Taxes and your home equity loan

By Kay Bell • Bankrate.com

A house is much more than just a shelter. For many homeowners, it serves as a private bank.
When structured properly, the money you can draw from the equity in your home can provide a nice tax break. In most cases, a homeowner can deduct interest paid on a home equity loan or home equity line of credit (HELOC) of up to $100,000.
The key phrase, however, is "in most cases." There are some deductibility limits. The alternative minimum tax also might also negate the benefits. So before tapping into the residential vault, homeowners should carefully evaluate their overall financial needs and tax situation.
Many uses, one big tax break
Home equity funds are often used to pay for home improvements, remodeling and renovations, college costs or consolidate personal loans and credit card debt. By leveraging the money already put into a house, an owner typically has access to larger sums of money to pay for these items.
And, of course, there is the tax advantage.
"When you talk about taxation and home equity, you primarily look at the deductibility of the interest," says Jim Hiles, a certified financial planner with CBIZ Wealth Management in New York. The tax law allows a borrower to deduct interest on a home equity loan or a combination of loans up to $100,000, regardless of how the money is used.
"It certainly is a popular way to pay," says Hiles, "if you can deduct the interest."
It's that "if" that trips up some home equity borrowers. Whether it can be deducted and exactly how much interest on a home equity loan is deductible depends on several factors.
Interest on $100,000 ... maybe
Most homeowners focus on the $100,000 amount that's usually touted as "deductible" in ads for home equity products. But borrowers also need to be aware of how their property's fair market value and any existing mortgage could affect the tax break.
When the combination of all loans secured by a home, including the first mortgage and any other equity loans, are more than the property's fair market value, the interest on the portion of debt that exceeds the home's value is not deductible.
For example, you have a $95,000 mortgage on your home, which is now worth $110,000. Your bank says you qualify for a 125 percent loan-to-value equity loan of $42,500 ($110,000 x 125 percent = $137,500 minus $95,000 left on your first mortgage = $42,500). Because your son has outstanding college tuition bills and you'd also like to buy him a car to get to and from school, you take the bank up on the offer, planning to deduct the interest on the equity loan on your taxes. It is, after all, well below the $100,000 limit.


- Posted: April 2, 2007

Can You Afford to Buy a House?

Information for Buyers
While everyone would like to live the American Dream of buying and owning a Home it is important to understand all the costs involved in buying and owning a home.


Many potential buyers sometimes forget to factor in the down payment, homeowners insurance and the possibility of depreciation, as well as the costs associated with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design accessories once you move in.
For a general idea of your buying power, multiply your annual gross income by 2½. For example, if you had a household income of $50,000, you might be able to qualify for a $125,000 home. The actual number may be more or less, depending upon your individual situation, debts and credit history.


Housing Expense Ratio


As a general guide your monthly mortgage payment should be less than or equal to a percentage of your income, usually about a quarter of your gross monthly income. The percentage can change depending on the type of mortgage you choose. However, there are mortgage products available that focus solely on the debt-to-income ratio. Your lender can provide more information on these types of mortgage products.


Debt-to-Income
Your buying power can be affected by factors such as your income, debt and credit history. Your debt, such as credit card bills and car loans, and other expenses such as housing expenses, alimony and child support, should not be more than about 30-40% of your gross income.


How Much Money Do I Need to Buy a Home?
You'll need money for:
1.) A down payment


2.) Closing costs


3.) Other housing-related costs – mortgage payments, maintenance and repair costs


Your Down Payment


The down payment is a percentage of the value of the property. What percentage that is will be determined by the type of mortgage you select. Down payments usually range from 3 to 20% of the property value.


You may be required to have Private Mortgage Insurance (PMI or MI) if your down payment is less than 20%.




Closing Costs


Closing costs include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other settlement costs. These costs generally range between 2-7% of the property value. You will receive an estimate of these costs from your lender after you apply for a mortgage.


While it may seem that it can take a lot to actually buy your home, you may be closer than you think.

BEAUTIFUL, Brick Veneer Ranch Style Home (Listed @ $169,900)

Property Information


TYPE & STYLE: Ranch, Split-Level
BEDROOMS: 3
FULL BATHS: 2
HALF BATHS: 0
APX SQFT: 1587
APX AGE: 5
APX AGE RANGE: 1-5 APT/SUITE #:
AREA: Area 3-Residential
SUBDIVISION: SILVER THORNE
TOWN: Phenix City


ZONING: Res
COUNTY: Lee


ACREAGE: Residential Lot TOPOGRAPHY: Sloping, Gently Rolling, Stream/Creek
LOCATION DESCRIPTION: Concrete Drive, Homeowners Association


CONSTRUCTION: Brick Veneer, Masonry-Lap Siding
ROOF: Shingle-Composition
FOUNDATION: Crawl Space
HEATING: Electric Heat Pump
COOLING: Central Electric Air
WATER HEATER: Electric
WATER/SEWER: Public Water, Sewer Connection
GARAGE/CARPORT: Double Attached Garage ATTIC: Floored, Pull Down Stairs
BASEMENT: Partial, Outside Entrance
FLOORS: Carpet, Wood, Ceramic
ROOMS: Large Master Bedroom, Breakfast Area
APPLIANCES: Dishwasher, Disposal, Microwave, Self Cleaning Oven
FEATURES: Walk-in Closet, Smoke Detector, Ceiling Fan, Fireplace, Deck, Fence
LEGAL: Lot 60 Silver Thorne S/D Plat 22-186 S33 T18N R30E
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PROPERTY FACTS: 3BR/2Bath Split Floor Plan. Fenced Yard. Ventilated Attic. Energy Saving Heat Pump(OWNER WILL PAY UP TO $5000 IN CLOSING COST FOR FULL PRICE OFFERS!!!)
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GENERAL REMARKS: Charming Brick Veneer, Single family home. Has a Double Vanity and large walk in closet in the Master bath. Seperate Shower and Tub w/jets. Rear Deck over looks a partly wooded view and quiet stream. Walk-in basement is roomy, great for storage or workshop space. Attic area above garage, has pull down stairs and is completely floored. Lee county School District. Near Walmart, Home Depot, Publix, & Walgreens. Contact Ashley Batiste for info about this listing at 706-593-7273.
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DIRECTIONS: Heading west on Hwy80, Exit onto Summerville make a right turn. Go about 1.6 miles to 2nd light (Pierce Rd.). Take left at light. Continue to Silver Thorne Subdivision which will be located on your left. House at the end of Cul-De-Sac.




Information Herein Deemed Reliable but Not Guaranteed


Property Type: Single Family (Detached)
Sale Type: None
Subdivision: SilverThorne

Let Me Assist You in Your Next Big Transaction!

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I am an Army Wife and Disabled Army Veteran.


My experiences and military background Has given me the Strong Will, Dedication, And Integrity to get the job done.


Buying and/ or Selling a home can often at times be stressful and a long drawn out process. With all theinspections, Advertising, Paperwork, and the closing, The whole process can become a little overwhelming. Buyers and Sellers need the right agent on their side, An agent that truly is working for their clients/ customers, guiding them every step of the way. Apart of my job is to help put all of the stress to come, at ease. I'm Ashley Batiste, and I am a Licensed Realtor for, Shepherd Brokers.com GMAC Real Estate. For my Clients/ Customers I will strive to give them the top notch service that they deserve.

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As a Trusted Advisor, Skilled Negotiator and Expert Facilitator, I will commit to quality service - in writing. Since we know that a smooth process is based on trust, the Premier Service pledge assures delivery on my promise to provide extraordinary customer care. Both myself and you, the client, sign an agreement to make this unique relationship official.
You deserve a knowledgeable advocate in the real estate process, and Premier Service is designed to do just that. Because it's about commitment: By partnering with you, listening to your needs and communicating clearly, your home sale or purchase will become exactly what it should be.




Ashley N. Batiste, PS
Realtor
Shepherd Brokers.com GMAC Real Estate

Service You Deserve. People You Trust.®



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