Home Buying Facts

The world we live in is not getting any kinder – I must know your identity before we ever look at the first home. This lets me know who you are, that your intentions are to buy a home, that you’re serious about buying a home and it provides me and my family with some peace of mind knowing that that my safety will not be compromised. Be prepared to provide your identification up front.

You must be Pre Approved – A critical first step. As a Buyer, you need to know how much home you can afford to buy to secure a mortgage. This requires a Lender’s review of your credit, assets and income. This is not a casual conversation with your Lender about what you think your credit is and how much money you make. The Lender must have their own eyes on what you verbalize. This is the only way in which to obtain a Pre Approval.

Don’t expect to look at homes until you’ve been Pre Approved – As #1 discusses, this results in eliminating possible future disappointment for two reasons; looking at homes priced higher than what you can afford and losing the home you love because the Seller required Pre Approvals with all Buyer’s offers to purchase and you didn’t have it completed prior to your home search. we buy houses Apopka

Nothing is worse than having candy dangled in front of you only to later realize it’s out of reach and never can be yours. You would have looked at beautiful homes that were out of your price range and then you would have to adjust to look at homes priced lower, that will have features that are less than what you adore. In addition, Sellers that require Pre Approval with any Buyer’s offers, can mean you have to go back to your Lender to get Pre Approved when in the meantime another Buyer came prepared, submitted an offer and the Seller accepted the offer; meaning you lost the home you wanted to buy.

Make sure to get your ducks in a row – You must plan for buying a home. Buying a home is a major life event that requires planning. Have you maintained your credit to qualify? Have you saved enough money for a down payment, closing costs and home maintenance after you own the home? Have you considered the area you want to move to for such things as the schools? Have you planned for the actual move and what it entails? All examples of what must be part of your home buying plan.

Know that your money will only buy so much – Look at homes priced at what your money can buy. Don’t think you’ll look at homes priced above what you can afford and you’ll try to submit a lowball offer to see if it sticks. More often than not, a Seller will reject such an offer, unless of course, there are circumstances about the home that your skilled Real Estate Agent can advise you about.

The local Real Estate market must be known – What prices are homes being sold for, how fast are homes selling, what’s the inventory level, what type of market is it, where is the market headed and what benefits/disadvantages does a city hold are all important to know about the local market where you want to buy a home. Make sure your Realtor knows their local market.

Don’t make any major purchases while buying a home – You just signed a contract for your new home and you just noticed that both IKEA and Ethan Allen have home furnishing sales. Great, you thought – let’s go shopping! Hold on. Any major purchase can halt your loan approval in its tracks. No buying of furniture, cars or the like until AFTER you closed on your new home purchase.

The One Thing your Accountant won’t tell you

Buying a home requires saving, planning and a lot of preparation. You’ve heard the importance of good credit, so you’ve worked hard to clean it up to increase your credit score. You’ve also learned a lot about pinching pennies to increase your savings from skipping the excessive eating out to switching to bagged lunches for work. It paid off as you now have a decent credit score and a good savings accumulated in your bank account. You’re now ready to start your home search. But wait, your newly hired Realtor told you it’s important to get yourself Pre approved for a home mortgage. You visit your Mortgage Broker to begin the process.

Today’s guest author, David Sheir, a Florida licensed Mortgage Banker and Certified Public Accountant shares his experience on the one thing your Accountant won’t tell you.

There is an old saying that the only things in life that are certain are death and taxes. And, just like the popularity of anti aging products, many of us rely on the expertise of our accountants to prolong or minimize our payment of taxes. Accountants ask us to send them the details of all the expenses we incurred in any given tax year to determine which costs can be deducted to lower our taxable income thus lowering our taxes. We often measure the quality of our accountants’ services based on how much they are able to save us on taxes. The lower the tax bill, the better the accountant and the happier we are.

Here’s the one thing your accountant won’t tell you as you jump for joy over the refund you expect to receive. Lower taxes most often means a lower mortgage loan when it comes to applying for a pre approval. “How can that be when I made $ xxx this past year…” is a question I am often asked. Well, you see, you may have “grossed” $ xxx last year but you then wrote off $ yyy against that income meaning that your “net earnings” were $ zzz. And net earnings is the figure we in the mortgage business use to qualify you for a mortgage.

Personal taxes and home buying

So, here is how it works. An individual who works for a company as a W2 employee reports his or her compensation from the employer as W2 income on page 1 of the tax return. Then they report “unreimbursed business expenses” on a schedule A for expenses they claim were necessary in generating their employment income. These expenses are subtracted from the W2 earnings in calculating taxes thus lowering their tax bill. However, this net figure is also the same number that a mortgage lender will use when calculating the debt to income ratio when that person applies for a mortgage. The debt to income ratio is one of the key yardsticks used in my industry in determining a person’s ability to repay a mortgage loan.

Perhaps an example of a real scenario that recently passed my desk will help shed some light. I recently had a woman apply for a mortgage who has worked for VISA as a customer service representative. Her job consists of sitting at a desk answering customer calls. She is great at what she does and an exemplary employee. She earned $50,000 in W2 income in 2013. This would generally qualify her for a $150,000 mortgage assuming all other credit and debt factors are in line. Upon my review of her 2013 taxes, however, she reported $20,000 in unreimbursed business expenses on schedule A bringing her net earnings down to $30,0000. While she was happy about her 2013 tax refund, she wasn’t exactly thrilled when I mentioned that her maximum mortgage approval went from $150,000 down to $100,000. Her response…”my accountant didn’t mention that to me.”

For self employed consumers and independent contractors, this topic is trickier. You see, a self employed consumer can report their business income a variety of ways depending on their legal and tax structure. They could be a sole proprietor (schedule C), an S Corporation, or a C Corporation. An independent contractor is usually a sole proprietor. Regardless of structure or tax reporting, the issue is the same. The higher the business expenses reported, the lower the mortgage amount. There are a few exceptions where certain non cash business expenses are not counted against mortgage qualifying income such as depreciation.

While I believe a person should never pay more than the minimum tax their legally obligated to pay, I want to caution consumers who are planning to purchase a home in the next two years (two years worth of tax returns are always requested by a mortgage lender). Be sure to balance properly your goals of paying the least amount of income taxes you’re legally obligated to pay with your goal of qualifying for the right mortgage amount you feel is necessary for the home that is right for your family. When meeting with your accountant, let them know you will be applying for a mortgage. Otherwise, they just might not bring it up.