Home ownership is expensive when you add up the costs to purchase a home, home maintenance and home repairs. However, your home is one of your biggest assets, and ownership can be profitable. But even if the cost of buying a home is more expensive than you expected, you might take solace in knowing you can deduct your home mortgage interest and recoup some of your investment.

Before filling out your tax form, here is what you should know about deducting home mortgage interest.

1. It must be your mortgage

You cannot deduct home mortgage interest on a property that’s in another person’s name. To qualify for this write-off, your name must be listed as a primary borrower or a co-borrower on the mortgage loan. It doesn’t matter if you’re the person paying the mortgage every month. The IRS will not allow the deduction if your name doesn’t appear on the home loan.

2. Your standard deduction may be more profitable

When filing your tax return, you have the choice of itemizing your return or taking a standard deduction. You can only deduct home mortgage interest if you itemize your tax return. Itemizing can be profitable if your total deductible expenses exceeds the standard deduction for the year. For the 2015 tax year, the standard deduction is $6,300 for singles, $12,600 for couples filing jointly, and $9,250 for head of households. If you’re a couple filing jointly and you paid $10,000 in home mortgage interest for the tax year—and you don’t have other deductible expenses—you’ll save more on taxes with a standard deduction.

3. The loan must be connected to your mortgage

Only certain types of loans qualify for the home mortgage interest deduction. This includes first mortgages, home equity lines of credit and home equity loans. The latter two are also called second mortgages. For purchase or acquisition debt—such as your first mortgage—you can deduct mortgage interest up to $1 million. With a second mortgage, you can deduct mortgage interest up to $100,000.

4. You can only deduct interest on one second home per year

The good news is that you can deduct home mortgage interest on your primary residence and a second home. For a property to qualify as a second home, you must live in the home more than 14 days out of the year. But this doesn’t mean you’re allowed to deduct mortgage interest on every property you own. You’re only allowed one second home mortgage deduction per year, which means you can’t write off interest paid for a third or fourth home in the same year. The IRS, however, does allow you to pick which property to use as your qualified second home.

5. Different rules for investment properties

 If you own investment properties you can also deduct mortgage interest paid on these homes, but these properties do not qualify for a home mortgage interest deduction. You must write off the interest as a business expense.

Buying a house often involves spending your own cash upfront. But even if you prepare financially for a purchase, you may be surprised by the number of fees charged by mortgage lenders and brokers. There are administrative costs associated with each mortgage loan, and unfortunately, you’re responsible for paying these expenses. The amount you’re charged by a bank or broker varies depending on the company you’re working with.

Mortgage fees have a big impact on how much you actually spend for a house, so it’s important that you’re not overcharged. Here’s how to protect yourself.

1.Clean up your credit history

Fixing a poor credit history is one of the best ways to save money on a mortgage loan. You don’t need an impeccable credit history to qualify for a mortgage, but a high score can almost guarantee a low interest rate, plus applicants with the highest scores pay the least amount for private mortgage insurance (PMI). You can qualify for a conventional mortgage with a credit score as low as 620, but you’ll qualify for a more favorable rate with a credit score in the 700s or 800s.

2. Compare mortgage costs with different lenders

Within three business days of applying for a mortgage loan, the lender is required to provide a Good Faith Estimate (GFE) which breaks down the terms of the mortgage loan—interest rate and closing costs (loan origination, appraisal, points, third-party fees). Although a rough estimate, this documents provides an idea of what you can expect to pay.

Mortgage lenders and brokers charge different fees for different services, so it’s important to get a free quote from more than one mortgage provider. If you only receive one estimate, there’s no way to know whether a particular lender’s fees are reasonable or competitive, and you could end up paying more for your mortgage loan. Take the loan origination fee for example. This is the lender’s charge for originating the loan and its paid at closing. Lender’s typically charge between 1 percent and 3 percent to originate loans. For a 30-year $200,000 mortgage, that’s a $4,000 difference.

A Good Faith Estimate contains a lot of figures, but you should review each quote you receive and make side-by-side comparisons to avoid getting robbed by a lender or broker. Also, don’t be afraid to question a particular fee. For example, if you’re working with a mortgage broker and this company charges an underwriting fee, ask the broker to remove this fee. Mortgage lenders underwrite mortgage loans, not brokers. Therefore, this fee is only justified when charged by an actual lender.

Reconsider Discount Points

Discount points are a type of prepaid interest that buys down your mortgage rate. Points can lower your mortgage rate and monthly payment, but buying down your rate may not be necessary.

One discount point equals 1 percent of the loan amount, and on average, each discount point reduces your interest rate by 0.25% APR. If you receive a 30-year $200,000 mortgage loan at 4% APR, paying two points at 0.25% APR per point can reduce your interest rate to 3.5%. This lower rate can also reduce your mortgage payment by $50 a month. But unfortunately, discount points are paid at closing and increase the amount of upfront cash you need to purchase a property. Since you’re paying 1 percent per point, buying down the rate means you’ll pay an additional $4,000 in closing costs.

Mortgage lenders look for different ways to increase their profit, and your lender may recommend that you buy discount points. What you need to realize, however, is that buying down your mortgage rate only makes sense if you’re going to live in the home and keep the original mortgage for several years.

If buying points, you should allow enough time to breakeven and recoup what you paid at closing. So if buying down the mortgage rate saves $50 a month, and you paid an extra $4,000, you shouldn’t sell or refinance the house for at least six or seven years. If you move or refinance sooner, you would have paid the extra money at closing for nothing.

When applying for a mortgage loan, you have the option between a fixed-rate mortgage and an adjustable-rate mortgage. An adjustable-rate mortgage has an introductory fixed-rate, and then a rate that resets every year. A fixed-rate mortgage, on the other hand, has an interest rate that remains the same over the life of the loan.

Fixed-rate mortgages are considered a safer alternative. But it’s important to understand the pros and cons before deciding whether this type of mortgage is right for you.

Pros of a Fixed-Rate Mortgage Loan

1. Predictable, fixed monthly payment

With a fixed-rate mortgage, you don’t have to guess or predict what your mortgage payment will be from year-to-year. Since the rate on these mortgages never change, your mortgage payment remains the same for the entire mortgage term, whether you choose a 15-year, a 20-year or a 30-year mortgage. When you know your housing expense, it’s easier to plan ahead and budget for the future.

2. You don’t have to worry about mortgage rates

With an adjustable-rate mortgage, you might worry about the possibility of a higher interest rate. There’s no way to predict what interest rates will do from year to year. With each rate adjustment, your interest rate will change to reflect current market conditions. The rate could increase, remain the same or decrease. If your rate increases, so does your mortgage payments. And if rates skyrocket from one year to the next, your payment could increase significantly. You don’t have to fear payment shock when you choose a fixed-rate mortgage.

Cons of a Fixed-Rate Mortgage

1. Higher mortgage interest rates

Although fixed-rate mortgages offer predictable monthly payments and your rate will never increase, adjustable-rate mortgages can be cheaper. Adjustable-rate mortgages start off with lower rates compared to a fixed-rate mortgage. This can result in lower monthly payments, and a lower rate can help you qualify for a larger mortgage amount.

2. You have refinance to take advantage of a lower rate

An adjustable-rate mortgage comes in handy when mortgage rates are on the decline. Since your rate will adjust each year according to the market, you’re able to take advantage of lower mortgage rates without doing anything. This isn’t the case with a fixed-rate mortgage. Because the mortgage rate is fixed, refinancing the mortgage is the only way to benefit from falling rates. Refinancing involves applying and qualifying for a new mortgage, and paying closing costs.

A fixed-rate mortgage offers predictability, stability and peace of mind, and if you’re going to live in the home for many years, it’s the safer choice. But if you prefer moving every three to seven years, an adjustable-rate mortgage is a better fit. You can take advantage of the low introductory rate, and then sell the property before your first rate adjustment.

Owning a home provides a sense of permanence and stability, and it’s a big step toward growing your personal net worth. But in previous years, tough lending requirements made it difficult for some to get a home loan. Thanks to new guidelines, banks have eased its standards, making it easier for many to purchase a home. If you’re applying for a mortgage, here is what you can expect.

1. Lower down payments on conventional mortgages

Qualifying for a standard conventional mortgage typically requires a minimum down payment of 5%. New lending programs, however, now make it possible for select borrowers to get a conventional loan with less upfront cash. Both the Conventional 97 and the HomeReady mortgage only require a 3% down payment. These loans are available to first-time homebuyers, repeat buyers and low-to-moderate income borrowers. The HomeReady program requires completion of an online homebuyer’s education course.

The down payment requirement has also been lowered for high-balance/jumbo mortgages over $417,000. These loans used to require a minimum down payment of 10%. Borrowers are now eligible with as little as 5%.

2. Relaxed income guidelines for self-employed borrowers

Similar to other applicants, self-employed borrowers must provide tax returns for income verification. But it’s sometimes harder for these individuals to qualify because self-employment income can fluctuate from year-to-year. In the past, rather than use a borrower’s most recent income for qualifying purposes, banks would average out the income over the past 24 months. This approach, however, didn’t allow some borrowers to benefit from increased earnings, and they would qualify for less than they could actually afford. Recent changes allow mortgage lenders to qualify self-employed borrowers based on their most recent year of returns.

3. Employee Expenses Don’t Hurt You

If you’re an employee and you spend your own funds on equipment, uniforms, business meals and other business expenses, you can write-off unreimbursed expenses when filing your taxes. Maximizing tax deductions can help you avoid a higher tax bill and help you receive a bigger tax refund, but deductions also lower your adjusted gross income, which is your income after deductions

Previously, the more job-related deductions, the less a borrower could spend on a house. This is because lenders would use an employee’s adjusted gross income when underwriting the mortgage application. Since deductions lowered the borrower’s qualifiable income, he would qualify for a smaller mortgage. The situation is different today. New mortgage guidelines state that job-related expenses will no longer count against an employee’s income. Mortgage lenders can use a borrower’s full W-2 income when underwriting the loan.

Fixed-rate mortgages offer greater stability and predictability, which is why these loans are a first choice for many homebuyers. With this type of loan, the interest rate doesn’t change over the life of the loan. The monthly payment remains roughly the same from year to year, so it’s easier to budget long-term.

But although a fixed-rate mortgage offers predictable housing costs, an adjustable-rate mortgage (ARM) may be a better option depending on the circumstances.

What is an Adjustable-Rate Mortgage?

Adjustable-rate mortgages have a reputation for being risky and dangerous because the interest rate adjusts or resets every year based on market trends. With each adjustment, the rate can increase, decrease or stay the same. This causes fluctuations in mortgage payments. But adjustable-rate mortgages also have an initial fixed rate, which is usually lower than the rate of a fixed-rate mortgage, resulting in significant savings during the early years.

For example, if you borrowed $150,00 at a rate of 4% with a 30-year fixed-rate mortgage, you’d pay about $716 a month (excluding taxes and insurance). But if you selected a 5-year ARM with a rate of 3.33%, your mortgage payment would drop to $656—a $60 monthly savings. An adjustable-rate can work if you’re looking to purchase a more expensive house, yet you need a low rate to keep payments within an affordable range.

But the fact that you can save money with an adjustable-rate isn’t the only reason to choose this option. The fixed-rate with an ARM is temporary. And since we can’t predict mortgage rates from one year to the next, there’s always the risk of your rate skyrocketing with each rate adjustment, resulting in higher housing costs. So while adjustable-rate mortgages are tempting, these loans aren’t the right choice for everyone.

When Does an Adjustable-Rate Mortgage Make Sense?

If you’re a first-time homebuyer who only plans on living in the house for a few years, or if you’re relocating for work within the next few years, an adjustable-rate mortgage might be a better choice than a fixed-rate mortgage. Since the rate with an ARM is fixed for the first three, five or seven years, you’ll most likely sell the property before your first rate adjustment.

Then again, maybe you plan to live in the house longer than seven years. An adjustable-rate mortgage isn’t as risky if you anticipate your income increasing over the next few years, and if you’re okay with the possibility of higher mortgage payments. Perhaps you’re currently the primary breadwinner while your spouse completes his or her schooling, and you expect your household income to double in the next couple of years once your spouse graduates.

But even if you don’t move and your income doesn’t increase, there is the option of refinancing an adjustable-rate mortgage to a fixed-rate mortgage before the first rate adjustment. Just know that there are no guarantees that you’ll be able to switch your mortgage. Refinancing involves applying for a new mortgage, at which time you’ll have to meet the lender’s income, employment and credit guidelines to qualify for the loan.

One of the ways lenders are helping homeowners keep their homes is through loan modification. This is a process in which the terms of your mortgage loan are modified to make your payments easier. It’s not refinancing because you don’t get a new loan, but the goal is to reduce your payments so you can afford them.

The Federal government has a Home Affordable Modification program in which lenders can voluntarily participate. If you meet certain criteria, you may be able to take advantage of the program. Continue reading →

When you apply for a mortgage loan, a large factor up for lender consideration is the applicant’s income and job stability. You may think it is a wise choice to take that higher income-earning job before you buy a new home but you’d be wrong.

Switching employers or becoming an entrepreneur before or during your mortgage loan application and process could be detrimental to your approval from lenders. Mortgage underwrites look differently upon applicants who make a job change because essentially it changes income levels, which may prove to be a larger risk for defaults. Continue reading →

Ahh…retirement. It’s a time most working people look forward to, especially toward the end of their careers. A comfortable retirement requires you to take care of your finances ahead of time. That may mean paying off your mortgage loan before you go into retirement.

Advantages of Paying Your Mortgage Pre-Retirement

You can never know how much money you need to have in retirement because you don’t know how long you’ll live. If you can manage to pay off your mortgage before you retire, you’ll have one less expense to worry about once you retire. And since a mortgage is a pretty big expense, you’ll have taken a lot off your plate. Continue reading →

A reverse mortgage can be used as a source of income during retirement. It’s like a home equity loan, only the money doesn’t have to be repaid except in certain circumstances. You remain the owner of your home and the reverse mortgage lender sends you money.

How to Qualify

To qualify for a reverse mortgage, you must be at least 62 years old. The house that you get the reverse mortgage for must be your primary residence, meaning that’s where you live most the year. If you pass away, sell the home, or permanently move somewhere else, that’s when the reverse mortgage loan becomes due. At the time of death, your heirs or your estate will be responsible for paying back the reverse mortgage. Continue reading →

When homeowners consider a refinance, they usually do it for one main reason – to lower a mortgage payment. A mortgage refinance is the act of securing a new loan on your existing mortgage balance, often at a lower rate and different terms. A refinance makes the most sense if you are in a good financial position, have good credit, and can meet the criteria of the lender.

The new loan and terms typically provide some relief from the cost of a mortgage payment. With lower interest rates and a lower balance to finance, you can save quite a bit of cash each month on your new mortgage note. With low rates still available, more people are taking the steps towards a refinance. But did you know there are other benefits from refinancing your mortgage? Continue reading →