Tax Benefit to Owning a Home and Having a Mortgage | Martini Mortgage Group

January 26, 2023 by Kevin Martini

Are you among the many future and current homebuyers, excited with the prospect of purchasing a new property? While it’s certainly an exciting time for anyone, regardless of your experience level, it’s important to be educated about all aspects of becoming a homeowner – including understanding the potential of substantial tax benefits to owning a home and having a mortgage.

Did you know that homeowners that itemize tax deduction can deduct interest on an up to $750,000 of mortgage balances used to buy, build or improve a qualified home (see IRS Publication 936)?

With the mortgage interest tax deduction, the cost of borrowing may be lower than you think!

Most homebuyers and some current homeowners don’t understand and are surprised that their cost of borrowing is significantly reduced by this tax benefit.
Kevin Martini

As discussed, homeowners who itemize tax deductions can deduct the interest on up to $750,000 of mortgage balances used to buy, build or improve a qualified home. In the past few years, not as many homebuyers benefited from this because their total annual interest expense was lower than their standard deduction. In 2023, for married couples filing jointly for tax year 2023 the standard deduction will be $27,700. For single taxpayers and married individuals filing separately, the standard deduction is $13,850 for 2023

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IMPORTANT: Uncle Sam will never help you pay your rent however he will help you pay your mortgage vis-à-vis Home Mortgage Interest Deduction however to take advantage you must itemize your taxes not take the standard deduction.

The Kevin Martini 3 Step Process to Calculate Impact of Home Mortgage Interest Deduction

Determine Marginal Tax Rate
Know Mortgage Rate
Very Simple After-Tax Benefit Math

Determine Marginal Tax Rate

What is your marginal tax bracket? A marginal tax rate is the rate that applies to your last dollar of taxable income. In other words, the highest bracket homebuyer’s income falls into. At the time of publication, there are seven federal income tax brackets (i.e. 10%, 12%, 22%, 24%, 32%, 35% and 37%). Determine which bracket you are in based on how you file (i.e. a single filer or married filing jointly).

2023 Single Filers Tax Bracket (for illustration only)

2023 single filers tax bracket best raleigh mortgage broker

2023 Married Filing Jointly Tax Brackets (for illustration only)

2023 married filing jointly tax bracket best raleigh mortgage broker

Know Your Mortgage Rate

You need to know what your mortgage rate is not you Annual Percentage Rate (APR).

Very Simple ‘After-Tax Benefit’ Math

This step is very simple but does have 3 components

#1 Express the tax bracket as decimal

#1 Express the tax bracket as decimal … for illustration and example ONLY, let’s assume a 24% marginal tax bracket so in decimal form that is expressed as 0.24

#2 Subtract the decimal from the whole number one

#2 Subtract the decimal from the whole number one … for illustration and example ONLY, we would take one minus the marginal tax bracket expressed as a decimal hence, 1 – 0.24 = 0.76

#3 Multiple that number by the the current or actual mortgage rate

#3 Multiple that number by the the current or actual mortgage rate … for illustration and example ONLY. let’s use a mortgage rate of 6.5% so 6.5 x 0.76 = 4.94

In the example above, your mortgage rate is 6.5% and your are in a 24% tax bracket then your after-tax rate in 4.94% assuming that you itemize your taxes. That means, the Home Mortgage Interest Deduction saves you 1.56%!

While there are many exciting aspects to purchasing a new home, it is important to be educate about all aspects of becoming a homeowner – including understanding the potential of substantial tax benefits to owning a home and having a mortgage. With the mortgage interest tax deduction, the cost of borrowing may be lower than you think! If you’re considering homeownership, connect with either Kevin Martini or Logan Martini today so we can help you take advantage of this amazing opportunity.

Kevin Martini

Certified Mortgage Advisor | NMLS # 143962

Logan Martini

Senior Mortgage Strategist | NMLS #1591485

PLEASE NOTE: THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936. Also, this article is not an offer or commitment to lend you money, and it is not an advertisement for a specific mortgage or a specific interest ratehttp://2023 Raleigh Conforming Loan Limits

What You Need To Do Before Buying a Home in Raleigh

2023 Raleigh Conforming Loan Limits

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How Does The Gift Tax Work When Using Gift Funds To Buy A Home By Raleigh Mortgage Broker Kevin Martini

January 11, 2023 by Kevin Martini

Are you thinking of using gift funds to purchase a new home? It can be a great way to make the dream of homeownership a reality, but most people don’t realize that it comes with its own set of rules and regulations. The gift tax is one such rule – have you heard of it? The Martini Mortgage Group is passionate about helping their clients understand how the process works so they can confidently begin their journey towards homeownership. This special article, will walk through everything you need to know about the gift tax when using gift funds to buy your first home in Raleigh or any city for that matter.

$17,000 Annual Exclusion

Every year, the federal government give each of us allowance to gift anybody $17,000 per year without incurring any gift tax in 2023 – this is up $1,000 from 2022! It is important to note, it is $17,000 per person per year not $17,000 in total.

The good news is that, if you are the one giving the gift, there is no time limit on when you can give it. You can give gifts any time during the year, up to a total of $17,000 for 2023. In other words, you could give $10,000 in February and another $7,000 in December and there would be no gift taxes due.

$12,920,000 Lifetime Exclusion

What most people don’t realize, is that there’s a second allowance of $12,920,000 called the Lifetime Exclusion!

Let me illustrate by example: you want to help your child buy a home and you want to give them $117,000. Wait, that is $100,000 more than what you can give you out of $17,000 annual exclusion – no problem thanks to the Lifetime Exclusion.

With the Lifetime Exclusion and in 2023 the Lifetime Exclusion is $12,920,000 you can use any of it during your lifetime. When you use it, it simply reduces your estate tax exclusion by that amount.

So in our illustration, if you gift you $117,000 to your child, you would take $17,000 out of your Annual Exclusion and $100,000 out of your Lifetime Exclusion. It is critical to highlight, your Annual Exclusion replenishes each year however your Lifetime Exclusion does NOT replenish). With this illustration, assuming it is 2023 and you have never used your Lifetime Exclusion you will have maxed out your 2023 Annual Exclusion for your child and your Lifetime Exclusion would be reduced from $12,920,000 to $12,820,000.

Now, if your estate is less than $12,920,000, this would not be a problem at all, because your heirs would have no estate tax anyhow. However, if my estate is more than $12,920,000 then your heirs would have to pay estate taxes on anything inherited above $12,920,000.

Yes, the Lifetime Exclusion is used for both gift and estate tax purposes. So every time it use it to not pay gift taxes, you’re reducing your estate tax exclusion.

Need To Know By Certified Mortgage Advisor and Raleigh Mortgage Broker Kevin Martini

No Relationship Required: You don’t have to be related to use either the Annual or Lifetime Exclusion. You could gift $17,000 a year to a complete stranger and you would have no gift tax. You can also gift money to a complete stranger using your Lifetime Exclusion, and you would have no gift tax.
No Tax to the Gift Recipient: Everything we just talked about applies to the person GIVING the gift. What about the person RECEIVING the gift? Well, here’s some more good news: there is no tax due by the gift recipient!
$25,840,000 Total Exclusion for Married Couples: One thing to keep in mind about the Lifetime Exclusion is that the amount changes each year. In 2023, the exclusion is $12,920,000, but it is scheduled to go up in the years ahead because it is indexed to inflation. Also, keep in mind that you can ‘port’ over your $12,920,000 to your spouse if I’m married. This would mean, a married couple could have a total joint exclusion of $25,840,000! Hence, if you are married and your net worth is less than $25,840,000, there is absolutely no reason whatsoever for you to concern yourself with the gift tax. That’s because even if you gift your entire net worth during your lifetime, you would pay $0 in gift taxes and your heirs would pay $0 in estate taxes. This is why the gift tax is really a non-issue for most people!
Additional Paperwork May be Required: If you’re using the $17,000 annual bucket, the gift doesn’t need to be reported to the Internal Revenue Service (IRS) if you follow the proper procedures. However, if you’re using the $12,920,000 Lifetime Exclusion, you would need to file a gift tax return with the IRS (even though no gift tax would be due). This is done to simply notify the IRS that you’re using part of your gift/estate tax exclusion.
Use Separate Checks: Make sure the checks are written by the specific individuals who are giving the gift. In other words, if mom is gifting you $17,000, and dad is also gifting you $17,000, you’ll need two separate checks: one from mom and one from dad. NOTE: during the mortgage process, you both may need to “source” these funds from a mortgage underwriting standpoint. Please consult with Martini Mortgage Group before you do anything so that we can discuss the specific details of your situation and make sure this is all done properly.
Eligible Gift Donors With Conventional Loans: “A gift can be provided by: a relative, defined as the borrower’s spouse, child or other dependent, or by any individual who is related to the borrower by blood, marriage, adoption or legal guardianship; or a non-relative that shares a familial relationship defined as a domestic partnership (or relative from a domestic partnership), individual engaged to marry the borrower, former relative or godparent.” Fannie Mae Seller Guide B3-4.3-04 Personal Gifts (12/14/2022)

Being informed and armed with knowledge is vital in making sure that you make the best decision for yourself and your family when it comes to homeownership. The Martini Mortgage Group stands ready to help navigate you through all aspects of this process giving you the confidence needed to purchase your dream home. We are here to carefully explain rules and regulations regarding using gift funds to secure secure the proper mortgage.

Don’t wait any longer – contact the Martini Mortgage Group today!

Kevin Martini

NMLS 143962 | Certified Mortgage Adviso

PLEASE NOTE: THIS OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 559. ALSO, THIS ARTICLE REFERENCES THE FEDERAL GIFT TAX. YOUR STATE GIFT TAX LAWS MAY BE DIFFERENT.

What You Need To Do Before Buying a Home in Raleigh

December 30, 2022 by Kevin Martini

Are you thinking of buying a home in Raleigh? Before you dive into the process, it’s important to make sure that you are prepared for the journey. Here are three Martini Mortgage Group key things that you can do to get ready to buy a home in Raleigh or anywhere in the U.S. for that matter.

Prepare Your Credit

Before applying for a mortgage loan, it’s important to make sure your credit is in good shape. Mortgage lenders typically require a good credit history for you to qualify for a mortgage. This means having several credit cards and installment loans with payments made on time for the past two years, as well as making all rent payments on time during that period.

A good credit score will ensure that you have access to better mortgage rates and loan terms. You can look at your free credit report from the 3 major bureaus (Equifax, Experian, and TransUnion) once per year as well as order copies of your credit reports from each bureau through annualcreditreport.com. It’s important to review all of your reports closely and address any discrepancies or errors with the respective bureaus.

For more information about credit, check out: Martini Mortgage Podcast | Episode 167 | Freeze it and opt-out

Prepare Your Cashflow

It’s also important to take a close look at your income and expenses before beginning the process of buying a home in Raleigh.

Make sure that you understand how much money is coming in and going out each month, so that you can begin planning for what kind of house payment you can afford on top of any other existing debts or expenses. Knowing how much money is available for down payments and closing costs will help set realistic expectations about what kind of home you may be able to purchase in Raleigh.

It’s also important to make sure your debt-to-income ratio is not too high. Most lenders require that your total monthly debt payments (including the new mortgage payment) should not exceed 43% of your monthly income. If your debt-to-income ratio is higher than 43%, consider paying down some debts before taking out a new loan or try finding ways to increase your income.

Prepare Your Savings

Mortgage lenders typically require you to have a certain amount of savings in reserve in order to qualify for a mortgage. Your savings should be in your account for at least two months in order to qualify, and any large deposits will need to be explained and documented.

The amount of the required savings will vary based on the loan program that you choose. However, a good goal is to save enough for a 3%-5% down payment, plus 1-3 months of mortgage payment reserves.

For example, if your new mortgage payments will be $3,000 per month, you should probably aim to save approx. $9,000 plus the amount of your down payment.

Start budgeting now so that when it comes time to make an offer on your dream house, you’re prepared financially too!

Martini Mortgage Group Bottom Line

Buying a home can be an exciting experience – but first you need to make sure that you are prepared financially by having good credit history and cashflow situation plus enough savings set aside for closing costs and fees associated with the purchase of the home. By following these three Martini Mortgage Group steps – preparing your credit, cashflow and savings -you will be well on your way towards becoming a homeowner in Raleigh!

If you have questions about buying a home or about securing the proper mortgage, let’s connect so you have expert advice on your side.

Kevin Martini

Logan Martini