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Quick Tips for the 1st Time Home Buyers

by Blake Hanna

3 Quick Tips for the First Time Home Buyer

 

1. Know What You Want

You are about to make one of the most important decisions and one of the biggest commitments in your life, so you had better be clear on what you want. The home buying process can be difficult, so don't add stress by not being prepared. Make sure you've thought through what you are looking for and what you are willing to compromise on so that the transaction will go as smooth as possible.

 

2. Finances- Talk to a Lender

Browsing homes on the internet and making lists of all things you would love in your first house is a great first step, but unless you are paying cash or qualify for a loan you are just window shopping. Having a lender assess your finances will let you know if you can afford to buy a house and for how much. You may have to work on your finances, but you also may qualify for more than you think. It's great to do this first so that you don't end up wasting your time. The lender will also be able to let you know what you need to do to get qualified.

 

3. Find a Great REALTOR®

Finding a good Realtor can save you time, money and help to make the transaction as smooth and stress-free as possible. A good Realtor® is an effective negotiator and will probably get you more house for your money than if you went at it alone. They will also listen to your wants and needs, help you narrow down the areas and houses to look at, and help you to find what your are really looking for.

Blake Hanna, Realtor

225-298-6903

Blake@patwattam.com

What are closing costs?

by Blake Hanna

In addition to the down payment and amount you are financing for the purchase of your home, there are also closing costs.

 

Closing costs are miscellaneous fees that are charged to you by the people involved with the sale of the house. These people typically include the lender and title company.

 

Closing costs will not be a surprise to you at the closing. Your lender will give you a Good Faith Estimate or GFE, which gives a rough estimate of what your closing costs will comprise of and the total.

 

Closing costs on average run about 2-5% the costs of the house.

 

Closing costs can include lender origination fees, discount points, private mortgage insurance, initial interest, lender's title insurance, property taxes, appraisal, attorney fees, title search fees, title insurance and recording fees.  

Blake Hanna, Realtor

225-298-6903

Blake@patwattam.com

Attention Home Owners-Save Money!

by Blake Hanna

If you haven't already, don't forget to file for your homestead exemption!

Save money on your taxes!


What is the Homestead Exemption?

 

  • The homestead exemption is a tax exemption on the first $75,000 of the value of a person’s home. This exemption applies to all homeowners. The value of your home is exempt up to $75,000 from state and parish property taxes.
225-678-6403
Blake@patwattam.com

 

Major News Regarding FHA Loans

by Bill Arey

Major news regarding FHA loans came out Wednesday, January 7th. In a move designed to bring more first-time homebuyers into the housing Market, President Obama said the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to .85 percent. The White House said the move was part of the president's efforts "to expand responsible lending to creditworthy borrowers." What does this mean to prospective homebuyers?  On a $100,000 loan, the cost of the mortgage insurance would be reduced from $112.50 to approx $71.00 per month. On a $150,000 loan, the monthly cost of mortgage insurance would be reduced from $168.75 per month to $106.25 per month.  

 

  Bill Arey - REALTOR at ReMax First  The Pat Wattam Team

Another Source for a Down Payment on Your Home

by Pat Wattam

Another Source for a Down Payment

 

IRA 250.jpg

Most taxpayers know that they will pay a 10% penalty if they withdraw funds from their IRA before they turn 59.5 years old.  There is an exception for first-time home buyers that allows a penalty-free withdrawal of up to $10,000 per person if they haven’t owned a home in the previous two years.

 

This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.

In many cases, the money would be used for a down payment or closing costs.   However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.

If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due.  Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn.  Since Roth IRAs are made with after-tax dollars, there is no tax due when the funds are withdrawn.

Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents and grandparents.

Homebuyers who are considering using IRA funds for a home purchase should get expert advice from their tax professional concerning their individual situation.

When calculating how much downpayment you will need we first need to determine what kind of loan is best for you.  FHA only requires 3.5% of the sales price as a downpayment.  Conventionl loans typically are 5% but in special cases, sometimes as low as 3%.  Rural Development loans are 100% financing.  Don't know which one is right for you?  Give us a call today at the Pat Wattam Team and we'll help you determine which loan works best for your situation.

Now that we have the downpayment options broadened, time to start shopping for a home in the greater Baton Rouge Area!!

Now that you have another way to fund your downpayment, let's talk about houses!  

Top Ten Things You Need to Know About the 3.8% Tax

by Pat Wattam

Got this info sheet from the National Association of Realtors explaining the 3.8% Tax on Real Estate.  

 

1.  When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.

2.  The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you'll NEVER pay this tax at the time that you purchase a home or other investment property.

3.  You'll NEVER pay this tax at settlement when you sell your home or investment property.  Any capital gain you realize at settlement is just one component of that year's gross income.

4.  If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home.   If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return.  Even then if your total income including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax.  If your total income is more than these amounts, a formula will protect some portion of your investment.  

5.  The tax applies to other types of investment income, not just real estate.  If your income is more than the $200,000/$250,000 amount, then tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).

6.  The tax goes into effect in 2013.  If you have investment income in 2013, you won't pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014.  The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.

7.  In any particular year, if you have NO income from capital gains, rents, interest or dividends, you'll NEVER pay this tax, eve if you have millions of dollars of other types of income.

8.  The formula that determines the amount of the 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax.  For example, if you are single and have a total of $201,000 income, the 38% tax would NEVER be imposed on more than $1000.

9.  It's true that investment income from rents on an investment property could be subject to the 3.8% tax.  BUT:  The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income:  gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.

10.  The tax was enacted along with the health care legislation in 2010.  It was added to the package just hours before the final vote and without review.  NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect.  The tax will no doubt be debated during the upcoming tax reform debates in 2013.

 

That's NAR's take on it.  My first thought is that if you aren't making a profit on your rental income, you need to talk to us and let's get you a better rental property!!   And, don't forget to get out and vote in November!

 

Top Ten Things You Need to Know About the 3.8% Tax

by Pat Wattam

Got this info sheet from the National Association of Realtors explaining the 3.8% Tax on Real Estate.  

 

1.  When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.

2.  The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you'll NEVER pay this tax at the time that you purchase a home or other investment property.

3.  You'll NEVER pay this tax at settlement when you sell your home or investment property.  Any capital gain you realize at settlement is just one component of that year's gross income.

4.  If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home.   If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return.  Even then if your total income including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax.  If your total income is more than these amounts, a formula will protect some portion of your investment.  

5.  The tax applies to other types of investment income, not just real estate.  If your income is more than the $200,000/$250,000 amount, then tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).

6.  The tax goes into effect in 2013.  If you have investment income in 2013, you won't pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014.  The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.

7.  In any particular year, if you have NO income from capital gains, rents, interest or dividends, you'll NEVER pay this tax, eve if you have millions of dollars of other types of income.

8.  The formula that determines the amount of the 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax.  For example, if you are single and have a total of $201,000 income, the 38% tax would NEVER be imposed on more than $1000.

9.  It's true that investment income from rents on an investment property could be subject to the 3.8% tax.  BUT:  The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income:  gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.

10.  The tax was enacted along with the health care legislation in 2010.  It was added to the package just hours before the final vote and without review.  NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect.  The tax will no doubt be debated during the upcoming tax reform debates in 2013.

 

That's NAR's take on it.  My first thought is that if you aren't making a profit on your rental income, you need to talk to us and let's get you a better rental property!!   And, don't forget to get out and vote in November!

 

Mortgage Interest Deduction Clarification

by Pat Wattam

 

MID Limited per Residence

A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.

 

A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.

The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.

The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.

The Difference Between Debt and Deficit

by Pat Wattam

My financial advisor, Wally McMakin with McMakin Financial, sent out a great email this morning with the difference between 'debt' and 'deficit'.  Here's what he had to say:

In this age of a stimulus spending and bailouts, 'debt' and 'deficit' are often used to describe the federal government's financial situation.  Many people use these words interchangeably, yet they have significantly different meanings.  

Budget deficit:  When the federal government spends more money in a fiscal year than it collects in tax revenue, it creates a budget 'deficit'.  In the rare instances when the government expenditures are less than tax revenues, the result is a budget 'surplus'.  Budget deficits have been the norm in recent decades.  For example, in the past 28 friscal years (1982 - 2010) , there were only 4 years in which the federal government ran budget surpluses.

 

National debt:  How can the government spend more than it collects?  By borrowing money.  The total amount owed by the federal government is called the 'national debt'.  Because the federal government guarantees the timely payment of principal and interest, many individuals, corporations, state, and local governments, foreign governments, and others are willing to lend their money.  Although Treasure Securities pay relatively low interest rates, they tend to appeal to investors seeking lower risk.  There's also quite a big of borrowing between federal agencies.  For example, Congress has long been in the habit of borrowing excess Social Security revenues.  As a result, the national debt is divided into two categories:  debt held by the public and intergovernmental holdings. As you can imagine, there's considerable debate over how long the government can keep borrowing to financing spending.  Regardless of how you feel about government spending, you might benefit from understanding the terminology.

Thanks Wally for that enlightenment!

Reading this just makes me think of all our home buyers qualifying for a home loan.  Our federal government couldn't qualify for a home with all the deficit the country has!!  I also equate deficit with debt - you spend more than you make, it's a deficit.  You create debt by owing money.  The less you owe, the more of your income you keep, the wealthier you are!!  It's something to think about as we watch the politicians jockeying for their position before tomorrow!!  Pat

Baby Boomers and Retirement

by The Pat Wattam Team

I received this information from my financial planner, Wally McMaking with McMakin Financial Services that I thought I would share with everyone.

Baby Boomers and Retirement

Procrastination, timing (bad), and poor financial decisions have caused many 'boomers' to face financial disaster just as they are ready to retire.  The situation is serious because 'boomers' have not saved enough for retirement but still want to retire early.  A recent business report form the Associated Press explains the reasons for concern among 'boomers".

 

REASONS FOR CONCERN

1.  Pension plans are a thing of the past.  In 1980, 39% of workers had a guaranteed pension payout during retirement.  Today, that number has been drastically reduced to 15%.  pension plans have been replaced by 401 (k) plans. which require the employee to save more for his retirement and do not guarantee a fixed payout during retirement.  Today, 42% of workers have 401(k)s.

2.  "Boomers" relied on their homes for part of their retirement income.  The idea was to downsize before retirement and use the profit to subsidize retirement  income.  In some parts of the country, the crash in housing prices has slashed home values by a third. Locally, however, real estate has only dipped about 11% in 2010 compared to 2009.  We are still 38th in the nation in foreclosures - and this is the one time we like being on the bottom of a list!

3.  Mortgage debt for'boomers' is another problem.  Twothirds of boomers between ages 55-64 have a median mortgage debt of nearly $100,000.

4.  Too many boomers are relying on social security to fund their retirement income - no explanation required.

5.  Health care costs in retirement eat up a higher percentage of income.

6.  The unemployment rate is near 10% and many boomers both WANT and NEED to work longer than pervious generations.

Wally told me that it is never to late for many boomers to start planning.  Here are five areas he suggested to think about and act upon NOW:

1.  Create a plan

2.  SAVE MORE NOW!

3.  Retire later.

4.  Scale back your lifestyle

5.  Delay your social Security Income.

Call Wally if you want to discuss any of these ideas.  He has done a great job for us personally.  225-926-9585

wally.mcmakin@smhgroup.com

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Photo of Pat Wattam Real Estate
Pat Wattam
RE/MAX First, Independently Owned and Operated
4750 Sherwood Common
Baton Rouge LA 70816
Office Direct: 225-298-6900
Office Main: 225-291-1234
Fax: 225-295-1234

RE/MAX First
Each Office Independently Owned and Operated
Main: 225-291-1234

Licensed by the Louisiana Real Estate Commission