What are My Mortgage Options?

What are My Mortgage Options?

There are many mortgage options available when buying a home. Which one is the right one for your financial situation?

Are you a first-time homebuyer hoping to take advantage of today’s mortgage rates but are unsure of the type of mortgage you should get? There are several types of mortgage options out there and you may only qualify for a certain kind. However, if you are eligible to choose your own mortgage, here are the main types there are so you can make a more informed decision.

Fixed-Rate Mortgages
These are probably the most common and secure types of mortgage. With a fixed-rate mortgage, you can expect to pay the same amount on your mortgage payments each month because the interest rate is locked in for the life of your mortgage. There are no surprises like higher monthly payments or fees that you may get with other mortgages. This makes it easy to plan and budget you money since you know how much you need to set aside for your mortgage payment all the time.

Adjustable-Rate Mortgages
These are fairly common types of mortgages these days, but you might otherwise know them as ARMs. With an adjustable rate mortgage, the payment each month fluctuates according to the general interest rate. When mortgage rates are as low as they are today, you would pay a lower mortgage payment each month. Unfortunately, when the general interest rates go back up, however, you would be stuck paying a much larger payment than usual. This makes it hard to plan and budget your money and you could be expected to pay a monthly payment that is more than you can afford. This is why many people have had to leave their homes in recent years because of foreclosures.

Hybrid Mortgages
With hybrid mortgages, you have a fixed rate for a certain number of months or years and then your mortgage switches to an adjustable rate. An example of this would be called a 5/1 ARM. With this hybrid mortgage, you would pay the fixed monthly payment for the first five years and then your rate would be adjusted each year after the initial five years. Your mortgage payment would change each year based on the general interest rate at the time it was modified.

Interest-Only Mortgages
With an interest-only mortgage, you pay payments only on the interest for a set number of years before you begin paying on the principle. Then, after the set time period is over, you will begin making full payments on both the interest and the principle. This is not very common but some new homebuyers choose it because the interest-only payments are fairly low compared to the full mortgage payments and they predict they will be in a better financial situation by the time the full payments begin.

Before making the final decision on a mortgage, consult with some qualified mortgage professionals in your area. It’s a major financial decision that will last for many years to come. Don’t take it lightly, but be realistic about what you can afford before signing any papers.

Determining How Much House You Can Afford

Overspending on a house was a major contributor to the real estate bubble and its subsequent collapse. To minimize the potential for future problems and the threat of foreclosures, make sure you accurately project your costs and income to determine how much mortgage you can afford.

Overspending and losing a house to foreclosure can impact the wealthy as well.

Below, one of our new contributors Lynne Ashminov shares some thoughts on what to keep in mind when determining how much you can afford. The bottom line: be honest about your finances and don't use any government-like budget tricks to make the budget fits the house.

Four Tax Advantages of Owning a Home

Four Tax Advantages of Owning a Home

There are many advantages to owning your own home. But did you know you owning your own home also provides you with several tax benefits as well?

With tax season fast approaching, people are looking for ways to save on their taxes and put more money back in their pockets. Owning your own home offers several tax advantages and benefits and with today’s low mortgage rates, you can put even more money back in your pocket by purchasing a home this year. Here are for tax advantages of owning a home so you can remember them when you are filling out your tax forms for this year.

Mortgage Interest
Did you know you can deduct the interest on your mortgage from your taxes? It’s true! This is one of the biggest tax advantages of owning your own home. The rule states that up to a million dollars of mortgage interest is tax deductible as long as you spend some time in that home. So that means you can even deduct the mortgage interest from your vacation home as long as you spend a couple weeks there each year.

Most homeowners already know about that tax advantage to owning a home. But you might not have known this next one: The IRS allows you to deduct the interest of any debt that uses your house to secure the loan. The debt can be no more than $100,000 however. This applies mainly to home equity loans.

Selling Your Home
When you own your own home and you decide to sell it, you probably do not have to pay taxes on the profits you make from the sale of your home unless you make at least a $250,000 profit for individuals or $500,000 for couples who file jointly. This guideline also covers any land that is adjacent to your home unless you are using it for business.

This guideline also applies only to your main residence. You have to live at the home for two out of the previous five years in order to qualify for this tax advantage. Also, you can only claim this exemption once for every two tax years.

Moving Expenses
When you buy a new home that is 50 miles or more closer to your new job, you can deduct those moving expenses from your taxes for that year. However, in order to qualify for this tax advantage, you must work in the area of your new job for at least 39 weeks during the next year and you must also be employed there full time. If you are self-employed, however, you can deduct your moving expenses when you move to a new home.

Property Taxes
Did you know your property taxes are an income tax deduction? You can write off the property taxes for all the homes you own regardless if you live in them or not.

Tax deductions depend on a number of factors. It is always best to seek the guidance and expertise of a qualified accountant or tax professional when claiming a bunch of tax deductions. Look for one in your local area. The frustration they save you is definitely worth the money!