Getting a Mortgage can have benefits than borrowing from a family member.

Occasionally, when dealing with close relatives who might also become heirs, signing a note and handling the paperwork properly may seem like a needless effort but it could mean the difference in being able to take a legitimate interest deduction.

Home mortgage interest is deductible only if the loan is a secured debt which involves the buyer signing an instrument like a mortgage or deed of trust that makes the ownership of the home security for the debt. That instrument must then be recorded or otherwise perfected according to state or local law and the home, in case of default, must be able to satisfy the debt.

In a family situation, a parent, grandparent or other relative may decide to loan a buyer the money to purchase a home because they have it available and it isn’t earning much in certificates of deposit. They offer to loan it for a rate equal to what a conventional lender is charging but without the fees.
While it may appear to be a win-win situation, there could be problems if things are not done correctly. Even if the borrower makes the payments, they are not entitled to an interest deduction unless three criteria are met: 1) sign a debt instrument specifying the terms 2) securing and record the debt properly and 3) the home is sufficient collateral for the loan.

It would be prudent to consult with an attorney before you sign the final settlement papers to be comfortable that both buyer and the lender-relative are complying with IRS regulations. For more information, see IRS Publication 936 – Home Mortgage Interest.

How to pay down your mortgage and grow equity quickly.

Most people think they’ll have a house payment and a car payment for the rest of their lives but it doesn’t have to be with a plan and a little discipline. The plan is to make additional principal contributions to a fixed rate mortgage to shorten the term and save tens of thousands in interest. 
If a person were to make an additional $100 payment each month applied to principal on a $175,000 mortgage, it would shorten the loan by five years six months. If the person were to make $200 a month additional payments, it would shorten the loan by 9 years. $459 additional payment would shorten it to 15 years.

If a person does make a decision to regularly pre-pay their mortgage, it will be their responsibility to verify that the lender is applying the money to the principal each time as opposed to being placed in the reserve account for taxes and insurance.

In today’s market, a savings account pays around 0.5% or less. Even with the low mortgage rates available, there is still a considerable savings. People who might need the funds in the near future should carefully consider this option due to the difficulty to access equity easily from one’s home.
Make your own projections using the Equity Accelerator.

Down Payment Options for Buyers.

For the person who has good credit and income but not enough money for the down payment on a home, their qualified retirement program could offer them some help. The rules are different depending on whether it is a 401(k), a Roth IRA or a traditional IRA.
Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from 401ks that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.
A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid with as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdrawal also.
Roth IRA owners can withdraw their contributions tax-free and penalty-free at any age for any reason because the contributions were made with post-tax income. After age 59 ½, earnings may be withdrawn as long as the Roth IRA have been in existence for at least five years.
Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdrawn up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov.
Another interesting fact about this provision is that the taxpayer making the withdrawal can help a relative includes children, grandchildren, parents and grandparents.
If you want more information to clearly understand the issues involved relative to your specific situation, talk to your tax professional or consult www.IRS.gov.

Mortgage Interest Deduction - Get educated!!!

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.

Enjoy your home!

Occasionally, you hear about an important recall on a product you have and you take care of it immediately. However, if you were to miss such a notice, it could put you or your family in jeopardy.
You can subscribe to the U.S. government's service to notify the public when recalls are made on vehicles, tires and child restraints through the National Highway Traffic Safety Administration on their site called SaferCar.gov.
You'll receive a notification by email when there is a new recall based on the type you selected. You can change your selections or unsubscribe at any time by going back to their website in the "Manage Your Notifications" section.
We're committed to helping you be a better homeowner by providing information on items that can protect your home's value, reduce expenses, improve maintenance and increase the enjoyment of your home.

Alabama Step Up Program

A lot of you may not know but the State of Alabama has a great down payment assistance program called "Step Up Program" that is offered through the Alabama Housing Finance Authority. I know your thinking what's the catch? But it really is a great program available for those that need it. Yes, there are some things you have to qualify for but the restrictions aren't bad and a lot of people actually do qualify.

Here are some of the qualifications.


You can't earn more than $97, 500

You have to take a homebuyers education course and there are only certain amount of fund available. So it is a first come first service basis. You also have to find a lender that participates in the program but you'll find that a lot of lenders participate in the program which makes for great lender options.
Some of the amazing things about the program is that there is no limit to the price of home you buy and its a fixed mortgage that is about the same as the current market interest rate and you make one payment since its combined with your primary mortgage. Some other things that are great about the program is that it doesn\'t matter where the home is! The house qualifies! And you don't have to a first time home buyer!

If your interested in getting more information on the program visit the website.

You can also call the following number to find a participating lender in your area.
1.800.325.2432 or visit www.AHFA.com.