House buying, jesus christ.

[sonatine]

Anyone have experience with using tax deductions to offset mortgage payments?

I originally planned on doing an FHA loan of about $255k with maybe 3.5% down but the PMI is almost 3x what it should be and its fucking open ended. Combined with various other taxes and fees, it brings my monthly payments up to about $1800 total on a property with a max rental value of $1475. Fuck outta here with that. So Im looking at more traditional loan options as well, but the numbers still arent super attractive..

Now, Im getting mixed feedback on using mortgage tax deductions to offset that monthly bottom line. The good news being, I can count on about $5500 a year in deductions, which ostensibly should bring my payments down to about $1400 a month, which is totally my comfort zone and leaves me a lot of cushion to squirrel away savings while living comfortably.

The reason Im asking for feedback is because Im getting really mixed messages from mortgage brokers about just how effective those tax deductions are. Apparently they *offset* existing deductions, which may not even effect me since I declare no dependents etc. But there is a real chance that 80%+ or something of that $5500 gets gobbled up by offsets and Im basically back to square one.

Potentially interesting aside; Im looking at moving to Washington State where there is no state income tax (saving me an additional $900 a month). This may or may not be important; as I dont know if the traditional mortgage oriented tax deductions apply to state income tax, federal income tax, or both...

I have a call in with my CPA to get some clarity on this but I wanted to get feedback from people who have been down this road, and I know there are quite a few people here who are super experienced with tuning their finances responsibly with an eye towards maximum value...

[abrown83]

Anyone have experience with using tax deductions to offset mortgage payments?

I originally planned on doing an FHA loan of about $255k with maybe 3.5% down but the PMI is almost 3x what it should be and its fucking open ended. Combined with various other taxes and fees, it brings my monthly payments up to about $1800 total on a property with a max rental value of $1475. Fuck outta here with that. So Im looking at more traditional loan options as well, but the numbers still arent super attractive..

Now, Im getting mixed feedback on using mortgage tax deductions to offset that monthly bottom line. The good news being, I can count on about $5500 a year in deductions, which ostensibly should bring my payments down to about $1400 a month, which is totally my comfort zone and leaves me a lot of cushion to squirrel away savings while living comfortably.

The reason Im asking for feedback is because Im getting really mixed messages from mortgage brokers about just how effective those tax deductions are. Apparently they *offset* existing deductions, which may not even effect me since I declare no dependents etc. But there is a real chance that 80%+ or something of that $5500 gets gobbled up by offsets and Im basically back to square one.

Potentially interesting aside; Im looking at moving to Washington State where there is no state income tax (saving me an additional $900 a month). This may or may not be important; as I dont know if the traditional mortgage oriented tax deductions apply to state income tax, federal income tax, or both...

I have a call in with my CPA to get some clarity on this but I wanted to get feedback from people who have been down this road, and I know there are quite a few people here who are super experienced with tuning their finances responsibly with an eye towards maximum value...

Basically you only see that value of the $5500 a year in full if you are already Itemizing Deductions if not then you might not see the full value of that deduction.

On the flip side once you get to itemizing deductions you might get creative in what you can deduct and find that you have an even bigger tax break.

A much better solution would be doing a 5% down, traditional mortgage that doesn't charge any up-charges on rates for having less than 20% down. I know in some states US Bank doesn't charge any penalties on having less than 20% down. BOA and Wells Fargo, 100% of the time, will charge you more if you have less than 20% down.

The new laws regarding PMI and FHA never make FHA a good choice if you can get a traditional loan.

[devidee]

[sonatine]

Basically you only see that value of the $5500 a year in full if you are already Itemizing Deductions if not then you might not see the full value of that deduction.

On the flip side once you get to itemizing deductions you might get creative in what you can deduct and find that you have an even bigger tax break.

A much better solution would be doing a 5% down, traditional mortgage that doesn't charge any up-charges on rates for having less than 20% down. I know in some states US Bank doesn't charge any penalties on having less than 20% down. BOA and Wells Fargo, 100% of the time, will charge you more if you have less than 20% down.

The new laws regarding PMI and FHA never make FHA a good choice if you can get a traditional loan.

So much of this is non-intuitive to me, thank you. 5% down traditional seems the way to go. The FHA option in its current incarnation seems to be tailor made for high risk types who just want a 40k shack on the outskirts of Atlanta, not an investment grade home. Im working with private brokers and avoiding banks, so at least Im on the right track there, good to know.

Im going to be itemizing from now on, I blew it off for the last few years because it wasnt worth the +$300 net or whatever, but given that I could deduct home office costs, cell/internet, so on, the potential positive impact is starting to demand it.

[Daly]

This is more of a rule of thumb then the exact detail you are looking for.

If you are looking to "make this deal work" by factoring in the mortgage deduction... then it's a shitty deal and likely too expensive a proposition for you.

Two things they probably aren't telling you.

1. The reason why you get a ~$5K credit on your taxes is because year one you are shipping off 95% of your payments to the banks bottom line and not paying off the house principal. The bank profit = your deduction. 15 years from now when your house is getting closer to being paid off more money you send in will go to principal and not the banks interest and that means your $5K deduction will slowly evaporate (and thats a good thing from a certain perspective, just not a tax refund one)

2. the so-called "mortgage deduction" is firmly in the sights for either flat out elimination or reduction in the years to come. To expand on that it's going to get into a political discussion that I don't want to have and you probably don't want to hear. Just know that if you are counting on the $5K tax refund in the future (could be one year could be 10 years could be never) it likely that the government is going to eliminate it or reduce it. Poor people dont own homes, and you as a home owner are rich and need to pay taxes, or at least that's the over-simplistic argument.

In my experience it's a good deal when the mortgage amount is = or less rent value and the mortgage amount is not more the 35% of your after tax income. Rarely is this the case when you are paying PMI. So the long and short of it is get a better deal or rent and save money for a bigger down payment.

[sonatine]

This is more of a rule of thumb then the exact detail you are looking for.

If you are looking to "make this deal work" by factoring in the mortgage deduction... then it's a shitty deal and likely too expensive a proposition for you.

Two things they probably aren't telling you.

1. The reason why you get a ~$5K credit on your taxes is because year one you are shipping off 95% of your payments to the banks bottom line and not paying off the house principal. The bank profit = your deduction. 15 years from now when your house is getting closer to being paid off more money you send in will go to principal and not the banks interest and that means your $5K deduction will slowly evaporate (and thats a good thing from a certain perspective, just not a tax refund one)

2. the so-called "mortgage deduction" is firmly in the sights for either flat out elimination or reduction in the years to come. To expand on that it's going to get into a political discussion that I don't want to have and you probably don't want to hear. Just know that if you are counting on the $5K tax refund in the future (could be one year could be 10 years could be never) it likely that the government is going to eliminate it or reduce it. Poor people dont own homes, and you as a home owner are rich and need to pay taxes, or at least that's the over-simplistic argument.

In my experience it's a good deal when the mortgage amount is = or less rent value and the mortgage amount is not more the 35% of your after tax income. Rarely is this the case when you are paying PMI. So the long and short of it is get a better deal or rent and save money for a bigger down payment.

Yeah this resonates like a motherfucker.

Like across the board.

Solid, ty.

[Daly]

This is more of a rule of thumb then the exact detail you are looking for.

If you are looking to "make this deal work" by factoring in the mortgage deduction... then it's a shitty deal and likely too expensive a proposition for you.

Two things they probably aren't telling you.

1. The reason why you get a ~$5K credit on your taxes is because year one you are shipping off 95% of your payments to the banks bottom line and not paying off the house principal. The bank profit = your deduction. 15 years from now when your house is getting closer to being paid off more money you send in will go to principal and not the banks interest and that means your $5K deduction will slowly evaporate (and thats a good thing from a certain perspective, just not a tax refund one)

2. the so-called "mortgage deduction" is firmly in the sights for either flat out elimination or reduction in the years to come. To expand on that it's going to get into a political discussion that I don't want to have and you probably don't want to hear. Just know that if you are counting on the $5K tax refund in the future (could be one year could be 10 years could be never) it likely that the government is going to eliminate it or reduce it. Poor people dont own homes, and you as a home owner are rich and need to pay taxes, or at least that's the over-simplistic argument.

In my experience it's a good deal when the mortgage amount is = or less rent value and the mortgage amount is not more the 35% of your after tax income. Rarely is this the case when you are paying PMI. So the long and short of it is get a better deal or rent and save money for a bigger down payment.

Yeah this resonates like a motherfucker.

Like across the board.

Solid, ty.

No problem - any other questions specific or general let me know. I'm one of those scumbag bankers you want to hang from a tree.

If you want to play devils advocate for a minute "there is something to be said about owning your own home". But these cases then to apply to three situations. 1. If you have a kid(s) and its time to give them peace of mind as to what community they belong in and nail down where they will go to school. 2. if its a community where you grew up and you have several friends/family that live there and you cant picture ever leaving. 3. if you specialize in a regional job - Like you are a biologist that specializes in Oranges or if you are a submarine captain.

But the thing is if you commit to buying a house for one of the above reasons above what your comfortable paying..... you are not making a sound financial decision you are making a decision on something that's more important to you then money.

Two years ago I moved away from Boston to West palm beach because of the housing market and the weather. You would be suprised how much better quality of life can be with a little sun and when 60% of your money isn't going to a fucking pile of wood on a 5K sq ft plot.

[sonatine]

No problem - any other questions specific or general let me know. I'm one of those scumbag bankers you want to hang from a tree.

If you want to play devils advocate for a minute "there is something to be said about owning your own home". But these cases then to apply to three situations. 1. If you have a kid(s) and its time to give them peace of mind as to what community they belong in and nail down where they will go to school. 2. if its a community where you grew up and you have several friends/family that live there and you cant picture ever leaving. 3. if you specialize in a regional job - Like you are a biologist that specializes in Oranges or if you are a submarine captain.

But the thing is if you commit to buying a house for one of the above reasons above what your comfortable paying..... you are not making a sound financial decision you are making a decision on something that's more important to you then money.

Two years ago I moved away from Boston to West palm beach because of the housing market and the weather. You would be suprised how much better quality of life can be with a little sun and when 60% of your money isn't going to a fucking pile of wood on a 5K sq ft plot.

Overstood. The principle factors making me want to buy;

1) Being able to really create my own home. You cant take a trip to Morocco to purchase tiles to redo your rental's bathroom. There is no equity in painting an entire floor just the exact correct shade of white then having the landlord punch up the rent because the place suddenly looks like the setting for a perfume add. Apply same logic to hot tub in the back yard, solar cells on roof, garden, so on.

2) When I travel, it costs me $800 a month to keep my shit in storage and another grand or two to get it there and back, at least. Tired of that shit.

3) Improve credit.

4) Possibly flip it in 5-10 years for a small profit (equity).

Like you said tho, this is all contingent on getting a mortgage that doesnt rape my face off every 30 days. And whats most shocking to me at this point in the game is how non-trivial that really is. Very frustrating. But Im retooling my expectations as I go along and looking for resolution paths. The outright tax deductions appear to be a dead end but Im hoping if I combine them with itemized deductions and home improvement, things might get more palatable.

Let me ask you this; I missed the boat on the interest rates by about 6-12 months clearly (not a fatal error since they appear super low still but its definitely a sellers market in the Pacific North West). When you crystal ball the next 6-12 months, do you see things moving towards sellers or buyers?

Im actually hoping the gov shutdown negatively impacts the sellers market and drops housing prices, for example..

[abrown83]

No problem - any other questions specific or general let me know. I'm one of those scumbag bankers you want to hang from a tree.

If you want to play devils advocate for a minute "there is something to be said about owning your own home". But these cases then to apply to three situations. 1. If you have a kid(s) and its time to give them peace of mind as to what community they belong in and nail down where they will go to school. 2. if its a community where you grew up and you have several friends/family that live there and you cant picture ever leaving. 3. if you specialize in a regional job - Like you are a biologist that specializes in Oranges or if you are a submarine captain.

But the thing is if you commit to buying a house for one of the above reasons above what your comfortable paying..... you are not making a sound financial decision you are making a decision on something that's more important to you then money.

Two years ago I moved away from Boston to West palm beach because of the housing market and the weather. You would be suprised how much better quality of life can be with a little sun and when 60% of your money isn't going to a fucking pile of wood on a 5K sq ft plot.

Overstood. The principle factors making me want to buy;

1) Being able to really create my own home. You cant take a trip to Morocco to purchase tiles to redo your rental's bathroom. There is no equity in painting an entire floor just the exact correct shade of white then having the landlord punch up the rent because the place suddenly looks like the setting for a perfume add. Apply same logic to hot tub in the back yard, solar cells on roof, garden, so on.

2) When I travel, it costs me $800 a month to keep my shit in storage and another grand or two to get it there and back, at least. Tired of that shit.

3) Improve credit.

4) Possibly flip it in 5-10 years for a small profit (equity).

Like you said tho, this is all contingent on getting a mortgage that doesnt rape my face off every 30 days. And whats most shocking to me at this point in the game is how non-trivial that really is. Very frustrating. But Im retooling my expectations as I go along and looking for resolution paths. The outright tax deductions appear to be a dead end but Im hoping if I combine them with itemized deductions and home improvement, things might get more palatable.

Let me ask you this; I missed the boat on the interest rates by about 6-12 months clearly (not a fatal error since they appear super low still but its definitely a sellers market in the Pacific North West). When you crystal ball the next 6-12 months, do you see things moving towards sellers or buyers?

Im actually hoping the gov shutdown negatively impacts the sellers market and drops housing prices, for example..

The government shut down, especially if we were to default, will not help anyone.

Prices may drop or flatten but only because rates will go through the roof...and rather quickly.

I don't think that is actually going to happen.

I would say we are in one of the best buyer markets and if you don't buy sooner you could be looking back and smashing your head realizing what you missed out on.

I locked in last year at 3.25% on a 30 year fixed.....LULZ! I will never pay my house off early.

I can get a better return on 30 year Treasury Bond, let alone Stocks.

[sonatine]

The government shut down, especially if we were to default, will not help anyone.

Prices may drop or flatten but only because rates will go through the roof...and rather quickly.

I don't think that is actually going to happen.

I would say we are in one of the best buyer markets and if you don't buy sooner you could be looking back and smashing your head realizing what you missed out on.

I locked in last year at 3.25% on a 30 year fixed.....LULZ! I will never pay my house off early.

I can get a better return on 30 year Treasury Bond, let alone Stocks.

Please dont take this as me being argumentative because clearly youre light years ahead of me on this, but one thing I hear repeated is the concept of micro-markets. Example; right now, in Vancouver Washington, there are very few units on the market relatively speaking and the ones that are have been overpriced up to 20% because its such a competitive market. This is not the case across the board, its just that in this particular part of the country the market is really competitive with a lot of people buying (a great many of them flipping as well), so housing prices are stupid crazy inflated for homes matching certain environmental profiles.

So in terms of interest rates, yeah Im sure its a good time to get locked in, but the sum commitment at the end of 30 years between a 225k mortgage on a 275k home at 5% and a 250k mortgage on a 300k home at 4% is something like 540k vs 530k. If I was going to live there the full 30 years, thats kind of a coin flip ultimately, its a difference of less than $30 a month. But if Im looking to sell the property after 5 years, that 25k potential profit from buying when the price is low can be the difference between walking away with a down payment on a new home or breaking even (or possibly losing money).

Again Im just riffing here, not saying youre wrong or that I understand _anything_ better than you, just comparing notes.

[Baron Von Strucker]

If you are thinking of moving for tax reasons I believe Oregon is the state you want to move to Washington state is good my yearly taxes on our cabin is under 400 per year. Good move either way they Are both beautiful states and stellar fishing everywhere. Enjoy!!

[Daly]

No problem - any other questions specific or general let me know. I'm one of those scumbag bankers you want to hang from a tree.

If you want to play devils advocate for a minute "there is something to be said about owning your own home". But these cases then to apply to three situations. 1. If you have a kid(s) and its time to give them peace of mind as to what community they belong in and nail down where they will go to school. 2. if its a community where you grew up and you have several friends/family that live there and you cant picture ever leaving. 3. if you specialize in a regional job - Like you are a biologist that specializes in Oranges or if you are a submarine captain.

But the thing is if you commit to buying a house for one of the above reasons above what your comfortable paying..... you are not making a sound financial decision you are making a decision on something that's more important to you then money.

Two years ago I moved away from Boston to West palm beach because of the housing market and the weather. You would be suprised how much better quality of life can be with a little sun and when 60% of your money isn't going to a fucking pile of wood on a 5K sq ft plot.

Overstood. The principle factors making me want to buy;

1) Being able to really create my own home. You cant take a trip to Morocco to purchase tiles to redo your rental's bathroom. There is no equity in painting an entire floor just the exact correct shade of white then having the landlord punch up the rent because the place suddenly looks like the setting for a perfume add. Apply same logic to hot tub in the back yard, solar cells on roof, garden, so on.

2) When I travel, it costs me $800 a month to keep my shit in storage and another grand or two to get it there and back, at least. Tired of that shit.

3) Improve credit.

4) Possibly flip it in 5-10 years for a small profit (equity).

Like you said tho, this is all contingent on getting a mortgage that doesnt rape my face off every 30 days. And whats most shocking to me at this point in the game is how non-trivial that really is. Very frustrating. But Im retooling my expectations as I go along and looking for resolution paths. The outright tax deductions appear to be a dead end but Im hoping if I combine them with itemized deductions and home improvement, things might get more palatable.

Let me ask you this; I missed the boat on the interest rates by about 6-12 months clearly (not a fatal error since they appear super low still but its definitely a sellers market in the Pacific North West). When you crystal ball the next 6-12 months, do you see things moving towards sellers or buyers?

Im actually hoping the gov shutdown negatively impacts the sellers market and drops housing prices, for example..

Reasons to not buy an overpriced house that you afford nor scrape together a 20% down payment on.

1. To have your own tile or paint.
2. To have a place to leave your shit while you travel the world, mainly because you cant afford to do it anymore.
3. Go into debt so the bank will loan you more money.
4. Hope there is a greater fool that will pay you more for your house 5 years from now when the whole thing could collapse any day.

The interest rate shouldn't factor into it. But even it it did anyone who tells you in 3-6-12 months the interest rate will be X tell them to fuck off. They have no idea.

rent a smaller place, find a roommate, and save some $$.

[sonatine]

If you are thinking of moving for tax reasons I believe Oregon is the state you want to move to Washington state is good my yearly taxes on our cabin is under 400 per year. Good move either way they Are both beautiful states and stellar fishing everywhere. Enjoy!!

Oregon = state income tax, federal tax, no state tax on retail.

Washington = federal tax, retail tax, no state income tax.

Please dont hesitate to correct me if any of this is inaccurate, Im new here, but basically I save $900 a month in state income tax in Washington and the retail tax is negligible since 90% of what I purchase in Oregon is purchased through the internet so I pay state tax on almost all of it anyway.

I appreciate that fucking nothing is as it seems when it comes to this shit so I fully expect someone to point out how Im totally wrong here.

[sonatine]

Reasons to not buy an overpriced house that you afford nor scrape together a 20% down payment on.

1. To have your own tile or paint.
2. To have a place to leave your shit while you travel the world, mainly because you cant afford to do it anymore.
3. Go into debt so the bank will loan you more money.
4. Hope there is a greater fool that will pay you more for your house 5 years from now when the whole thing could collapse any day.

The interest rate shouldn't factor into it. But even it it did anyone who tells you in 3-6-12 months the interest rate will be X tell them to fuck off. They have no idea.

rent a smaller place, find a roommate, and save some $$.

Not looking to purchase an over priced home. Although most Vancouver homes are bloated right now price-wise, Im seeing excellent values 45 minutes outside of Seattle with an extremely promising growth potential due to Seattle's rising reputation as a stable tech hub.

Also Id rather choke on a billion and one cat dicks than find a roomate. Come on man.

I agree that my situation would be greatly enhanced by squirrelling away 40k in the bank. I would also benefit from learning Mandarin, going vegetarian, and hitting the gym.

Id prefer a pragmatic approach, one that factors in the intrinsic equity presented by quality of life, which is the point here really.

[Pooh]

If you're saving $900 a month by living in a state with no state income tax then you must be making six figures, no? If that's the case then you shouldn't have much trouble saving up for a larger down payment.

Out of curiousity, what does $250k get you out there?

[unchainedghost]

Daly and abrown are some smart motherfuckers up in here.

Totally agree with the mortgage should equal or les than your current rent. And counting on deductions to justify spending a little more is a bad decision.

[sonatine]

If you're saving $900 a month by living in a state with no state income tax then you must be making six figures, no? If that's the case then you shouldn't have much trouble saving up for a larger down payment.

Out of curiousity, what does $250k get you out there?

I mean, 250k, youre looking at 1300-1800sf, 3-4br, 2ba, maybe half an acre plot. But naturally that varies wildly depending on how close you are to the city (Portland or Seattle), how close you are to river-side property, whether the kitchens modern, that sort of thing.

The area Im looking at, Im finding decent size 3br 2ba houses with decent plots, 45 minutes to Seattle, average cost is maybe 190k. Throw in ranch house, neighbors that arent cramping my style, decent basement, well maintained, and youre looking at 230k'ish. The rest have neighbors stacked up or are in outright shitty neighborhoods, so on. When you work from home btw, things like a jungle gym in a neighbors backyard will kill a deal outright. But yeah once you get below 230k, youre dealing with possibly severe seasonal damage, shite bathrooms, shite kitchens, you get the idea.

Regarding getting up a down payment, when you factor in federal taxes, utilities, sous vide adventurism, general benevolence, I mean, this time next year I could conceivably have 15% down realistically for a 250k purchase. Its possible. And its probably how this will go down, although Im not super happy about it.

But if I can get away with 5% down and still wizard my way into a $1500'ish commitment monthly, thats a door Im willing to walk through.

One of the great things about my situation is that Im not shopping for a family. This opens the doors to lots of homes that are considered 'funky' or 'unique' that a family cant fuck with, and a lot of those end up selling for the 180k range. Throw 35k at the kitchen and 20k at the bathroom and you have something fairly baller.

[sonatine]

Daly and abrown are some smart motherfuckers up in here.

Totally agree with the mortgage should equal or les than your current rent. And counting on deductions to justify spending a little more is a bad decision.

Im grateful to them both, they have laid down some highly educational science.

Im curious why you think counting on deductions is a bad decision btw. Assuming they exist, that is. Obviously if a CPA says "yeah youre not saving shit on deductions" then the math changes on the spot.

[Pooh]

If you're saving $900 a month by living in a state with no state income tax then you must be making six figures, no? If that's the case then you shouldn't have much trouble saving up for a larger down payment.

Out of curiousity, what does $250k get you out there?

I mean, 250k, youre looking at 1300-1800sf, 3-4br, 2ba, maybe half an acre plot. But naturally that varies wildly depending on how close you are to the city (Portland or Seattle), how close you are to river-side property, whether the kitchens modern, that sort of thing.

The area Im looking at, Im finding decent size 3br 2ba houses with decent plots, 45 minutes to Seattle, average cost is maybe 190k. Throw in ranch house, neighbors that arent cramping my style, decent basement, well maintained, and youre looking at 230k'ish. The rest have neighbors stacked up or are in outright shitty neighborhoods, so on. When you work from home btw, things like a jungle gym in a neighbors backyard will kill a deal outright. But yeah once you get below 230k, youre dealing with possibly severe seasonal damage, shite bathrooms, shite kitchens, you get the idea.

Regarding getting up a down payment, when you factor in federal taxes, utilities, sous vide adventurism, general benevolence, I mean, this time next year I could conceivably have 15% down realistically for a 250k purchase. Its possible. And its probably how this will go down, although Im not super happy about it.

But if I can get away with 5% down and still wizard my way into a $1500'ish commitment monthly, thats a door Im willing to walk through.

One of the great things about my situation is that Im not shopping for a family. This opens the doors to lots of homes that are considered 'funky' or 'unique' that a family cant fuck with, and a lot of those end up selling for the 180k range. Throw 35k at the kitchen and 20k at the bathroom and you have something fairly baller.

Just be careful with the 'funky' house because when you want to sell it may sit on the market forever. I purchased my house a year ago with an exit strategy in mind. I got a great deal on one of the smallest (2200 sq ft) houses in a really nice development on a golf course with half acre lots minimum which is difficult to find in Florida. I figure I'll be here anywhere from 1 more year to 5 years.

Lending guidelines were ridiculous for self employed and I was tired of all the bs so I wrote a check however I would have loved to have a 3% like abrown. Basically free money.

[sonatine]

The funky house resale comment is terrifyingly appropriate, touche.