Debunking Top Real Estate Myths

Though the real estate industry is constantly evolving, long-thought myths are still plaguing the market and consumers’ decisions. This week, we debunk some of the most commonly thought myths including the truth behind moving to the suburbs, remodeling as an investment and licensed vs. registered mortgage loan originators.

Cal Haupt, CEO of Southeast Mortgage

Cal Haupt, CEO of Southeast Mortgage

Myth #1: Suburbs Provide More Bang for your Buck

In an effort to escape the noise, high home prices and crime, people are regularly fleeing the city for life in the suburbs.  While you do generally get more square-footage for your money in the suburbs, the hidden costs of suburbia can put a strain on a wallet and livelihood. MSNBC reported that The Center for Neighborhood Technology found that homes built away from services cost an additional $1,500-$3,800 a year. The Center’s Housing and Transportation Affordability Index shows homeowners a more comprehensive way of thinking about the cost of housing and true affordability in their own city.

MSNBC also reported that the Census Bureau found that Americans in the suburbs spend an average of 100 hours a year commuting to work. If you got just half of those hours back from living closer to the city, imagine the effects of having an extra five days in your schedule per year!

Myth #2: Remodeling is Always an Investment

Remodeling is often encouraged before a home is put on the market with the promise of a high return from the buyer. However, with recent sky rocketing labor and construction costs, thousands of dollars are being tacked onto what was once a cost-efficient model. Remodeling Magazine’s Cost vs. Value Report shows the percentage of return on many home improvement projects. Only entry door replacements and deck additions received more than an 80 percent return in 2013. Sunroom additions and home office remodeling received less than a 50 percent return, while most improvements only received a 60-70 percent return.

Home maintenance is extremely important, but don’t expect luxury additions and remodeling to get back what you put into it. If you are going to make renovations, The National Association of Realtors recommends that the home’s exterior be the first area to receive repairs.

Myth #3: Licensed and Registered Mortgage Loan Originators are Similar

In 2008, the Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Act) created a standard for residential mortgage originators. Unfortunately, originators who work for a depository bank, such as Citibank, are excluded from the licensing and only have to be registered.

Unlike registered loan originators, licensed originators must demonstrate financial responsibility (such as through a credit check), complete 20 hours of pre-licensing education, pass a national mortgage exam with uniform state content, pass a separate state exam in some states, take eight hours of continuing education annually and never have had their license revoked. All mortgage originators are not created equally and should be treated as such. Search on the Nationwide Mortgage Licensing System & Registry to see if your mortgage originator is licensed.

Having a licensed originator is necessary from a safety, cost and service perspective. A licensed originator is vital for reducing the chance of a risky mortgage while mitigating cost. Registered originators work with the “bias up environment” that is the inverse relationship between bond prices and interest rates. Since non-bank mortgage companies specialize in residential mortgages, service is superior and faster than banks. Mortgage originators must meet clients’ unique needs and registered originators are more equipped to do as such due to their extensive training and background.

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Make Your Home Eco-Friendly This Earth Day

With Earth Day fast approaching on April 22, now is a great time to begin thinking about “going green” with your home.  Whether you’re building a new home or just want to make updates to your current home, “going green” may be more affordable than ever. Did you know…

  • By changing five frequently used incandescent light bulbs to compact fluorescent bulbs, the typical electricity bill can be reduced by $60-$100 annually?
  • By cleaning out the lint trap in your dryer regularly and washing thick materials (such as towels) separately from thin materials, you can reduce your utility bill by $100 annually?
  • You can claim tax credits (sometimes up to 30 percent of the cost) of some home energy improvements such as installing an advanced main air circulating fan and energy efficient windows?

By making eco-friendly adjustments, you can save money on your utility bill while decreasing your family’s environmental impact.  Here’s a few other tips.

Jeff Brown, Senior Vice President of Southeast Mortgage

Jeff Brown, Senior Vice President of Southeast Mortgage

Home Energy Audit

A home energy audit is the first step to maximize your home’s energy use. Homeowners can do a self-audit to save money or hire a professional for a more comprehensive look into energy efficiency. The Environmental Protection Agency offers a self-auditing “Home Energy Yardstick” that compares your home (using data on square footage, costs of previous energy bills, number of home occupants, etc.) to other similar homes while discussing ways to improve your home’s environmental score and lower your bills.

A professional auditor will use advanced technologies, such as an infrared camera to reveal air leaks, to determine how much energy your home uses and what measures you can take to make your home more efficient. The energy auditor will check the furnace, insulation, ductwork and more.

Check with your utility company to see if they offer a free or reduced auditing service. If not, use a certified Home Energy Rater, such as those found through ENERGY STAR for Homes Locator.

Heating and Cooling

The average homeowner spends more than $2,200 a year on utility bills with half of the costs associated with the home’s heating, ventilation and air conditioning (HVAC) system. One of the easiest and most inexpensive ways to improve efficiency is to change air filters at least once every three months. Filters that accumulate dirt will slow down airflow and force the system to work harder, thus wasting energy and money.

Another way to improve your HVAC system is to refrain from keeping your thermostat at a constant temperature. A programmable thermostat can save nearly $200 a year by allowing you to program different temperatures in the morning, during the day, in the evening and during sleeping hours.

A thorough HVAC maintenance checklist is available through Energy Star’s Guide to Energy-Efficient Heating and Cooling, which includes inspecting flue piping for rusting, measuring voltage on motors and cleaning coils.

Insulation

Improving your home’s insulation can lower your energy bill by ten percent while also making your home a more comfortable temperature year-round.  A good place to start to improve insulation is in the attic. Insulation should be at least level with the attic floor joists. Air leak areas around other areas of the home can be repaired with caulk, spray foam or weather stripping. Windows also play a vital role in insulation. ENERGY STAR windows can reduce energy bills by 7-24 percent compared to non-qualified windows by reducing undesirable heat loss and gain.

Just a few simple steps like these when spring cleaning your home’s energy usage will create a more comfortable home, lower your utility bills and decrease the use of valuable fossil fuels.

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Declined March Cal-Culator Breaks Record Run

After a sensational winter for the Atlanta residential real estate industry, the market has ended its record streak of two months consecutively reaching 6.0 and has declined to a 5.7 in 2014’s first spring month. Declining new, pending and existing home sales combined with negative home price gains contributed to the weakened Cal-Culator this month.

The March Cal-Culator

The March Cal-Culator

The U.S. Department of Commerce released its U.S. Census Bureau News for February, which showed that sales of new single-family homes in February were 3.3 percent below January. Though new home sales are only a small portion of homes purchased in the U.S., the sales represents a lot more.

“They [new home sales] provide a more current gauge of market conditions than some other indicators because they are tallied at the moment a contract is signed rather than at its closing,” said The Wall Street Journal in ‘New-Home Sales Fell 3.3% in February.’

The article also found that existing home sales, 90 percent of all home purchases, fell for the second consecutive month.

Pending home sales also fell 0.8 percent in February, marking the eighth straight month of decline, according to Bloomberg data. Pending home sales can be used to predict future home sales’ activity, as most pending home sales become existing home sales in a few months.

The latest S&P/Case-Shiller Home Price Indices indicated that a majority of the cities in the 20-City Composite saw declines in home prices gains, including Atlanta, which posted a 0.1 percent decline.

“The housing recovery may have taken a breather due to the cold weather,” said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Twelve cities reported declining prices in January vs. December; eight of those were worse than the month before.”

The National Association of Realtors’ 2014 Investment Home Buyers Survey conducted in March found that investment sales, a necessary part of the recovery, fell to 20 percent of all transactions in 2013, a drop of 8.5 percent.

“Investment buyers slowed their purchasing in 2013 because prices were rising quickly along with a declining availability of discounted foreclosures over the course of the year,” said NAR Chief Economist Lawrence Yun.

Despite the setbacks, the month did have a few bright spots. Nation-wide inventory is continuing to rise and now is at a 5.2-month supply, up from a 4.7-monthly supply last month. Though month-over-month home price gains declined, Atlanta experienced a 16.8 percent year-over-year change in home prices.

“Expectations and recent data point to continued home price gains for 2014. Although most analysts do not expect the same rapid increases we saw law year, the consensus is for moderating gains,” said Blitzer.

The next Cal-Culator will be released May 13 and will hopefully follow normal spring strides in the housing industry.

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Semiannual Report Confirms Buying is Still the Best Bet

Every six months, Trulia releases a report that reveals if the housing market is more favorable to renting or buying. The most recent, Trulia’s Winter 2014 Rent vs. Buy Report, indicates that buying a home is 38 percent cheaper than renting in all of the nation’s largest 100 metro areas. Buying affordability ranges from 66 percent cheaper than renting in Detroit to just 5 percent in Honolulu.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

To calculate if renting or buying is more worthwhile, Trulia first calculates the average rent and sale price for identical listed properties across a metro area. Then, Trulia calculates costs of homeownership (such as homeowner’s insurance, property taxes and maintenance) and the costs of renting (e.g., renter’s insurance and security deposits), both one-time fees and monthly costs. Trulia uses a flat 4.5 percent  mortgage rate. The calculation also assumes that the consumer is in the 25 percent federal tax bracket and will reside  in the home for seven years.

However, the gap is narrowing as buying a home was 44 percent cheaper one year ago. Today, low mortgage rates and rising rent prices are working to offset rising home prices to continue having buying be more affordable. MSNBC reported that rent prices are rising almost 4 percent annually after researching the top 25 rental markets in the U.S.

“This is a huge increase when compared with inflation,” said MSNBC in “Massive rent increases to continue.” “And, generally speaking, incomes are not keeping pace with rent increases, putting renters in an even tighter position.”

Trulia’s report also calculated mortgage rate “tipping points” in the 100 metro areas, referring to the mortgage rate where renting would become cheaper than buying, given current home prices and rent.

Based on some tipping points that reach as high as 33.8 percent, many Midwest cities continue to  be a place where buying a home is a no-brainer. However, many California areas topped the list “where buying a home is a tougher call” as mortgage rates only need to reach 5 percent for renting to become the more attractive option. On a national scale, mortgage rates would have to rise to a staggering 10.6 percent, a number that hasn’t been seen since 1989, to make renting cheaper than buying.

“Buying remains cheaper than renting across the country even after 2013′s big price rebound,” said Jed Kolko, Trulia’s chief economist. “Mortgage rates are still near historic lows, despite rising a point in the past year, and would be the envy of time travelers from the 1980s, 1990s, or 2000s.”

Trulia’s interactive “Rent vs. Buy: Which is Cheaper for You?” map displays Atlanta as one of the most lucrative buying areas compared to the other metro areas. The map also allows users to adjust for their own mortgage rates, income tax bracket and number of years one stays in the home to see if buying is the best option for their lifestyle.

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The Continued Rise of Non-Bank Lenders

A recent article in The Wall Street Journal put a major spotlight on the growth of non-bank financial firms. The article illuminated that the growth of non-bank financial firms opens up substantial business opportunities for alternative forms of credit as traditional banks are experiencing tighter regulations from Washington. Morgan Stanley, Bank of America and Goldman Sachs, among others, have all sold mortgage-servicing rights to non-bank companies.

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

U.S. Firms Leading the Way

The U.S. has an established non-bank lending sector, especially compared to Europe where it is so engrained in people to visit a bank rather than a non-bank lender, thus making the transition from banks to non-bank lenders easier for consumers and mortgage professionals in the U.S.

“In North America, by contrast, there is a mature non-bank lending sector…and it would appear this increased diversity is one of the reasons why the supply of credit is not such an issue in the U.S. as it is in Europe,” said Richard Hinton of KPMG in “The rise of non-bank credit: Revolution or evolution?”

As a result, there is a “less sense of stress” as the rise of non-bank lenders is seen as a natural progression to fill a gap in the market. Today, non-bank firms hold 17 percent of the market share of mortgage services in the U.S.

Set Worries Aside

Sometimes people are wary of non-bank lenders due to the lack of name recognition and curiosity about regulation.

“Many borrowers are suspicious of the loans offered by smaller, non-bank lenders. Most consumers say, ‘Who are these people?’ but the fact is that these are mainstream loans with good pricing,” said Glen Corso, the managing director of the Community Mortgage Banking Project in The New York Times’ “Nonbank Lenders Staging a Comeback.”

Additionally, the U.S. government has made the regulation of non-bank lenders a top priority through recent legislation, such as the establishment of the Consumer Financial Protection Bureau as an independent agency by the Dodd-Frank Act, which strengthens the regulatory oversight of non-bank providers.

The Benefits of Non-Bank Lenders

Non-bank lenders taking a more prominent place in the industry has significant benefits. Non-bank lenders are usually smaller, thus have lower operating costs. The New York Times reported that non-bank lenders often offer rates that are 0.125 to 0.375 percentage points below those offered by major banks.

A Big Push From Small Lenders” points out that regional companies, such as Southeast Mortgage, hire the best-qualified talent in the area. Local talent is especially important to borrowers in competitive and complex real estate markets, such as Atlanta.

“America cannot be housed with just bank lenders,” Anthony Hsieh, chief executive of LoanDepot in California. “Nonbank lenders are extraordinarily important, which is why you’re starting to see investment in new companies.”

As $1.03 trillion of mortgage-servicing rights were sold last year, with a significant portion going to non-bank firms, it is clear that we are entering an era of opportunity for alternative credit.

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So You Want to Be a MLO…

Before the housing bubble burst in 2007, many Mortgage Loan Originators (MLOs) operated on a part-time basis, as it is a commission sales position and they were looking to make a bit of extra money. A lot of people in the industry had other full-time jobs and handled loans on the side.

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

Today, to work as a MLO, you’ve got to be fully committed to your profession. Due to all of the regulatory reform and licensing requirements, it would be very difficult for any professional originator to try and do the job part time. It takes a tremendous amount of time and knowledge to stay on top of compliance and not only be a successful salesperson but do it in a way that stays compliant with the law.

Looking back at the housing boom that began in the 1990s, hindsight makes it clear where all the parties involved made mistakes. It was easy to access capital; marketing was aggressive and interest-only loans and adjustable rate mortgages allowed almost anyone to purchase a home.

When the housing market collapsed in 2007 and the economy slumped, lawmakers began looking for answers to find a way to prevent it from happening again. The mortgage industry came under scrutiny, and the Secure and Fair Enforcement Mortgage Licensing Act, known as the SAFE Act, passed in 2008 as a part of the Housing and Economic Recovery Act.

The national law required that each state create its own law to comply with the SAFE Act. The SAFE ACT set requirements for individual MLOs and institutions regulated by the mortgage industry and standardized the process of registration and licensing for all MLOs, new and existing, in an effort to enhance consumer protection and reduce fraud. All MLOs, regardless of where they work, must be registered with the Nationwide Mortgage Licensing System. (For more on this topic, please read this previous Thought Leadership column.)

MLOs must also maintain a unique identification number that does not change if and when they switch firms. Agencies must comply with the SAFE Act, employ only those that are fully registered, and have a written policy to ensure their compliance with the SAFE Act. The final deadline for compliance with the SAFE Act was in 2010.

In addition to maintaining their registration, state regulated MLOs are required to take at least 20 hours of pre-license education classes related to mortgage licensing with an NMLS approved education provider. a licensed institution. To maintain their license, they must complete eight hours of continuing education each year. Further, MLOs must pass a federal and state test. They have three chances to pass the test with a score of 75. If they do not pass, they must wait six months to take the test again.

Prospective MLOs must undergo a credit and criminal background check. Each state must submit the fingerprints of all SAFE applicants for an FBI background check. In Georgia, an MLO must be sponsored by an employer when submitting an application for an MLO license.

It takes a tremendous amount of time and knowledge to maintain compliance with the law and be a successful salesperson. Mortgage loan origination is no longer a job you can do on the side or on a part-time basis. You (and the agency you work with) must be dedicated to the work and the customers you serve.

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February Cal-Culator Remains Unchanged

After an usually “hot” winter in Atlanta real estate, the Atlanta housing industry appears to have adjusted with outdoor temperatures and has cooled off ­– for now. Last month’s Cal-Culator hit a record 6.0, where it will stay for another month. Although sales of homes and home prices increased as did inventory, sluggish pending home sales and decreased home construction due to crippling winter weather were factors that kept the index the same.

The February Cal-Culator

The February Cal-Culator

The U.S. Department of Commerce  released its U.S. Census Bureau News for January, which showed that sales of new single-family homes rose 9.6 percent from December and 2.2 percent year-over-year.

Home prices increased by 12 percent year-over-year in January, marking the 23rd consecutive month of year-over-year home price gains, according to CoreLogic. Prices increased by 0.9 percent in January compared to December data.

“The last time January month-over-month and year-over-year price appreciation was this strong was at the height of the housing bubble in 2006,” said CoreLogic Chief Economist Dr. Mark Fleming.

Zillow’s January Real Estate Marketing Reports found the number of homes listed for sale on Zillow was up 11.1 percent nationwide from the year prior, making January the fifth straight month of rising year-over-year inventory. Atlanta experienced a 10.7 percent increase in inventory from the previous year in January.

The U.S. Department of Commerce also indicated that the housing crunch is slowly beginning to ease. The department found that the U.S. now holds a 4.7-month supply of homes, though a 6-month supply of homes is recommended.

Unfortunately, the housing industry is not exempt from external factors. Just as the industry was negatively affected by the government shutdown last fall, it has also suffered from recent extreme winter weather. Though home sales rose, pending home sales remained unchanged, according to the National Association of Realtors, partly due to the weather.

“Ongoing disruptive weather patterns in much of the U.S. inhibited home shopping,” said Lawrence Yun, NAR chief economist. “Limited inventory is also playing a role … while credit remains tight and affordability isn’t as favorable as it was a year ago.”

U.S. home construction fell in January for the second consecutive month, down 16 percent from December, according to the U.S. Department of Commerce. Construction had increased every month in 2013 before severe winter weather struck the nation beginning in December. Applications for building permits also fell in January by 5.4 percent, according to the report.

Even Zillow reported that mortgage rates had declined for the first time in four weeks, during the last week of February, to 4.11 percent due to global unrest.

“Rates drifted downwards last week as geopolitical concerns emerged from the turmoil in Ukraine,” said Erin Lantz, director of mortgages at Zillow.

The next Cal-Culator will be released April 8 and will hopefully chart positive growth in the industry without severe weather or global chaos inhibiting growth.

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Atlanta Tops ‘Best Places to Live’ Charts

Every year, “best of” lists are compiled and released that use data from the previous year and forecast the coming year in every industry from finance to entertainment to real estate. Atlanta consistently tops real estate lists that aggregate the best places to the live, cities with the highest population growth and the “hottest” housing markets. We compiled three lists where Atlanta graces some of the tops spots to show why Atlanta is one of the best places to invest in homeownership.

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

#1 Relocation Destination

Penske Truck Rental releases an annual list of top moving destinations. The list is calculated through an analysis of one-way truck rental reservations and reservation requests the company received for one-way moves. In 2013, for the fourth year in a row, Atlanta graced the number one spot. CNN cited Atlanta’s median income of $66,300, a home price growth forecast at 5.3 percent and the number of company headquarters located in Atlanta as some of the reasons why Atlanta beat out other trending hot spots such as Tampa, Fl., Orlando, Fl. and Phoenix.

#6 Best Place to Invest in Housing

After the housing bust, investors snatched up properties when prices and mortgage rates were bottomed out. As home prices and rates continue to rise, investors are taking a step back, which makes it an ideal time for the rest of us to invest in a home. Forbes created a list of the top 20 places to invest in housing in 2014, giving the top spots to populous cities where home prices are still low with expected high growth potential and job creation. The Fort Worth-Arlington area in Texas snagged the number one spot while Atlanta landed at number six. The average home price of $170,701 with an average three-year forecast growth of 26 percent led Atlanta to break the top 10.

#3 Best City in America

The Movoto blog, self-proclaimed as “the lighter side of real estate,” named Atlanta the third best city to live in America, losing only to Portland, Or. and Seattle, but beating out the ever-popular cities of San Francisco, Miami and Las Vegas.

Motovo regularly releases nontraditional lists such as “nerdiest cities” (calculated by factors including people per comic book store, bookstore and science museum) and “the most exciting suburbs” ­­– calculated by live music venues and comedy clubs per person, among other factors. To calculate the best city in America, Motovo compiled all of these nonconventional lists. Some of the factors that led Atlanta to placing third out of the 50 most populous cities in the U.S. include: first in funniest, 20th for homebuyers and 8th most exciting city.

Atlanta topping ‘Best Places to Live’ lists and others like best places to invest in housing, best cities in America and most one-way moves demonstrate the area’s continued economic recovery and increased consumer confidence in Atlanta’s real estate.

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The Best Home Improvement and Maintenance Apps

With more than 1 million applications in the iTunes and Google Play stores, smartphone users can download apps that will entertain a cat, measure paranormal activity in a home and turn a phone into a voodoo doll. However, there are much more useful apps that can help homeowners with maintenance, home improvement and consolidating information they need to keep their home running smoothly.

Jeff Brown, Senior Vice President of Southeast Mortgage

Jeff Brown, Senior Vice President of Southeast Mortgage

The Handyman Calculator

This Android app takes the head-scratching conversions and calculations out of home improvement. The 5-star, free app provides dozens of different calculators to figure stud spacing, square footage, asphalt volume, arc length, grass seed quantity and angle conversions, just to name a few. Based on measurements, a shopping list can be generated that will calculate types of materials needed, quantity and cost.

Ongoing

When was the last time you pumped your septic tank? What about the last time you inspected your fire extinguishers? A home has dozens of features that need to be regularly examined but the task often falls to the wayside and forgotten during a busy year. Ongoing, a $2 app for Androids, reminds homeowners about regular maintenance duties they need to perform. The calendar-type application creates a monthly schedule of upkeep, which includes the not-so-glamorous tasks of cleaning gutters, sweeping chimneys and tuning up a HVAC.

Paint Swatch Apps

There are a number of color-matching apps for smartphones that can help you find the perfect paint color. Which app you prefer will most likely to depend on which brand of paint you prefer.

The ColorSnap app by Sherwin-Williams “takes color inspiration from a photo in your library or one you just snapped.” Based on the color, a user receives the Sherwin-Williams paint color that it most closely matches or a recommendation of complementary colors. The app also contains a store locater. Benjamin Moore’s Color Capture also analyzes a swatch to find a similar paint color from their library of 3,500 colors and provides a store locater. Both apps are free and are available for Androids and iPhones.

BrightNest

BrightNest, a web-based and iPhone app, is a home improvement metropolis and project-organizing hub. Apartment Therapy dubbed the website as the “Mint.com for home maintenance.” A user can record information on home inventory, keep track of specific home details such as air filters’ sizes and paint colors, schedule maintenance through Angie’s List and much more. Another useful feature is is that the app downloads information on a user’s appliances such as manuals as well as model and warranty information. The app also includes a vast library of blog posts on every aspect of homeownership.

You can find hundreds of other home-centric apps in the iTunes and Google Play stores, including a yard sale mapper and construction level, to make homeownership easier an

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Tax Breaks for Homeowners

The advantages of home ownership include the many tax write-offs that are currently available for most people. In addition to the mortgage interest deduction that most are familiar with, energy credits, home office deductions and home improvement loan deductions are just a few of the ways homeowners can decrease their taxable income and lower their tax liability.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

Energy-Efficient Home Improvement Credits

To promote energy-efficient homes, the government helps subsidize energy-saving home improvements like new doors, windows, heat pumps, air conditioning units and more. The credit is for 10 percent of installation fees and materials costs, up to a $500 refund. Larger credits are available for bigger projects such as solar panels and even residential wind-energy systems.

Unfortunately, this is the last year of energy-efficient home improvement tax credits, due to Congress failing to renew 55 tax breaks. Underwater homeowners also lost their tax break under the Mortgage Forgiveness Debt Relief Act, which temporarily established that forgiven mortgage debt would not be taxable income. Now, this debt is reportable beginning next tax cycle, according to Forbes’ “What You Need to Know About Taxes in 2014.”

Home Office Deduction

Many people are unaware that you can claim a deduction if you utilize part of your home for business. If you regularly and exclusively dedicate a portion of your home to meet with clients or conduct work, you may be able to claim a deduction for costs related to insurance, repairs and depreciation. The deduction is equal to $5 per-square-foot of home office space up to 300 square feet.

According to Fox Business, nearly 3.4 million taxpayers claimed the home office deduction in 2010. However, use caution in deciding if your space truly falls under the home office deduction as this deduction greatly increases your likelihood of being audited, according to Realtor.com.

Home Improvement Loan Interest Deduction

If you’ve installed a water heater, built a garage or added a porch to your home in the last year, you may owe a little less on your taxes. Homeowners that have taken out loans for home improvements may be able to deduct the interest on the loan. Only capital improvements qualify, which includes adding square footage, upgrading a home’s foundation or repairing destruction from a natural disaster. Aesthetic changes, such as new carpeting or painting, do not qualify.

Profit on Sale of Real Estate Deduction

Another transaction that can be exempt from taxation is profit on the sale of a primary residence. Married couples can claim up to $500,000 of profit from the sale as tax-free and individuals can claim up to $250,000. There are a few guidelines such as the real estate property must have served as your primary home for two of the last five years.

This list is just a sampling of the credits and deductions made available to homeowners. Other deductions include private mortgage insurance, selling costs, property taxes and much more. For a full list of deductions, check out Kiplinger Taxopedia’s Deductions for Homeowners or contact a tax attorney.  As with any decision regarding taxes, always check with a CPA, accountant or professional tax preparer before claiming deductions.

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