[SDEngineer]

[quote=tlefort]This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.[/quote]

State taxes are an itemized tax deduction as well. So are property taxes (outside of Mello-Roos). In my case, prop taxes + state taxes alone will be the equivalent of the standard deduction, though for someone with the income profile you noted they might only amount to half the standard deduction, but that still adds $5000 to the net deductions for about $15K in extra deductions.

I believe both interest and prop. tax are also state deductions as well, which is another consideration.

In any case, I don’t know anyone who buys a house based on P&I alone. In most cases, the number given as a monthly payment on the mortgage disclosure forms is PITI, including both the tax component and insurance. Once you figure the tax advantages (not too difficult), you can subtract them out of the PITI number and get a good comparison of what you’re paying vs. what renting costs.

[SDEngineer]

[quote=Arraya]They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

http://www.bostonherald.com/business/general/view/2009_05_11_Home_loan_quagmire:_Rep_warns_another_U_S__agency_may_need_big_bailout/srvc=home&position=also
Rep warns another U.S. agency may need big bailout

[/quote]

None of which addresses the fact that the loans that are going heavily bad on the FHA side are the 0 down (through seller funded DPA) loans to folks with sub 620 scores – which simply aren’t available any longer. As far as I can tell, this is a problem that has already been solved by both eliminating the seller funded DPA and requiring a minimum standard of creditworthiness.

Given the changes, I expect the FHA to return to historical norms for it’s performance (especially considering that the requirements in place now are tougher requirements than have been historically needed on it).

[SDEngineer]

[quote=Arraya]They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

http://www.bostonherald.com/business/general/view/2009_05_11_Home_loan_quagmire:_Rep_warns_another_U_S__agency_may_need_big_bailout/srvc=home&position=also
Rep warns another U.S. agency may need big bailout

[/quote]

None of which addresses the fact that the loans that are going heavily bad on the FHA side are the 0 down (through seller funded DPA) loans to folks with sub 620 scores – which simply aren’t available any longer. As far as I can tell, this is a problem that has already been solved by both eliminating the seller funded DPA and requiring a minimum standard of creditworthiness.

Given the changes, I expect the FHA to return to historical norms for it’s performance (especially considering that the requirements in place now are tougher requirements than have been historically needed on it).

[SDEngineer]

[quote=Arraya]They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

http://www.bostonherald.com/business/general/view/2009_05_11_Home_loan_quagmire:_Rep_warns_another_U_S__agency_may_need_big_bailout/srvc=home&position=also
Rep warns another U.S. agency may need big bailout

[/quote]

None of which addresses the fact that the loans that are going heavily bad on the FHA side are the 0 down (through seller funded DPA) loans to folks with sub 620 scores – which simply aren’t available any longer. As far as I can tell, this is a problem that has already been solved by both eliminating the seller funded DPA and requiring a minimum standard of creditworthiness.

Given the changes, I expect the FHA to return to historical norms for it’s performance (especially considering that the requirements in place now are tougher requirements than have been historically needed on it).

[SDEngineer]

[quote=Arraya]They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

http://www.bostonherald.com/business/general/view/2009_05_11_Home_loan_quagmire:_Rep_warns_another_U_S__agency_may_need_big_bailout/srvc=home&position=also
Rep warns another U.S. agency may need big bailout

[/quote]

None of which addresses the fact that the loans that are going heavily bad on the FHA side are the 0 down (through seller funded DPA) loans to folks with sub 620 scores – which simply aren’t available any longer. As far as I can tell, this is a problem that has already been solved by both eliminating the seller funded DPA and requiring a minimum standard of creditworthiness.

Given the changes, I expect the FHA to return to historical norms for it’s performance (especially considering that the requirements in place now are tougher requirements than have been historically needed on it).

[SDEngineer]

[quote=Arraya]They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

http://www.bostonherald.com/business/general/view/2009_05_11_Home_loan_quagmire:_Rep_warns_another_U_S__agency_may_need_big_bailout/srvc=home&position=also
Rep warns another U.S. agency may need big bailout

[/quote]

None of which addresses the fact that the loans that are going heavily bad on the FHA side are the 0 down (through seller funded DPA) loans to folks with sub 620 scores – which simply aren’t available any longer. As far as I can tell, this is a problem that has already been solved by both eliminating the seller funded DPA and requiring a minimum standard of creditworthiness.

Given the changes, I expect the FHA to return to historical norms for it’s performance (especially considering that the requirements in place now are tougher requirements than have been historically needed on it).

[SDEngineer]

[quote=peterb]Every “investment” is speculation. Unless you can predict the future, it’s a gamble.
The one exception being Goldman Sachs, of course. Mainly because they can write the future as needed.[/quote]

This may be objectively true, but it’s specious.

The fact is that if a real estate investment cash flows as a rental, it’s FAR less of a gamble than if the investment fails to cash flow and the basis of the investment is solely to capture appreciation.

[SDEngineer]

[quote=peterb]Every “investment” is speculation. Unless you can predict the future, it’s a gamble.
The one exception being Goldman Sachs, of course. Mainly because they can write the future as needed.[/quote]

This may be objectively true, but it’s specious.

The fact is that if a real estate investment cash flows as a rental, it’s FAR less of a gamble than if the investment fails to cash flow and the basis of the investment is solely to capture appreciation.

[SDEngineer]

[quote=peterb]Every “investment” is speculation. Unless you can predict the future, it’s a gamble.
The one exception being Goldman Sachs, of course. Mainly because they can write the future as needed.[/quote]

This may be objectively true, but it’s specious.

The fact is that if a real estate investment cash flows as a rental, it’s FAR less of a gamble than if the investment fails to cash flow and the basis of the investment is solely to capture appreciation.

[SDEngineer]

[quote=peterb]Every “investment” is speculation. Unless you can predict the future, it’s a gamble.
The one exception being Goldman Sachs, of course. Mainly because they can write the future as needed.[/quote]

This may be objectively true, but it’s specious.

The fact is that if a real estate investment cash flows as a rental, it’s FAR less of a gamble than if the investment fails to cash flow and the basis of the investment is solely to capture appreciation.

[SDEngineer]

[quote=peterb]Every “investment” is speculation. Unless you can predict the future, it’s a gamble.
The one exception being Goldman Sachs, of course. Mainly because they can write the future as needed.[/quote]

This may be objectively true, but it’s specious.

The fact is that if a real estate investment cash flows as a rental, it’s FAR less of a gamble than if the investment fails to cash flow and the basis of the investment is solely to capture appreciation.

[SDEngineer]

[quote=Arraya]Anytime you have a low down payment program somebody will figure out how to game the rest of the system. Once, someone figures it out, it spreads like wildfire.

http://online.wsj.com/article/SB124139474675481713.html
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent — nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in “serious delinquency,” which means at least three months overdue.[/quote]

This is a little misleading.

Historically, the FHA has accounted for about 20% of mortgage originations, going up during bad economic times. 2% was a historically low mark for it. It’s not unprecedented for the FHA to insure 1 out of every 3 mortgages.

There was also some problems in 2007 and early 2008 in terms of regulation – primarily allowing seller funded down payments. That loophole was finally closed, and loans originated since then have performed significantly better. The loans using seller funded down payments were some of their worst performing loans.

They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

[SDEngineer]

[quote=Arraya]Anytime you have a low down payment program somebody will figure out how to game the rest of the system. Once, someone figures it out, it spreads like wildfire.

http://online.wsj.com/article/SB124139474675481713.html
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent — nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in “serious delinquency,” which means at least three months overdue.[/quote]

This is a little misleading.

Historically, the FHA has accounted for about 20% of mortgage originations, going up during bad economic times. 2% was a historically low mark for it. It’s not unprecedented for the FHA to insure 1 out of every 3 mortgages.

There was also some problems in 2007 and early 2008 in terms of regulation – primarily allowing seller funded down payments. That loophole was finally closed, and loans originated since then have performed significantly better. The loans using seller funded down payments were some of their worst performing loans.

They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

[SDEngineer]

[quote=Arraya]Anytime you have a low down payment program somebody will figure out how to game the rest of the system. Once, someone figures it out, it spreads like wildfire.

http://online.wsj.com/article/SB124139474675481713.html
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent — nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in “serious delinquency,” which means at least three months overdue.[/quote]

This is a little misleading.

Historically, the FHA has accounted for about 20% of mortgage originations, going up during bad economic times. 2% was a historically low mark for it. It’s not unprecedented for the FHA to insure 1 out of every 3 mortgages.

There was also some problems in 2007 and early 2008 in terms of regulation – primarily allowing seller funded down payments. That loophole was finally closed, and loans originated since then have performed significantly better. The loans using seller funded down payments were some of their worst performing loans.

They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

[SDEngineer]

[quote=Arraya]Anytime you have a low down payment program somebody will figure out how to game the rest of the system. Once, someone figures it out, it spreads like wildfire.

http://online.wsj.com/article/SB124139474675481713.html
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.

The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent — nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in “serious delinquency,” which means at least three months overdue.[/quote]

This is a little misleading.

Historically, the FHA has accounted for about 20% of mortgage originations, going up during bad economic times. 2% was a historically low mark for it. It’s not unprecedented for the FHA to insure 1 out of every 3 mortgages.

There was also some problems in 2007 and early 2008 in terms of regulation – primarily allowing seller funded down payments. That loophole was finally closed, and loans originated since then have performed significantly better. The loans using seller funded down payments were some of their worst performing loans.

They also fail to mention that the FHA’s mortgage insurance is more costly (and can handle a higher default rate WITHOUT passing that on to taxpayers) and that the FHA historically “cures” defaulted loans at a higher rate than the banks.

[Author]

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