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Your home provides many tax benefits. Here are some of the benefits of being a home owner.

1. All yearly interest is tax deductible. Including any points paid for financing.
2. You can deduct the total amount of your yearly property tax bill.
3. In addition to paid interests and real estate tax being tax deductible, most of the settlement costs are also deductible. For purchase transactions, settlement charges are deductible in the year the transactions occur. For refinances, closing costs are deductible throughout the life of the loans. As always, consult a certified tax accountant before taking any such deductions.
4. Home values have sustained growth through the years. Historically there has been no better financial investment than home ownership. It is the best hedge against inflation because real estate is the world’s only commodity in absolutely limited supply. Population growth steadily increases demand, thus the increasing value of real estate over time has been constant.
5. You can also use your homes equity to your advantage by consolidating debt, purchasing big ticket items with a 2nd mortgage or HELOC at comparable interest rates, lower payments and you are able to deduct the interest from these mortgages as long as the loans do not exceed 100% of your homes value.
6. Please keep in mind though, because of the complexity of tax laws, you must always consult your individual tax advisor for the precise tax advantages of your home and it’s mortgage. Mortgage professionals can give you general guidelines but things can vary from homeowner to homeowner.
7. The tax advantages of renting - NONE! Don’t pay someone else’s mortgage payment for them every month. Contact your trusted local mortgage consultant and get pre-qualified for a home loan today.
8. In addition to tax advantages you can greatly benefit from your home’s appreciation. A general rule of thumb is about 4 - 5% per year on average. If you bought a home that is worth $100,000 then at the end of one year’s time it could be worth:1st year = $105,0002nd year = $110,2503rd year = $115,762and so on…

Editors Note: Due to the mortgage and credit crunch, loans for second homes and vacation homes are available but qualifying has become more difficult. If you’re in need of one of these mortgages in Denver contact us to discuss your mortgage options.

2005 was one of the hottest years on record for people buying second homes with over 21% of all purchases being second homes. Driving this trend is the availability of capital for baby boomers from harvesting the swelling equity from primary residences as home values soared over the last few years. Some areas like Destin, Florida averaged over 25% appreciation in 2005 alone. Hot areas are, as suspected, homes near the beach, like the Destin area, mountains and other recreation areas. According to the National Association of Realtors, for markets where over 10% of the homes are seasonal, there was a 59% increase in value from 2001 to 2004.Also helping in the growth is the publicity given to the real estate investment industry with infomercials like Carlton Sheets focusing on the low down payments required. In some cases 5% or less is all that is required to get you interest rates that rival those for primary residences. Lastly the popularity of low payment loans like the interest only and cash flow option arm have joined the low down payment programs so that the homes are cheaper to get into and cheaper to hold, at least on the short term. Also helping in the growth is the publicity given to the real estate investment industry with infomercials like Carlton Sheets focusing on the low down payments required. In some cases 5% or less is all that is required to get you an interest rates that rival those for primary residences. Lastly the popularity of low payment loans like the interest only and cash flow option arm have joined the low down payment programs so that the homes are cheaper to get into and cheaper to hold, at least on the short term.

To be considered a 2nd home you are not allowed to own more than two second/vacation properties. Any more than two second/vacation properties and you may have to consider it an investment property.

Often the lender will lend a lower LTV on a second home vs. a primary residence.

You may be asking yourself why real estate is such a good investment. Let’s look and see why it is such a good investment. You average home’s appreciation rate is around 5% per year. The numbers look like this: Year 1 - 100,000 home value when you buy Year 2 - 105,000Year 3 - 110,250Year 4 - 115,762Year 5 = 121,550As you can see it doesn’t take long to build up some equity in your house. If you bought a 200K home then those numbers would be double. This example is not even taking in into account that you are paying down the principle balance on your loan. If you have your home on an interest only or pay option loan then you are probably cash flowing each and every month too.

Option ARMs are excellent tools for investors seeking rental income, particularly on seasonal properties. You have the option to keep your payments low when the property is empty, and manage your cash flow while the property is booked or rented.

Keep in mind that if it is a second home or investment property, there may be loan to value restrictions.

Some of the factors that lenders look at when qualifying a home as a “second home” are:1. Distance from primary residence2. Location3. Is the home being used for “personal” use

The first step for obtaining a second home is to speak with your mortgage broker and discuss financing options and determine the amount of money you can affords to spend. Be sure to remember the added maintenance costs of a second home, a lot of routine work needs to be done to maintain it and keep it in enjoyable condition. This may be work that you may not be able to do yourself do to distance or time limitations.

If the property that you are buying is for the purpose of a legitimate vacation or second home, many lenders offer loan terms that are comparable to those offered on a primary residence. To qualify, the lender will need to be comfortable that the property is being used as a second home, not as investment (rental) property.

Lenders offer more favorable terms on second homes than investment properties. Underwriters will want to know for sure if the home is being used as a second home or as an investment property. Most people purchase second homes in resort areas for vacation purposes or near relatives and family members.

Lending banks post more stringent underwriting requirements for second homes and vacation homes, because if the homeowner should suffer a financial crisis, he would almost always first default on the vacation home and try to save the primary residence. In addition to ensuring that the homeowner is able to afford payments for both the primary and the second home, most banks also require higher down payment for the second residence.

Editors Note: Due to the mortgage and credit crunch, rural property loans may require additional paperwork. If you’re in need of a Denver Home Loan contact us to discuss your mortgage options.

Rural generally refers to areas outside of larger or medium size cities. Each lender has their own version of what rural exactly is.

You can still get the common 30 and 15 year fixed mortgages with rural properties. Various types of ARM’s are also available. A lender may require a prepayment penalty if you have a rural property, you may be able to buy this down or buy it out completely.

There are lenders that will lend up to 100% of the appraised value of a rural property. The interest rates are generally higher on these programs due to the risk involved for the lender.

Guidelines and underwriting requirements usually change a little bit and get a little more strict on a rural property compared to a suburban property or urban property. Rates may sometimes increase for rural properties and the allowable LTV’s (Loan to Values) will usually decrease slightly. For example if you were able to borrow 90% of the value of your home with a suburban property, you may only be able to borrow 85% of the value of your home with a rural property.

It is usually much more difficult to obtain comparable sales in a rural area. This makes appraising the property more difficult, as well as harder for the bank to determine the properties values.

Tips and useful information to help you determine how much your home is worth.

• The value of your home depends on a number of variables such as the Location, Size, Age, Condition, Layout, Features, and Construction?
• There are also many online services that can give you the estimated value of your home for a small fee. These services are generally very close to the actual value and are quite useful when trying to determine a property value. This type of search is called an AVM or an automated value search.
• Knowing the monetary value of your home will allow you to make an informed decision on what to do with your equity. Whether you want to upgrade into a more expensive home or take out some equity with a refinance, you need to know how much your home is worth.
• Most counties in the state of Ohio have county auditor websites, which you can find very easily by typing in the name of your county followed by “auditor” into any search engine. Once you find the site, most of them offer a free county property search section where you can locate a property in your county by owner’s name, address, or parcel number. After you have located your property within their site you can find a lot of the information regarding your home such as size, room count, lot size, total number of Bedrooms and bathrooms, year built, last and previous sale dates and amounts, and much, much more. Many of these auditor sites will even have a picture of your home along with a sketch of the layout. After researching your property information (which is actually quite interesting) you can look up other properties in your area, on your same road, or in your immediate neighborhood to give you an idea of the value of your house. Many of these county auditor sites also have a link that you can click within your own property report that will find comparable houses to yours, simply by clicking the link. Remember though the only way to get an accurate gauge of what your house is truly worth you will need to contact your mortgage broker to have them order an appraisal or order an appraisal yourself through a licensed appraiser.
• There are some other online sources that you may be able to check to get an idea of what your home is worth. Some city, county or state websites keep online records of property transfers. This information will give you a list of homes that have sold near you, and the price they sold for.
• Many online valuation models or AVM’s can be very misleading. As a former real estate appraiser, I have to say that the best and most reliable method of estimating the value of a particular home is thru comparable sales(comps). Although the MLS databases are the most widely used sources for finding comps, they are not the only databases around. Certain services, like RealQuest.com and The Redlink are databases that anyone can access for a fee. They can be pricey, but they are pretty up to date. Also check with local county tax assessor’s offices as they also keep recent sales information on hand. It is important to also understand, once you have the recent sales in the area, what you need to look in order to properly analyze the data. Some of the biggest items to look for include:-Sq. Footage-Age-Condition-Construction (Brick or Brick Front as opposed to Wood or vinyl siding)-Distance from subject property (if not in the same subdivision/neighborhood, then no more than .50 mile in most major cities)-Date of the comparable sales (no more than 6 months, in most cases)-Basement or Crawl Space/Slab?-Bathroom Count (yes, this is adjusted for)-Garage or Carport Although these items don’t include everything compared between the subject property and the comps., if you have comparable sales that are pretty close to your subject property in these areas, then those comps. are a good indication of the value range of your home.
• If you were to assume for a moment that someone would pay all cash for a property - the market value of a home by definition is the price at which you can sell the property providing you have a seller willing to pay that amount. Since very rarely do people pay all cash for the personal residence, the lender requires an appraisal which will be based on comparables.
• Your broker should be able to let you know a fair range on your property value. Brokers work with appraisers and should have no problem finding comparable sales in your area.
• One thing a competent appraiser has to consider in assessing the value of your property is the location and availability of comparable properties or “comps” that have sold in the last year. If the appraiser has to go more than a few miles, and in some cases from 5-10 miles, a lender may classify your home as “rural” based on the distance to get 3 good comps. If this classification happens, your interest rate will likely go up .25%-.50% or more.
• The appraisal also must draw on good comps usually with less than 20% of the value being adjusted for features like more square footage or acreage. Another area of concern with appraisals is how much acreage is with the property. Most lenders only allow value to be given to a house and 5 acres. Some allow 10 and a few allow up to 20. If you are looking to buy or refinance a house with over 20 acres, specialized “farm” financing may be necessary and it typically runs about 2% over conventional conforming mortgage rates.
• Farm financing can be obtained through the USDA. Some lenders will allow you to refinance if you can prove that the acreage is not being used as a working farm or as they call a hobby farm.
• The one single most factor in determining what a home is worth is the existence of good recently sold comparable properties. Without such comparables the establishment of what the home is worth becomes much less exact.
• Keep in mind that the value of a home is never a definite figure. It is what each potential home buyer perceives it to be. A potential buyer may fall in love with the backyard or kitchen and be willing to pay more for the house than another buyer. For this reason even a certified realtor or appraiser can only come to an approximate value. The house usually sells for more or less than the assessed value.
• You can get an idea of what your home is worth by hiring a licensed appraiser to appraise your home. This option will cost you money, however is the most accurate form in determining the value of your home. There are also some free ways of getting an idea of what your home is worth; Having a realtor do a market analysis, checking recent sales in your neighborhood, and using some online value estimate resources.

You have the right to a copy of the appraisal report used in connection with your application for a mortgage loan. You must write to your lender or broker within 90 days of your application date to receive a copy of the appraisal for your home.

For Borrowers: Remember if you switch mortgage companies mid stream the appraisal will have to be released to the other mortgage company by changing the orders’ name on the appraisal. In most cases, the new mortgage company will have to fax over a new order and buy/sell and then the other company can receive the previous appraisal from the appraiser.

You have a right to receive a copy of your appraisal report. However its only a copy and the rights may belong to either the broker or the lender depending on who ordered it.

There is often much confusion regarding the consumer’s right to receive a copy of the appraisal report. Many borrowers mistakenly believe that since they paid for the appraisal report that the report is theirs to do whatever they wish with it. Many believe that it is an open document that they can use to shop around with different lenders. The fact is that even though the consumer has paid for it, the report was performed exclusively for the lender who ordered it and is the property of that lender. The borrower’s right is only to receive a copy of the report. Any changes to the report or transfer of the lender will have to come with the approval of the original ordering lender.

If you are having trouble receiving a copy of your appraisal report from the mortgage company, submit your request in writing and refer explicitly to your legal right to receive and their obligation to furnish this report.

The appraisal will have a detailed analysis on the value of your home, as well as recent sales of comparable homes in the vicinity.

Other sites: Mortgage Broker | Interest Only Loans | FSBO | Delinquency | New Credit Card Minimum Payments | Why choose a mortgage Broker| Pay Option Arm Calculator

A comparative market analysis, or CMA, is a Realtors estimation of value, based on data gathered from local listings and sales, to determine the likely sale price of a property in the current market. Sellers may use a CMA to help determine a listing price. Buyers may use a CMA to help them determine how much to offer on a property they are interested in purchasing.

A CMA is normally done by a real estate agent who has easy access to area sales records, but sellers and buyers can find the same information by visiting their county courthouse or online public records, although this can be very time consuming and real estate agents may have more current sales records.

A comparative market analysis or CMA is more of an informal estimate of your home’s market value than a true appraisal of its worth, especially in areas with a mix of older and more recently built homes of various styles and lot sizes. Your real estate agent makes an analysis based primarily on sales of comparable homes in the neighborhood. Compared to home appraisals, which typically cost between $200 and $300, a comparative market analysis may be obtained at no cost, however in most cases you may still be required to have a complete appraisal of the property completed in order to obtain a mortgage. Please check with your mortgage specialist to determine whether or not an appraisal is required for your loan, and if an appraisal is needed, ask them to schedule it for you.

One of the most common uses of the comparative market analysis is this. A real estate listing agent will use it along with the homeowner in determining a proper asking price for a home that is being place on the market. Once the home is sold, the lender will require a complete property appraisal by a licensed appraiser to reaffirm the property value.

Although most realtors are pretty accurate in their assessment of value it’s still a good idea to get an appraisal on the property.

In some planned communities with many houses built on the same floor plan, the CMA can be a very accurate indicator of proper selling price for a home.

When viewing a CMA, it is important to make sure the properties compared to the subject property are comparable. They should have sold recently; be in the same area; and have enough in common to make sense.

Consumers are often baffled by the home appraisal process. They may feel their home is worth a certain dollar amount, and therefore, the appraised value doesn’t make sense to them. It is important to know that appraisal guidelines are dictated by the lenders. In many states, the lenders must disclose the purpose of the appraisal, as each situation carries its own set of rules.

In essence, lender guidelines force appraisers to put a fair market value on a home based upon comparable sales in the area where the home is located, as the home must be bracketed according to size and value. For example, there is no set amount associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, and the local marketplace supports the value of a pool at $15,000, that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at full value in newer homes since they required investing additional money onto the cost of building the home. On the other hand, the amount invested in upgrading or remodeling an older home is rarely reflected in full in the final appraisal. The reason is the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace.

These comparisons must be drawn from current market activity within the last six months. Some lenders may want to look at both closed and pending sales to see if there is any room for negotiation. This is a safeguard to prevent appraisers from over-valuing the home in question. It is further stated in the guidelines that appraisers can only place a value on homes that have closed escrow. However, when property values rapidly increase within a marketplace, appraisers are generally permitted to make concessions and put more weight on the evidence provided by comparisons to pending sales and listings. This allows for a “real time” appraisal.

Although there is no formal standard to speak of, most lenders give the appraiser a 5% margin of error. If the file is reviewed and the appraiser is off by 8%, there is a good chance the value will be cut by the full 8%. It is in the best interest of both the appraiser and the homeowner not to push the value up higher than the market will support, otherwise the property evaluation may be exposed to a strict appraisal review.

As a loan executive, I make it a point to follow lender guidelines at all times, and work within the systems they provide. This promotes a good relationship with the lender, and smooth closure for my borrowers. As always, you are welcome to contact me if you have any questions.

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