One of the benefits of owning a home is the deductions that homeowners can use when filling out their annual tax forms. While there are several tax benefits to owning your own home, some of these benefits are greatly exaggerated and some of them are simply misconceptions that are untrue. Here are some of the more common tax misconceptions and exaggerations that are out there so you can be aware of them.

Misconception #1: The interest that I pay on my mortgage provides me with a tax break.

For the majority of homeowners, mortgage interest does provide a tax break which is unavailable to renters. But in order to take advantage of this break, a homeowner must itemize their taxes. This means that the combined individual deductions are more than the standard deduction that an individual would automatically get each year. Most homeowners can itemize because their itemized deductions are greater than their standard deductions, but there are some rare instances when this may not be the case.

One of the times when standard deductions may be greater than itemized deductions is if a person buys a home near the end of the year. In this case, only a few mortgage payments are made before December 31 and the sum of these combined interest payments will be relatively low. An individual who has lived in their home for many years may not benefit from the mortgage interest deduction because the amount of interest as a propotion of the payment may be very small. As a result, there is not much interest to deduct. If this is the case, you won’t be benefitting much from the mortgage interest deduction.

Misconception #2: I can deduct any expenses for my home on my tax returns.

This is one of those misconceptions that is not only greatly exaggerated, but it’s simply untrue. Many homeowners think that any expense related to their home – private mortgage insurance, association fees, maintenance expenses and the like – are tax deductible. Some homeowners even think that they can deduct the costs for repairs, upgrades, improvements and other costs related to their home. But someone who tries to deduct these expenses stands a good chance of getting a letter from the IRS. Miscalculated or erroneous deductions open a homeowner up to interest and penalties along with a higher tax bill.

There are, however, some expenses that can be deducted. For instance, property taxes are deductible on federal income taxes. In some cases, capital improvements can also be deducted provided that they fit within the IRS guidelines. Because of the intricacies and details for these deductions, however, it is always best for an individual to consult with a professional before finalizing their annual income tax returns.

Misconception #3: Putting my son’s or daughter’s name on the title of my home is beneficial for tax purposes.

This is a common misconception but it is much more complicated than it seems. This misconception says that parents can put their child’s name on the title of their home in order to get a tax break in the event the parents die and the child decides to sell the house. The tax break would occur when the child sells the home. Unfortunately, it’s not that simple.

This misconception provides many parents with peace of mind about the future of their house after they are gone. Many older parents want their assets protected so that when something happens, their children won't loose the family home or be burdened by probate matters. The general idea behind this misconception is that if parents put their childrens' names on the house, it is no longer part of the parents’ estate for tax purposes. While this sounds logical in theory, it creates several types of tax problems for the children and even for the parents.

The IRS doesn’t allow parents to simply give their children the home that they own without tax ramifications, regardless if the parents are alive or deceased. Even if a parent "sells" the house at a bargain price while they are still alive, the IRS is going to base the child's tax responsibility on the difference between the selling price of the home and the actual selling price. Individuals are allowed to gift up to a $13,000 annually to any individual without tax consequences; you can’t easily go above that annual exemption without prompting the IRS’s scrutiny. In other words, should you transfer your home to your children or sell it to a child for less than an amount within $13,000 of the appraised value, you may be required to pay a significant amount in gift taxes (and your child or children may also face adverse tax consequences).

Because of the complications and details associated with transferring your home or any other significant assets to your children, it is always best to utilize the services of a qualified estate planner or estate attorney to make sure your interests and the financial interests of your children are protected. Such a professional may be able to put in place legal documentation which gives you the protection that you desire for your children.

There are many benefits to owning your own home. Some of those benefits include tax deductions. But if you are unsure about what you can and cannot deduct, you should always consult with a qualified accountant or tax professional. You should also do some calculations to make sure each deduction is the best possible avenue to take financially. With some help from professionals, you can make the best decisions for yourself and your family’s finances.

Buying your first home can be one of the most exciting experiences of your adult life. But if you aren’t careful, it can also turn out to be one of the worst experiences in your life. Here are some of the most common mistakes inexperienced homebuyers make and ways to avoid them.

Mistake #1: Thinking that buying a foreclosure is always going to be a great deal.

Buying a foreclosed home at a great bargain is often more difficult than it seems. Usually, buyers experienced with foreclosures are the ones able to get the best deals. A first-time homebuyer stands at a real disadvantage. Typically, a foreclosed home has been vacant for several months before it is put on the market. During that time, vandals can steal the pipes and wires, drag off the cabinets and appliances, or squat in the home. Animals can burrow into the house, eating holes in walls, chewing on wires and spreading their feces. Wind, rain, and snow can cause structural problems. Leaving a house empty for an extended period of time is a recipe for disrepair. Experienced buyers know this and know what to look for. They also know how much to estimate repairs will cost. First time homebuyers have none of this knowledge.

Unlike a normal house purchase, the foreclosure process does not generally allow for an inspection. As a result, buyers have to guess at repair costs based on the outside appearance, the age, and the time left vacant. If you want to avoid making a major financial mistake and still purchase a foreclosure, speak to someone knowledgeable with foreclosures and get an idea of common problems. Then estimate the cost to make these repairs and decide if it’s still a good financial move.

Mistake #2: Not knowing what to look for in a qualified buyer’s agent.

Qualified buyer’s agents can help a homeowner buy a home in two ways. First, they can help you identify a suitable property that is well priced for the market. Second, they can help you quality for a mortgage by organizing and presenting your finances in a way that appeals to lenders. As a result, finding a good buyer’s agent is an important step. A good agent will listen to your needs, spend time with you, and won’t get pushy. They will have experience and be knowledgeable about the market. A buyer’s agent, unlike the seller’s, works in your best interest and should represent you, not the seller. Be sure your buyer’s agent does not have any special relationship with the seller’s agent. This is a conflict of interest that could undermine their advice.

To find a good buyer’s agent, ask friends and relatives who have purchased a home recently if they could recommend someone they used. If not, interview some buyer’s agents to find out if they have experience working with first time buyers and with buyers in your market. This will help you find one that is qualified to take you on as a client.

Mistake #3: Not understanding the actual costs of owning a home.

As a first time home buyer, you might think that as long as you can afford the mortgage payments, you can afford that home. But this is simply not true. A mortgage payment is just one of many home ownership costs. Property taxes and homeowner’s insurance should factor into your cost equation. Maintenance and repairs are also something to consider because your home will definitely need repairs and upkeep regardless of how new it is.

Several of these costs can sometimes be rolled into your mortgage payment. But it is important to consider all of these costs in addition to the mortgage payment so you can decide how much home you can actually afford to buy.

Mistake #4: Failing to get a professional inspection.

Getting a home inspection is an component of buying a new home, but many inexperienced home buyers simply take the seller’s word that there is nothing wrong with the house. A seller often isn’t under any obligation to tell you about the mold in the basement, or the leak in the roof, or anything else that may affect the sale of the home. In most cases, the seller’s agent will hire a home inspector to go over the property before the sale. But this can be a conflict of interest since they are being paid by the seller.

To avoid this mistake and to save yourself from huge problems in the near future, hire an independent home inspector. These inspections often only cost a few hundred dollars but they can save a buyer thousands of dollars – or even in rare cases hundreds of thousands of dollars - if they find something major that needs to be repaired. Most home sales are based on a contingency of the results of the home inspection so you can either opt out of the purchase or ask the seller to make the repairs if you aren’t comfortable with the results of the inspection. Often, home inspections pay for themselves. Sellers will often reduce the purchase price as compensation for problems discovered during an inspection.

These are some of the more common and financially costly mistakes that first time home buyers and even some experienced home buyers make. By educating yourself on the common mistakes, you can avoid sleepless nights and put more money in your pocket when buying a home.

Compare mortgage rates where you live.

With mortgage rates at rock bottom lows and staying at near these record lows for several weeks, the option of refinancing your current mortgage may seem like an enticing deal. And for many homeowners, it can save you thousands of dollars over the life of your loan. But that’s only if you are careful during the process of refinancing your mortgage. There are many hidden costs that are often bundled into a refinance and some of these costs are avoidable if you know what to look for. Here are six of the most common hidden costs that you should know about when you refinance your mortgage.

Loan Origination Fees

The loan origination fee is a common cost of refinancing your home. This fee is charged for evaluating and preparing your loan documents. You typically can’t avoid this fee, but you can shop around to different mortgage lenders and find the one that charges the least for the origination fees. These fees can generally be as much as 1.5 percent of the principal, but you should be able to find lenders that charge much less than that.

Application Fee

When you apply for a refinance on your mortgage, you are going to pay an application fee. This is a fee that you pay upfront and the lender will keep this fee even if you get denied for a mortgage refinance. An application fee generally costs between $75 and $300 depending on the particular lender and other factors, but you can usually negotiate this cost to drop it down or even have it waived in some cases.

Appraisal Fees

The appraisal fee is not always necessary when refinancing your home. If you have had an appraisal in the last few years, your refinancing lender may waive this fee which can cost you and extra $300 to $700 depending on the size of your home, the area where you live and the mortgage refinancing company that is handling your loan.

Inspection Fees

Depending on the length of time you’ve owner your home, your refinancing lender may require an inspection of your home. The home inspector will check for termites, structural damage, pests and other things that could impact the overall value of your home. Inspection fees can cost up to $350 but if you have only had your home for a couple years, you may not need to pay this fee.

Attorney Fees

When you refinance your home, you generally have to pay fees for attorneys to conduct the closing of the deal. Lender fees can cost between $500 and $1,000 depending on how much has to be done for your particular refinancing transaction, the principal balance and other factors.

Prepayment Charges

As with many mortgages, you may be charged a fee if you pay off your loan early. This is also true with refinancing your mortgage. When you refinance, be sure to read the fine print on the refinancing contract. You could be charged extra fees which could be as much as six months’ worth of interest payments if you decide to pay off your mortgage sooner than the contract has scheduled.

Refinancing your mortgage can save you thousands of dollars over the long run. But if you don’t consider these costs and add them into your expected charges, you may not be saving any money at all. Do your research and add up the costs before making your final decision to refinance.

Compare refinance rates where you live here.

If you’ve ever subscribed to the old saying “strike while the iron’s hot” then you might want to get ready to pounce into action with regard to refinancing your home. This week, Informa Research Services reports that 15-year mortgage rates came in at an average of 3.43%, with 30-year fixed rates at 4.15%. Sound too good to be true? See for yourself here. If by the time you’re done verifying this great news – which reflects claims that mortgage rates remain lower than they have been in about a quarter of a century – you haven’t already flown out the front door to find the nearest bank offering the best rates, then maybe the next bit of news surely will.

Applications for refinances are down. And as far as lenders are concerned, this isn’t the most desirable of possible circumstances for their bottom line. After all, their business is lending money and writing new loans and if they’re not doing that, they’re stagnating. So what does this mean for you? For one thing, it means that you can expect banks to busy themselves trying to dream up new and exciting ways of encouraging you to consider refinancing your home. If you’ve been on the fence about it for some time – or even if you’ve just hopped onto that proverbial fence – expect to be hit with a slew of incentives from lending institutions eager to take on your refinanced mortgage. To hunt down the lowest rates, be sure to visit online rate tables for the latest numbers.

So what kind of incentives can you expect to see? Aside from the obvious appeal of securing your home refinance at a much lower rate than you currently have it, you’re likely to see a lot of the following kind of activity coming from smaller banks and regional lenders.

• Dramatically lowered fees.
• An increased willingness by lenders to let you roll your fees into your mortgage instead of paying them at closing.
• Free 60-day rate locks that ensure even if rates suddenly jump before you’ve finalized all the details of your refinance, you’ll still secure the original rate quoted you.

While Informa Research Services agrees that additional incentives are a great benefit that can save refinance customers a bundle of money in the long and short term, what’s even more important is securing the lowest possible interest rate. Therefore everyone considering refinancing should do their due diligence by shopping for the lowest possible rates before considering accepting any incentives.

Naturally, banks aren’t just going to be giving away free stuff to anyone that comes knocking. There are three main things that lending institutions will always take a close look at when it comes to determining if they’re going to take on your refinance. These are: your credit score, proof of income, and equity. If you’re sitting pretty on a stellar credit score, pat yourself on the back and rest assured. For those who aren’t sure what kind of credit scores the lenders will be looking for, think: 740 and above. Expect to be asked to show two years’ worth of tax returns and at least three months of recent pay stubs to verify your income. Naturally, the higher the equity you have in your home the better off you’ll be in the eyes of the lender, but if you’ve got more than 10% under your belt, that’s considered optimal.

For millions of people facing and dealing with a foreclosure, seeking a loan modification from the bank may seem like the ideal way to get help. A loan modification has helped thousands of homeowners stay in their homes by reducing their payments, by reducing their principal, or by providing some other type of financial relief. Most loan modifications, however, are rejected by the bank. Here are some of the reasons why and how you can avoid them in order to help ensure that your mortgage loan modification application is a successful one.

Failure to Prove Ability to Pay Under New Terms

One of the most common reasons why a loan modification is rejected by the bank or lender is because the homeowner has not proven that they will be able to pay the mortgage payment under the new terms. If a homeowner cannot prove that they can pay even if a loan modification is reached, it would be in the lender’s best interest to foreclose on the home in most cases rather than agree to the modification. The modification would only delay the process of foreclosure which means the lender would lose even more money.

If you are going to apply for a loan modification, make sure you have ample proof that you will be able to pay the loan under the new mortgage terms. You may need to provide tax statements, pay stubs and a written budget to your lender to show that you will be able to make the new lowered payments without any problem. Otherwise, there is a good chance that your loan modification will be rejected.

Failure to Show That You Have Difficulty Paying Current Terms

Another common reason that loan modifications are rejected by lenders is because the homeowner does not show any difficulty in paying on the original mortgage loan agreement. If you have been paying your mortgage loan on time every month, your mortgage lender is not going to go through the trouble of modifying your loan and offer you lower payments because you have shown that you can make the original payments. A lender is not going to modify your mortgage loan simply because the home’s market value has dropped drastically.

You obviously should not try to prove a financial hardship that does not exist and you certainly should not stop making your mortgage payments in the hopes of getting a mortgage loan modification. Instead, explain to your lender what has changed in your financial situation. Have you lost hours at work? Have you been laid off? Do you have a medical problem that is causing you to miss a lot of work? You will need to prove that you have a financial hardship before a lender will even consider modifying your loan. If you have some written proof that shows a change in your finances, you will have a better chance of getting your modification approved.

Failure to File Completed Paperwork Package

Incomplete paperwork and documentation is also a leading cause for a mortgage modification getting denied. Your lender will want to see your tax returns, pay stubs, bank statements and other financial papers in order to consider a loan modification. All of this helps them determine if you are eligible. Unfortunately, a homeowner may not know that they have incomplete paperwork until after the modification has been denied.

To avoid falling into this problem, get a checklist from your lender regarding the paperwork they will require in order to consider a loan modification. Make sure you get everything ready from the checklist when you submit your application. You may even consider asking the lender’s representative to check your paperwork before you submit it to make sure you have everything that you need.

These are just a few of the problems that can occur with a mortgage loan modification. But if you follow the suggestions on how to avoid these problems, you will dramatically increase your chances of your loan modification being approved so you can get back on track with your finances.

Having a comprehensive homeowner’s insurance policy is one of the best ways to protect your home and everything inside of it. But in addition to these benefits, it also offers peace of mind for the homeowner. Insurance can also be a significant expense, costing thousands of dollars per year. Knowing how these policies are priced can help you save money. Below are key factors insurers use when determining the rate for your policy.

1. Location

The location of your home is one of the most significant factors when determining your homeowner’s insurance rate. If you live in an area where the crime statistics are higher than average, you can expect to pay higher insurance rates for your policy. But crime isn’t the only factor. Your home could be in a high risk area for tornadoes, wildfires and other disasters. If the building costs in your home’s area are higher than average, this could also affect your rates.

2. History of Claims

Many homeowners think that their insurance policy should pay for anything bad that happens to their home. While insurance can pay for many problems, your insurance rates are going to increase in relation to the number of claims that you make. If you file a claim with your insurance company every time a minor problem occurs, you are going to find yourself paying astronomical rates. Instead of making so many claims, pay for some of the repairs yourself (even if they are covered by your policy) or else you are going to be paying much more in the long run.

3. Your Credit Score

There was a time when credit scores were not used to determine homeowners' insurance rates. But insurers have found that people with higher credit scores tend to file fewer claims. And those who have poor credit scores tend to file more claims. As a result, if you have a low credit score, you will pay more for coverage.

4. The Age of the Home

Newer homes or new construction cost less to insure than older homes. Newer homes tend to be in better shape than older homes and generally require fewer claims. Newer homes also typically have features that make them less of a risk, including fire resistant building materials, sprinkler systems and other features that help reduce the chances of major damage.

5. Swimming Pools

A swimming pool or an outdoor hot tub can cause your insurance rates to go up because of the risk they pose to young children in the neighborhood. If you are going to have a swimming pool in your yard, your insurance company is going to require a fence to surround it along with a locking gate. Trampolines also increase insurance rates.

While you may not want to change the location of your home based on insurance prices, homeowners should consider making fewer small claims, maintaining a good credit score, and thinking twice about a swimming pool or trampouline. Taking a combination of these steps will help you get the best possible price.

The cost of getting a mortgage is much more than just the interest you will pay on the borrowed amount. When you sit down at the closing, you may be surprised with unexpected fees. While many homebuyers simply pay these fees without question, you can avoid many of them when you begin your home search by shopping the various mortgage companies. Fees vary considerably by mortgage lender. Knowing the fees and how much you should be charged will help you determine which mortgage lender is giving you the best overall deal and help you avoid being gouged at closing.

Appraisal Fees

If you are planning on buying a home or refinancing your home, your lender is going to want to get an appraisal on the property before loaning you the money to purchase it. This is an essential fee in most cases, but knowing the actual cost of the appraisal is also important so you are not overpaying. Most appraisals cost between $225 and $750 depending on the actual value of the property. But some lenders will charge a mark-up or an additional fee for the appraisal, even though they are not supposed to charge more for third-party services than what the actual service costs. To avoid this, find out how much an appraisal for the property would cost and then look for the mortgage lender that charges close to that price.

Credit Report Costs

Getting a credit report is another essential fee when you choose to purchase a home. The lender will want to examine your credit score and credit history before deciding whether to work with you. A lender should not charge you more than about $25 for pulling your credit report. If your lender insists on charging more, find out why. Many mortgage lenders do not charge this fee at all because it is such a nominal amount.

Postage, Wire-Transfer and Courier Fees

Postage, wire-transfer, and courier fees have come down significantly over the last ten years as the world has gone electronic. Email has become a preferred way of sharing drafts and contracts. According to industry surveys, these three fees combined should not cost more than $75. If the lender you plan on working with wants to charge much more than that, it may be a good sign that you are getting gouged.

Most reputable mortgage lenders will give you a checklist of fees that you can expect to pay at closing when you first start working with them. This gives you the opportunity to shop around. But if there is one mortgage lender that you really want to work with, you may be able to negotiate some of the fees, especially if you have written proof from other lenders on their pricing. Doing your homework on mortgage lenders can save you hundreds or even thousands of dollars.