Points refer to prepaid interest on a home mortgage and can be fully deductible by the buyer in the year paid if the right conditions exist.  The points must be used to buy, build or improve a taxpayer's principal residence but not all fees charged by the lender are necessarily deductible.

According to IRS Publication 936, "The term 'points' is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage.  Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.  A borrower is treated as paying any points that a home seller pays for the borrower's mortgage."

If you purchased a home in 2011, have your tax professional evaluate your closing statement to see if there are loan fees that may be used as a deduction on your tax return regardless of whether you or the seller paid them.

Refinancing a principal residence or purchasing an investment or income property require that points must be deducted ratably over the term of the mortgage rather than deducting them fully in the year paid.  Borrowers in these situations should consider the benefits of lower interest rates from paying point to higher interest rates without points.

This article is meant to provide information that can be discussed with your tax professional about your specific situation and is not to be considered tax advice.

© 2012 Residential Finance Consultant | This article cannot be reprinted or republished without written permission.  Subscription service is available to republish the article.

Part of the American Dream is to own a home.  A home is a place to call your own; a place to raise your family and share with your friends.  A home is a place to feel safe and secure.  A home is a good investment?

"It's not far, if you know the way."  Maybe it is an obvious statement but there are some definite steps that will improve your success in buying a home in today's market.

1. Know you credit score - the best mortgage rates are available to borrowers with the highest scores.  Unless you know what your credit score is at all three major bureaus, you don't really know what rate you'll have to pay.
2. Clean up your credit - it is estimated that about 90% of credit reports have errors.  Some are not serious but others could affect a borrower from getting the best loan terms.  It is your responsibility to know what is on your different reports and correct them if possible.  You're entitled to a free copy of your credit report each year from Experian, Trans Union and Equifax.
3. Get pre-approved - Taking the time to make a loan application with a qualified lender even before you start looking at homes will provide peace of mind, make sure that you are looking at the "right" homes and may help you negotiate the best price on the home you select.
4. Do your homework - when you find the home that meets your needs and desires, research the tax assessments, school ratings, crime activity, possible zoning changes and comparable sales in the area.

Rarely, does one size fit everyone and the same goes for advice.  The following suggestion is not right for everyone.  However, for people with job security and who don't own a home; for people with good credit and enough savings for a down payment, there may never be a better time to buy a home.

Homes have had a significant price correction but in many markets, they have started to rise again.  The lower prices combined with historically low interest rates make this an opportune time to buy a home if you can afford it.

One of the reasons homes are attractive investment is that fact that you can use a small down payment and finance the balance for 30 years.  The principle, called leverage, allows you to earn a return on the value of the home rather than the actual cash investment.  Small appreciation can create a large rate of return on the initial investment of the down payment and closing costs.

The following example is a projection at the end of five years for a $175,000 home with 3% closing costs and a 5% interest rate for a 30 year term.  The rate you see in each column is an annual rate of return based on the equity of the home at the end of the five year period due to both appreciation and amortization of the loan.

The nature of positive leverage will cause the returns to be higher with a smaller down payment.  As you see in the table, the return is higher on the 3.5% down payment than with the 10% or 20% down payment.

If you're curious to see if this advice might fit your situation, you really need to sit down with a knowledgeable real estate professional who can help you assess your position.  It's worth the time because there may never be a better opportunity than now.

© 2011 Residential Finance Consultant | This article cannot be reprinted or republished without written permission.  Subscription service is available to republish the article by direct mail, newsletter or blog.  InTouch

It takes money to buy a home: yours or theirs.  If you're not going to pay cash for a home, you need to find out exactly what you can borrow and what it will cost before you start looking at homes.

The mortgage process is not as clear cut a path as it was a few years ago.  It is certainly more complex, takes longer and assumes that you're credit worthy.  If you have less than stellar credit, a trusted mortgage professional can advise you how to improve your individual situation.