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July 2015

Mistakes Homebuyers Make and How to Avoid Them

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Top Mistakes Homebuyers Make and How to Avoid Them

First time home buyers often find the process of searching for a home and securing a loan to be overwhelming. As a result there are common mistakes that can cost a buyer time, money and sometimes the home you are trying to purchase.

Here are a few of the most common mistakes first time home buyers make:

  • Being too emotional. When looking at homes it is natural to instantly like or dislike a home based on how it feels. When you find the right home, part of that decision is made because of location and layout, the rest is emotional. Yet emotion can cause you to pay too much for the home or not see needed repairs.


After finding a home you love look at it with a critical eye. What have other homes sold for and what realistically can you expect to pay for the home. What repairs are needed and how does that impact the value. Then make a sound offer and know where your price negotiation parameters are from the start.


  • Not being financially prepared. The best method is to become pre-approved for a loan before you begin house hunting. This will strengthen your offer and lead to a faster closing, which can be a real advantage in a seller’s market. It will also ensure you are searching for a home in the right price range. While the bank may approve you for a million dollar loan, do you really want the $4,500 to $5,000 monthly payment it comes with. Knowing where you stand financially and understanding what the bank will lend, will help you look and buy in a price range you will be comfortable with.


  • Doing It Yourself. With all of the online tools the internet provides it may be tempting to do it yourself. You can search for homes online and take virtual tours without ever leaving the comfort of your home. You can apply for a mortgage and send in paperwork electronically without ever speaking to a live person.


The DIY method of home buying costs you the benefit a professional offers. With seller’s paying the real estate agent’s fees, there are no cost for using a buyer’s agent. Lenders charge the same whether you use their online features or talk with a lender. Take advantage of these professional services and let them do as much leg work as possible. This will save you both time and money in the long run.


  • Having too much faith in online information. Calculators, rate information and home values can be readily found online. These features offer a ball park but do not take your personal needs into consideration. You are making the largest purchase of your life and having your personal information considered will give you a significant advantage. When making an offer you want real sales data on homes, not just online estimates. When choosing a loan program you want a live person to review your options based on actual circumstances, not for someone who may or may not be like you. There is no substitute for speaking to and working with live professionals. Online information provides guidelines and frameworks but cannot be relied on for its accuracy.


  • Unrealistic expectations is another pitfall for first time buyers. Thinking you will get a foreclosed home needing no repairs or having a home where every imperfection is corrected is not realistic. Searching for the perfect house will result in not making a purchase. There are no perfect homes and every home comes with flaws. If the home is priced lower than market value, there is a reason. Understanding these realities will help you keep expectations in line with reality.

Most physicians do not have time to waste on an unproductive home search. Utilize the professionals that know the market and understand the needs of doctors. This will enable you to focus on what you are best at, and save you time and money in the process.

How to Negotiate the Deal

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How to Negotiate the Deal: Understanding the Negotiation Process

Home buying involves finding the right home and then negotiating a price that is acceptable to both the buyer and seller. The best negotiators work to ensure that both parties feel they are getting a good deal. There are a few things that can be done, as a buyer, to ensure you get the best price for the home you have fallen in love with.

  • Prepare before you look for a home. As a rule, offers with the fewest contingencies are considered the strongest. Seller’s want to accept an offer they have confidence will close. One of the most common contingencies is financing and also one of the most common reasons a home does not close. Getting a preapproval from a lender re-assures the seller that the loan will close. Having an underwriting team review the file, will make the offer even stronger.


Lastly, when you find a home and want to present an offer, run the final numbers with your lender. Often in the home search, the price of homes you view rises. Make sure you will be approved for the payment that will result from the offer price. Also review down payment requirements and other requirements of the loan to ensure the closing goes smoothly.


  • Leave your emotions at the door. Negotiations will be more successful if you are able and willing to walk away. If you see this as a business transaction and an investment, you will have the advantage. Pride of winning and getting lost in the small details can ruin a great deal. It really doesn’t matter if they leave the fridge or want to take a particular light fixture. That $5,000 you have heartburn over is only around $20 a month extra in payments.

Once you find the perfect home, find another alterative home that is “almost” as good. This will give you options and as a result, strength in the negotiations. If you are willing to walk away you have more power because you won’t come across as anxious or desperate.

  • Know your market. The term information is power is very true when it comes to real estate and negotiations. The price of the home should be based on facts not emotions. The market value not the list price. Understanding what homes are selling for in the neighborhood and in the area will allow you to make a solid offer based on the market value. A well prepared comparative market analysis (completed by your agent) will give you solid information to back up the offer you are presenting.


  • It’s not all about price. We often think the negotiations are solely about what the seller is asking for the home. Negotiations can also involve closing costs, buying down points, having repairs made, or other concessions from the seller.


Considerations should be made to meet the seller’s needs. If your agent can learn about the seller and why they are selling you can prepare an offer that addresses that. If they have been transferred out of town, then a faster closing is worth more than the price (See item number 1. If you have financing arranged you can often offer a faster close.) Knowing the seller’s motivations are will help you present an offer they are most likely to accept.


  • Hire a great buyer’s agent. The seller generally pays the commission for both the seller and buyer agents. You are paying for it, you might as well hire an agent you trust and then let them work for you. Agents have the ability to help gather information and present the offer in a way the seller is most likely to accept.

Presenting a strategic offer that considers the above factors will give you the best chance of holding the winning bid. It will also help to create a win-win for both the buyer and seller.

Hiring an Accountant Before Buying a Home?

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Advantages of Hiring an Accountant and Financial Advisor Before Buying a Home?

A home is the most expensive purchase you are likely to make, unless you buy a medical practice. Your home is more than a place to lay your head, it can serve as an investement. Given the high price of homes and the impact on your monthly budget, working with an accountant and financial adviser before purchasing a home can be worth its weight in gold.

Most physicians get into the medical field because they love to help people and want to make a difference in the world. Money and finance are often not the strongest areas of expertise. Working with financial professionals can set you up to make better financial decisions and can also reduce costly mistakes that will impact your everyday life.

What Can an Accountant Do For You

Today accountants are more than just number crunchers. Experienced professionals can offer tax advice, help with monthly budgeting, estate planning and be a strategist for increasing profits and minimizing taxes.

Hiring a CPA is the best option, as they have a background in both tax law and financial strategies that can keep more money in your pocket. Bookeepers and tax preparers generally do not have the education or background that a CPA does. CPA’s are more skilled at establishing a financial strategy that is the most effective and efficient available.

When purchasing a home, an accountant can help you understand the tax implications and benefits you can gain from home ownership. They will help you align tax deductions that are available at the time of purchase along with ongoing benefits that are available each year. Seeing how the monthly expenses fit into your overall budget will give you a clear perspective on the impact of your purchase on your lifestyle.

Accountants can also help you establish a long term plan. This might include the price range of the home as it relates to your monthly budget, along with the impact of upgrades you want to complete. An accountant can be a valuable resource for both budgeting and making tax efficient decisions.

What Can a Financial Advisor Do For You

Financial advisers help organize your financial life. This includes investments in the stock market, retirement planning, college planning and buying a home. Advisors are able to take all of the moving parts of your financial needs and create a workable plan that will lead to success when it comes to reaching your financial goals.

One of the key elements to reaching financial goals is your monthly budget. With the home mortgage being the largest factor to that budget, it makes sense to work with an advisor to determine what this monthly expense should be. They can help you decide how large of a mortgage loan you want to carry and how that will impact your ability to plan for retirement and other financial goals.

Financial advisors can also advise around estate planning and ensure your financial world is in order in the event of unexpected events.

Meeting with both an accountant and a financial advisor will arm you with the information needed to make the best decision around price, monthly budget and tax consequences. Your home purchase will impact your finances significantly. The monthly payment is generally your largest expense and will be a major factor in the amount of discretionary money you have to spend each month. 



Tax Advantages of Home Ownership

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Tax Advantages of Home Ownership

During tax season there is an active search for more deductions in order to reduce your tax liability. Unfortunately the ability to take deductions is largely reduced once the tax year is closed out. For this reason savvy consumers begin their quest for lower taxes early in the year, giving them the highest deductions when the next tax season rolls around.

Owning a home can provide a number of tax benefits, which encourage home ownership. As the government seeks to find more ways to tax individuals and businesses, many deductions come and go, but so far, the tax benefits for home ownership have largely been left alone. However, since the tax laws change every year, it is best to meet with a tax advisor or accountant to review the tax benefits as they may change.

Currently the following benefits can reduce your taxable income each year, along with the benefits at the time of the home purchase and sale. Generally you must itemize your taxes in order to obtain the deductions.

Tax Benefits When You Purchase a Home

  • Points paid at closing
  • Portion of this year’s property taxes paid on or before December 31
  • Property insurance payments
  • Mortgage interest paid

When you buy (or Refinance) a home you generally have the option of buying points. This option will reduce the interest rate, but increase your closing costs. The IRS considers points a form of interest because it “buys down the rate.” As a result, points become tax deductible. If you plan to stay in the home for several years, the lower rate can more than offset upfront costs.

Taxes are prorated from the time you purchase the home until the end of the year. If you establish an escrow account the payment is generally made in the fall and the lender will collect enough at closing to cover this expense. The property taxes paid for the year are tax deductible.

Property insurance is typically paid a year in advance and then monthly payments are made to an escrow account so there will be enough in the account to pay for the next year when the bill comes due. This advance payment is tax deductible. The deduction is for the amount paid to the insurance company, not the amount paid to the escrow account.

Mortgage interest is deductible up to a loan amount of $1 million dollars. Interest charged above $1 million is no longer deductible. This deduction can be significant because it will reduce your taxable income. If you have an interest rate of 4% then for every $100,000 in loan you receive a $4,000 deduction. A $1 million dollar mortgage will result in a tax deduction of $40,000. That can make a huge impact on your taxable income.

Tax Benefits Obtained Every Year of Home Ownership

  • Mortgage Interest on both primary and vacation homes
  • Property Taxes that are paid on or before December 31st of the tax year
  • Property Insurance Payments
  • Private Mortgage Insurance
  • Some Home Improvements
  • Some Interest on a Second Mortgage or Equity Line of Credit

Private Mortgage Insurance is set to expire in 2014, but has been extended several times. This deduction is only available for incomes below $109,000 for couples and $54,500 for single filers. Therefore most physicians will not qualify. Mortgage insurance is often found on homes purchased with less than 20% down. If you meet the IRS guidelines this monthly charge is tax deductible.

Home improvements that are completed for medical reasons may be 100% deductible. Also home improvements that meet energy efficiency guidelines qualify for tax credits. This is significant because it directly reduces your tax obligation dollar for dollar. This means if you owe $4,000 in taxes and receive $500 in tax credits, you will only owe $3,500 in taxes. If you are owed a refund, the refund will increase dollar for dollar. Energy improvements are varied and can include appliances, HVAC systems, windows, doors and many other energy efficient projects. There are a lot of parameters to meet the qualifications so getting the details before making any purchases will ensure compliance with the rules.

Interest on second mortgages and equity lines of credit have the same $1 million dollar cumulative loan cap as the first mortgage. There are also some restrictions on how the money is used. If you are using the funds to improve your home, the interest will qualify. If you are paying for a vacation or paying of debt, it might qualify.

Tax Benefits When You Sell Your Home

  • No Capital Gains Tax
  • Moving Expense Credits

The capital gains tax exemption is available on the first $250,000 for singles and $500,000 for married couples filing jointly. The only restriction is you must have lived in your home as a primary residence for two of the last five years. This provides tax free income. If you rent the home out during any of this time, there may be add backs to the initial cost before determining capital gains.

Moving expense deductions and credits are available in some cases. Your new job must be 50 miles or more, further from your home than your current job. You must also work full time at least 39 weeks to qualify. If you qualify then you may deduct all moving expenses. Unfortunately your first job out of school does not qualify for the deduction.

For more details about the tax deductions, visit Your tax advisor or accountant are also great sources of information. This will help you maximize your deductions and reduce your tax liability when you own a home.

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