WCR & BHC Bus Tour

It was a lovely day for a bus tour with the Women's Council of Realtors and Better Housing Coalition!  We grabbed breakfast and headed out to view different RVA communities where the BHC is making a difference!  They are making an impact in Scott's Addition, Jeff Davis and are continuing their influence in the Randolph and Byrd Park areas. It was great to learn about all the good work they are doing for Richmonders!

Open Houses This Weekend!

How Much of a Mortgage is Right for You?

It's really easy to get excited when looking for a new home, we know!  The thrill of imagining your life in a new, fresh space and all of its possibilities can be energizing and motivating.  But when it comes to your dream home, with a little extra square footage you don't really need that's on the brink of your budget - should you go for it?  While is easy to romanticize the extra hard work you'll do to keep up with your monthly mortgage, when it gets down to the everyday reality, the struggle can get real.  Make sure you jump into your new home - and mortgage - with a full knowledge of what you can really afford, then you can truly live happily ever after!

How Big Should Your Mortgage Payment Be?
Just because a lender is willing to approve you for a mortgage doesn't mean you'll be able to comfortably make the payments. You're better off settling for a little less house and a monthly payment you can manage.

By Wendy Connick 
Mar 12, 2017 at 6:43AM

Image Source: Getty Images

It's normal for rent or mortgage payments to be the biggest single monthly expenditure for a household. But if housing starts to take up too big a percentage of your available income, you'll find yourself strapped for cash.

Zillow's most recent housing affordability survey shows that housing expenditures are clearly on the rise, with typical monthly mortgage costs hitting 15.8% of median household income -- up from 14.7% a year before. While that's still low in historical terms, the upward trend, in combination with rising interest rates and home values, means that payments may soon be heading into the danger zone. Renters are paying even more percentage-wise, hitting 29.2% of median household income. And in certain metropolitan areas the housing expenditure numbers verge on gruesome: Los Angeles and San Francisco both sport mortgage expense percentages of more than 40% of median household income.

Most experts agree it's best to keep housing costs to less than 30% of income. Lenders will typically limit mortgage loans so that the monthly payment (including taxes and insurance) is no more than 28% of monthly household income. Of course, the highest monthly payment you can really afford may be a little higher or lower than that, depending on factors like your lifestyle and your other expenses.

So how can you figure out how big of a mortgage payment you can afford?

Start by taking a good look at your income and expenses

Rather than depending on an arbitrary number like 28% or 30%, it's best to evaluate your household budget and see what percentage works for you. What you're looking for is a housing payment that you can pay every month without feeling stressed every time the due date rolls around. If you have a mortgage, you ideally want to be able to pay a little extra toward the principal every month, allowing you to get rid of the mortgage early and save on interest. If your gut reaction to that sentence was, "My mortgage payment is a pain already -- no way I can pay extra," then that's a sign you're paying more than you can afford.

Now take your monthly housing payment and divide it by your monthly household income. For example, if you pay $1,000 a month in rent, and your paychecks add up to $4,000 per month, then you divide $1,000 by $4,000 to get 0.25, or 25%. That number is your current housing payment percentage; remember it, because you'll use it to determine what the right percentage is for you.

Next, make a list of all your regular expenses. Don't forget the biggies that come around only once or twice a year, like insurance renewals. You can factor those large but sporadic expenses into your monthly budget by dividing the normal payment out over the number of months in the term. For example, if your car insurance renewal comes around once every six months, take the renewal amount and divide it by six to see how much it's costing you "per month." Once you have your expenses in front of you, ask yourself how comfortable you feel with your current situation. Do you have enough money every month to cover your expenses, plus a little to tuck away in savings? Do you live paycheck to paycheck, with creditors breathing down your neck until you can get a hold of the next chunk of income? Or worse, are you stuck with ever-growing credit card bills because you fall a little further behind every month? The answer will tell you whether your current housing costs are low, marginal, or too high compared to your current income and other expenses.

If you've already pared your non-housing expenses down as low as you can, yet you still have trouble paying all your expenses every month, then your housing payment is too high for your current situation. You might consider downsizing your home or possibly refinancing to get a smaller payment if you own your home.


If you're paying all the bills every month and can still stash a bit of money into savings and/or your retirement account every month, then your current housing payment is OK for your situation. Now is when you can go back to the percentage you calculated earlier and use that as a baseline.

If your current housing payment takes up 25% of your income and you're struggling to pay it, then you might aim for 20% or even 15% instead. On the other hand, if you're doing fine and have extra income every month, you could likely push the percentage up a little to 30% and still be all right.

Don't let the other costs of homeownership surprise you

If you're currently renting and are planning to buy a house using your rent payment as an affordability guideline, remember that as a homeowner you'll need to budget extra for maintenance and emergencies. If you buy a house and the furnace breaks down, or a pipe springs a leak and floods your kitchen, you can't just call the landlord and have him deal with it. You'll have to cover all these expenses yourself. Homeowners insurance will cover the cost of some crises, but you probably don't want to leave a foot of water on the kitchen floor until the insurance check arrives, so you'll need to have enough extra money kicking around to pay for repairs until you get reimbursed by the insurance company.

Whipping out a credit card for emergency housing expenditures is an option, but it's not a good one. Assuming you can't pay off the full amount of the card charge immediately, which is likely, you'll end up paying through the nose on interest and possibly fees. For that reason, you should prioritize setting up and funding an emergency savings account before you consider buying a house. Having enough money to cover at least a few months' worth of expenses is even more important for homeowners than it is for renters. And remember, making a down payment will inevitably take a huge chunk out of your savings, so take that into account when deciding if you have enough saved up to start house-hunting.

First-Time Homebuyer Class

Do you want to buy a home but aren't really sure where to start the process?  Reading about it online can only answer so many questions.  Get real answers from professionals in the industry who help individuals like you every day get into homes they love!  We are happy to be participating in this free class that only requires a pre-registration! Join us this Saturday, March 4 at Virginia Capital Realty on North Thompson Street!

Deducting the Mortgage Interest on Your Home

Deducting mortgage interest can add up to a pretty penny in savings for the average homeowner. Knowing the basics can help you determine which deduction you qualify for.  For instance, taking a deduction on a construction loan is great, unless you don't plan on moving into the property you're working on.  In which case, it can end up biting you back in the long run.  Hopefully, this article from thebalance.com can help clear things up!

The Home Mortgage Interest Tax Deduction
Paying Mortgage Interest Can Reduces Your Taxable Income
By William Perez
Updated February 21, 2017

You've probably heard that owning your own home comes with a few nice tax perks. One of them is that the interest you pay on your mortgage loan is tax deductible.

Claiming Home Mortgage Interest
You have to itemize your deductions on Form 1040, Schedule A to claim mortgage interest. Schedule A also covers many other deductible expenses, including real estate property taxes, medical expenses, and charitable contributions.


Sometimes these all add up to more than the standard deduction for your filing status, making it worthwhile to itemize. Otherwise, you'll save more tax dollars by foregoing the home mortgage interest deduction and claiming the standard deduction instead. Complete Schedule A and compare the total of your itemized deductions to your standard deduction to find out which method is most advantageous for you.

Here are a few other things about this deduction that you'll want to keep in mind.

Qualifying for the Mortgage Interest Deduction
Mortgage interest includes that which you pay on loans to buy a home, on home equity lines of credit and on construction loans. The deduction is limited to interest paid on your main home and/or a second home. Interest paid on a third or fourth home isn't deductible.

You must also be on the hook for the loan – the debt can't be in someone else's name unless it's your spouse and you're filing a joint return.

It must be a bona fide loan in that you have a contractual obligation to pay it back. Finally, your home must act as security for the loan and your mortgage documents must clearly state this.

Your home can be a single family dwelling, a condo, a mobile home, a cooperative or even a boat – pretty much any property that has "sleeping, cooking and toilet facilities," according to the Internal Revenue Service.


Determining How Much Interest You Paid
You should receive Form 1098, a Mortgage Interest Statement, from your mortgage lender at the beginning of the new tax year. The form reports the total interest you paid during the previous year. You don't have to attach the form to your tax return because the financial institution must also send a copy of Form 1098 directly to the IRS.

Make sure the mortgage interest deduction you claim on Schedule A matches the amount reported on Form 1098. The amount you can deduct may be less than the total amount that appears on the form based on certain limitations. Keep Form 1098 with a copy of your filed tax return for at least four years.

Dollar Limitations on Home Acquisition Debt
Home loans and the interest you pay on them are subject to some overall limitations. One limit applies to loans used to buy or build a residence.

This is "home acquisition debt." The term refers to any loan you take for the purpose of acquiring, constructing or substantially improving a qualified home.

You can't deduct interest on more than $1 million of home acquisition debt for your main home and/or your secondary residence. The limit is reduced to $500,000 if you're married and file separately.

For example, let's say you borrowed $800,000 against your primary residence and $400,000 against your secondary residence. Both loans were used solely to acquire the properties. Together, the loans add up to $1.2 million, exceeding the $1 million limit for home acquisition debt.

Now let's say that both loans have a fixed interest rate of 5 percent. The total interest you paid for the year was $60,000. You would only be able to claim a mortgage interest deduction for $50,000 of that, the interest on the first $1 million of home acquisition debt. The remaining $10,000 is the result of loan value that exceeds the $1 million limit so you can't claim it.

Limitations on Home Equity Debt
A home equity debt is a loan you take out for a reason other than to acquire, construct or substantially to improve a qualified home. It may also be a loan you take to improve a qualified residence, but it exceeds the home acquisition debt limit.

You can't deduct interest on more than $100,000 of home equity debt for your main home and/or your secondary residence. This limit is reduced to $50,000 if you're married but filing separately. Your deduction for home equity interest may be reduced even below this $100,000 limit if your indebtedness exceeds the fair market value of your home.

Interest paid on home equity debt is an adjustment for the alternative minimum tax, not so affectionately known as the AMT.

For this example, let's say you borrowed $300,000 in a home equity line of credit. The amount you borrowed did not exceed the fair market value of your home so you're OK there. You used $150,000 of the money to add a new family room to your residence, and you spent the remaining $150,000 on your son's college tuition. Half the loan is treated as home acquisition debt because it was used to substantially improve your home. This portion would be subject to the home acquisition debt limitation. The other half is treated as home equity debt because it was not used to improve your home. You would be able to deduct interest only up to the $100,000 limit on this portion. So assuming you paid a total of $21,000 in interest, it would break down like this:

• $10,500: Fully deductible home acquisition debt on the first half the loan
• $7,000: Deductible home equity debt on two-thirds of the home equity portion of the loan or $100,000 of that $150,000 portion
• $3,500: Non-deductible home equity debt representing the interest paid on the portion of the home equity debt that exceeded $100,000

You'd also have to report the $7,000 to the IRS as an AMT adjustment on Form 6251.

Joint Mortgages
If you jointly hold the mortgage with someone else who's not your spouse, you're entitled to deduct only the interest that you personally pay regardless of which of you receives Form 1098 from the lender. But there's a loophole here. Co-borrowers who make payments to prevent foreclosure can deduct the interest paid even if the interest was supposed to be paid by someone else. The editors of JK Lasser's "Your Income Tax" pass along this tip:

"The Tax Court has allowed a joint obligor to deduct his or her payment of another obligor's share of the mortgage interest if the payment is made to avoid the loss of property, and the payment is made with his or her separate funds." (page 328)

Home Construction Loans
You can deduct interest on mortgages used to pay for construction expenses. The proceeds must be used to acquire the land and for construction of the home. Expenses incurred in the 24 months before construction is completed count toward the $1 million limit on home acquisition debt.

But there's a catch. If you deduct interest on a construction loan for two years, then you decide to sell the property rather than move in and use it as your residence, you may have to restate your returns for the years you deducted the interest to characterize it as investment interest instead. This can limit its deductibility. In other words, the IRS may want some money back.

Points Paid
Points paid on acquisition debt for primary and secondary homes are fully deductible in the year they're paid, but points paid on refinancing must be amortized over the life of the loan. Points aren't always reported on Form 1098, but you might find them on your HUD-1 closing statement.

When to Seek the Help of a Tax Professional
Figuring out the home mortgage interest deduction is straightforward for many taxpayers. Add up the interest reported on your Forms 1098 and enter the total on Schedule A. You can use the worksheet in Publication 936 to calculate your allowable deduction, and you can figure the AMT adjustment for home equity debt using the Home Mortgage Interest Adjustment Worksheet found in the Instructions for Form 6251.

You might want to check with a tax professional, however, if you bought or sold property during the tax year. In fact, it would make sense to seek the advice of a tax pro even before you buy or sell real estate if only to get a handle on the tax consequences of your decision.