Everything you should know about your house and its tax issues

For most people owning a home means paying more in tax. Property tax for example can add up and is a major expense for many. A home however can also act as a way to save money. Here are a few words about that topic.

You must have heard the words tax shelter before but for most it is usually associated with hiding money in offshore banks. Although many are not aware of it and do not take full advantage of it a home can act as more than just a physical shelter for you and your family, it can act as a good tax shelter too.

The two most known tax benefits when buying a house are mortgage interest deductible and being freed from capital gain tax when selling the house (assuming you lived in it as your main residents for two or more years). Mortgage interest deduction allows you to loan money at a discount (since by deducting the interest you effectively get a cheaper loan). In return the loan money is invested in a real estate assets that proven again and again is one of the best long term investments. Capital gain tax is levied when selling and profiting from capital investments such as a home. If you use your home as your main residents though for two or more years you can sell it and keep the profits to yourself without the need to share them with the IRS. So not only did you get a cheaper loan and money to invest but you also got to put the profits in your pocket tax free.

Both interest rate deduction and capital gain tax benefit have limits. Mortgage interest is deductible for the first and second house and up to one million dollars in mortgage. Capital gain is free of tax for the first $250 thousand dollars profit per individual (in other words married couple can put up to $500 thousands dollars before they have to pay taxes). The reason for those caps is to encourage the economy with most middle class consumers while taxing the rich and luxury homes market.

Another way to invest in your home while squeezing tax benefits from the government is by improving your home. Any work that is done on the home to improve its value for example adding a room is considered an improvement and if you take a loan to finance it you can deduct the loan interest payments.

There are other creative ways in which you can save tax when owning a home. If you are working from home full time or partial time you can allocate a specific area in your home, most likely the garage or basement area, as your home office. If you do that you can be qualified to deduct a portion of your home expenses relative to that area such as electric bills, gas bills, insurance and more.

As always it is best to consult with your accountant before making any financial decisions. Your accountant can explain all the options for saving taxes while owning a home.

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Applying for a home mortgage

Applying and getting a home mortgage loan is one of the biggest financial step for most American people. There are many issues and considerations when applying for that home mortgage that can have long term consequences on your financials. Here are just a few.

Although many people do not look at it this way a home mortgage is a product like any other product. It has a price and it has different features and attributes. Like any other product that you buy just comparing the price is a mistake. You should also look at the balance between the price of the home mortgage and its features. You should also make sure that its features are right for you.

For example home mortgage applications can be processed in different speeds depending on the amount of the loan, the market conditions and the company you are taking the loan from. Sometimes that time is not important and should not be considered at all. But sometimes it can be the most important feature for example if you have a rare opportunity to buy a real estate asset and you are limited in the time you are allowed to get the loan. Generally speaking it is best to not be constraint by the application processing time. The more time you have the more loan options you can check and the better product you will buy for a lower price. Try to you’re your home purchase know in advance how much time will you need and make sure you allow yourself enough time.

Applying for a home loan is tedious. The lender will want to make sure that you can pay back the loan and that in case you can not pay the asset on lien will be valuable enough to pay the loan off. The way lenders work is that they do due diligence on you and the asset. A lender requires many documents that prove you financial ability to pay the loan, that prove the asset fair market value and so on. Know in advance which documents are needed and have them ready. For example if you intend to buy a house in the next 6 to 9 months and you know you will need a home mortgage loan don’t wait for the last moment, go to a few lender and get the list of documents they will require. Have those documents ready so that when you need the loan you can quickly file them with a few lenders and make your choice.

Understanding the language the lender is going to be speaking is important to. Familiarize yourself with the mortgage industry common terms such as refinancing, ARM, fixed interest rate, interest rate only, title insurance, points and so on. For example if you know what a prepayment penalty is then when you get a mortgage you can ask on prepayment terms and make a decision if they fit you or not. If there is a chance that you will pay off all or mart of the mortgage earlier you should take caution with prepayment fees. If you estimate interest rates will go down and you will want to refinance you should also be cautious about prepayment fees.

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How to improve your mortgage terms

If you are reading this article then you either already have a mortgage or you are planning to get one soon. A mortgage is a big financial decision many times the biggest in your like. It is not surprising thus that getting a good mortgage is important. Here are some tips how to do just that.

Most people focus their efforts to get a good mortgage at the time they need a mortgage by shopping around for the best terms and interest rate. While this is something that needs to be done getting a good mortgage is actually something that you should start working on long time before applying for one, preferably a few years or more. After all one of the most important drivers for getting a good mortgage is your credit score and credit history which takes years to build.

One of the best advice that you can get is to simply work on improving your credit history. It is never too late to do it. Even if you neglected your credit history and now you are in need of a mortgage you can still improve your future finance by starting to work on it. Take the best mortgage that you can get with your current credit history, work to improve it and then in a few years refinance to a lower interest rate based on your improved credit history.

Track your credit history regularly. Promptly call the credit history bureaus if you identify any mistakes. Make sure that you pay all your credit cards and other loans on time. Avoid applying for credit too often and when not necessary. The number of credit applications is a factor in determining your credit score for example applying to many credit cards or discount store cards can on the long run lower your credit score and result in you ending up paying much more than all those discounts through your mortgage dues.

When applying for a mortgage you should take into consideration your future financial stability. Try to sit down and estimate what is your forecast for your future ability to pay the mortgage dues, and what is your forecast for your future financial status improving. For example if you are on a career path and you are confident that in 5 years you will be promoted to a better job that pays more you might consider taking a five year ARM mortgage that provides lower interest in the short term while your income is limited but that its interest rate goes up according to market conditions within five years at a time when you assume you will be in a position to afford larger payments. Be aware that such a tactic is risky as future plans might fall apart. Always make sure that you leave plenty of slack for unpredictable developments.

When applying for refinancing first make sure to check your credit status. Check your credit history report for irregularities. If you identify any problems delay your refinance application and first fix your credit history.

For any kind of mortgage refinancing, one needs to check on the stability of the credit status. In order to even qualify for a lower mortgage rate one has to improve the credit. In case your financial situation has improved since the time when you bought your home, you can upgrade for a better rate by just applying for the same. All of us have faced credit problems at some time or the other. But for acquiring the best mortgage rates, building up a good credit account is of prime importance.

Most mortgage loans come with a term length, in other words the given span of time for repayment of the loan. Though most mortgage loans come with a thirty-year term length; there is however forty and fifty year terms available too. Most short-term mortgages are usually considered low risk and come with lower interest rates.

While searching for lower interest rates, be sure to compare multiple mortgage offers which detail out lender fees as well as closing costs. Try to compare and contrast the best mortgage rates of various lenders in such a way that you get the best refinance loan package deal. Before you choose a lender, make sure that you have contacted credit unions, mortgage companies, banks, etc. Ask for best mortgage rate from various financial institutions before you accept any offers. You will save your time and money by contacting mortgage brokers as well and you can also submit your information to different lenders for their opinion.

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Things to know when applying for a car loan

Getting a car loan is a major step when buying your used or new car. Most American buy their cars by using some debt tool either as a loan or as a lease. There are a few things you should know when applying for a car loan and that can help you can a better loan faster.

Here are a few considerations when applying for a car loan. The first thing to decide is if you are going to get the car loan through the dealer or independently from a bank or another lender. Getting a car loan through the dealer is the easiest and sometimes dealer through more goodies at you if taking the loan with them making it a better deal than going to an independent lender. However knowing what the market interest rates are can help you negotiate the dealer loan terms down. Even if you decide to get the loan from the dealer do some homework first and check what the market has to offer.

How fast will the loan be processed is another important factor. Dealers can process it on the spot since they have the incentive to sell the car. Other lenders might take anything from immediate processing to a few days. Part of the loan application process involves the lender running a credit check on you. Don’t apply to many lenders since for example having multiple credit checks at the same time can hurt your credit score. It is important to align the time when you estimate you will need the money for the car to the period it takes lenders to approve the loan. If for example you plan to go and buy a car in a week make sure you apply for lenders on time so that when you go and get the car you have an approved loan in your hand that you can either use for cash or use for negotiating the dealer down.

Something to know that makes a lot of sense is simply what is the lender threshold for approving a loan? After all if you know for example that your credit score is 600 and a specific lender has a strict policy of only approving loans for applicants with credit scores higher than 650 why apply at all? You will just waste time and energy and at the end of the process be denied. Make sure that you confirm to the lender known requirements before applying.

How much do you need to loan and how much can you afford? At the end of the day lenders want to make sure that you can pay back the car loan. Applying for more money that you need or can afford to pay back will just result in your car loan application denied. Budget your income and find out how much you can allocate for the monthly car loan payment. Be honest with yourself because lenders are thorough and if you apply for payments you can not afford they will most likely figure it out and deny your application. After figuring out the monthly allocation you can in turn calculate the total loan amount that such a payment can support.

Know the terms. There are professional terms that the lender is going to use. It is good to know those in advance. Search online or buy a book about car loans and leases. For example you should know what the following terms mean: interest rate, APR, money factor, prepayment penalty and so on.

Another important feature of car loans is a prepayment penalty. Some loans include provisions for prepayment penalties. In other words if you will end up paying off the loan before its predefined term ends you will have to pay a certain fine. In most cases such loans are cheaper but you should only get them if you are certain you will not end up paying them off early for example if you plan to receive some money and use it in the future to pay off the loan or if you plan to sell the car before the loan term ends.

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