the amount of taxes you actually paid.

Home Equity Line of Credit

You may deduct home equity line of credit (HELOC) debt interest as long as you are legally liable to pay the interest, the interest is paid in the tax year, and the debt is secured by your home.

The home equity debt has a limit of up to $100,000 ($50,000 if married filing separately).

Mortgage Insurance Premiums

Depending on how your loan is structured, you may have mortgage insurance. With the recently passed American Tax Relief Act of 2012, all mortgage insurance premiums are tax deductible for the 2012 and 2013 tax year. There are some qualifications, so check with your tax advisor.

Mortgage Interest on Land

If you purchased land with the intent to build, the interest you have paid may qualify as deductible mortgage interest as long as the structure becomes your qualified residence within a 24-month period.

This deductibility of bare land mortgage interest is a tricky one. You can see the IRS explanation here.

Your home could be one of your greatest resources for reducing your tax liability. Most times these deductions are itemized on a Schedule A (Form 1040) when you prepare your taxes.

A great next step is to call a qualified tax planning professional.  Please feel free to contact us if you would like a referral.

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Is An FHA Mortgage Better Than A Conforming One?

The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures one-quarter. "Going FHA" is more common than ever before -- but is it better?

The answer -- like most things in mortgage -- depends on your circumstance.

Like its conforming counterpart, an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate one. Payments are made monthly and come without prepayment penalties.

That's where the similarities end, however, and decision-making begins. For homeowners and buyers across Seattle , FHA mortgages carry a different set rules as compared to conforming loans through Fannie Mae or Freddie Mac that can render them more -- or less -- attractive for financing.

For example:

• FHA mortgages can be assumed by a subsequent buyer. Conforming loans may not.
• FHA mortgages require mortgage insurance, regardless of downpayment. Conforming loans do not.
• FHA mortgages do not have loan-level pricing adjustment. Conforming loans do.

FHA mortgages also require smaller downpayment requirements versus a comparable conforming mortgage. FHA calls for a minimum downpayment of 3.5%. Conforming mortgages often require 5 percent or more.

And, lastly, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been below the average conforming mortgage rate more than 50% of the time, meaning that an FHA mortgage's principal + interest payment is lower than a comparable Fannie/Freddie loan.

Today, conforming mortgage rates are lower.

So, which is better -- FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today's market interest rates and study the results.

With less than 20% equity, the answer is often clear.

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FHA : Monthly Mortgage Insurance Premiums To Rise April 18, 2011

For the third time in 12 months, the FHA is changing its mortgage insurance costs. 

Effective for all FHA case numbers assigned on, or after, April 18, 2011, annual mortgage insurance premiums (MIP) will increase 25 basis points.

The change will add $250 to an FHA-insured homeowner's annual loan costs per $100,000 borrowed, and applies to all borrower's equally. Current FHA borrowers are unaffected.

To understand the FHA is to understand why premiums are rising.

As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. According to its own records, the FHA's percentage of purchase money business in WA and nationwide expanded from 4 percent in FY 2006 to 19 percent in FY 2010.

Rapid growth like this has strained the FHA's capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will "significantly strengthen" its reserves. By law, the FHA must maintain a certain minimum level of reserves.

FHA mortgage insurance varies by loan term, and by loan-to-value and, beginning April 18, 2011, the new insurance premiums are as follows:

• 15-year loan term, loan-to-value > 90% : 0.50% per year
• 15-year loan term, loan-to-value <= 90% : 0.25% per year
• 30-year loan term, loan-to-value > 95% : 1.15% per year
• 30-year loan term, loan-to-value <= 95% : 1.10% per year

To calculate your monthly mortgage insurance premium, multiply your starting loan size by your insurance premium, and divide by 12. 

There is no change planned to the 1 percent upfront mortgage insurance premium charged by the FHA.

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