Bigger home loans coming to O.C.

April 24th, 2009, 3:00 am · 5 Comments · posted by Mathew Padilla

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Q. In September, we bought a home using an FHA loan at the max allowed amount at the time of $729,000 and at 6.5% interest. At the time, our mortgage broker told us we could streamline a refinance after four months, if we made our payments on time. Six months have gone by and all payments have been made on time and the max FHA amount in Orange County was reinstated at $729,000. So why isn’t anyone streamlining these loans? When do you foresee this being resolved so I can take advantage of the lower rates?

A. We “hear” that May 1st is the effective date of the re-institution of the higher balance for both FHA and Fannie Mae/Freddie Mac. Details are illusive, so just stay tuned

Connie in San Diego asks:
Q. I am newly divorced and have to think about what to do with and where to put my money. I will be in the 35% tax bracket, so my question is about how much debt to incur to set off a tax benefit. I owe $150,000 on my house and have a current loan of 6.25% with seven years remaining. I could refinance and put $50.000 down on an 11-year loan at 5.25% and cut my mortgage payment from $3000 to $1500 a month. Lowering the payment would enable me to make extra payments. My goal is to have the house paid off in 10 years or less. I also have enough money that I could pay off the house in full and have another $150,000 in cash. My question is this: I am concerned about a huge tax bill at the end of the year and need a tax write-off. Do I keep a mortgage, and if so, which one? What amount of tax write-off balances out incurring debt? I am also thinking about buying (vacation) rental property in another state (I could afford to do so even after paying off my house), which I know will help my tax bill. But is it enough?

A. I think you should refinance your home loan into a 15-year loan but make payments as if it was, say, an 11-year loan. That still isn’t much of a write off, a little over $6,000 per year. If you buy a vacation home, you can write off that interest as well, but if it really is or becomes an investment property, presumably you will make money. You’d be able to depreciate that property which will shield most, if not all, the actual income from taxes.

Finally, remember until the tax rate gets above 100%, paying interest to avoid taxes is not a money making business. To get a $35 reduction in taxes, you have to spend $100. So let business sense drive your decisions, not taxes. They ought to be of secondary consideration.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

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randi says:

April 24, 2009 at 4:03 am

that’s a good move i think it will help people who are really needing loans

Post Reply

Liar Loan says:

April 24, 2009 at 9:50 am

Here are the best tax writeoff ideas:
1. Buy an investment/vacation property. (Write off the interest, repairs, and depreciate the value of the structure over 27.5 years. Also, if you really want to maximize your benefit, pay as many points up front as you can, since these are tax deductible for this year.)
2. Have some kids. (Presumably not an option since your divorce)
3. Donate up to 50% of your income to charity.
4. Start a money-losing (or making) business. A competent tax planner could advise you on the intricacies of sheltering your money this way.
5. Maximize 401k contributions if your employer offers one. You can contribute up to $16,500 if you’re 49 and under… up to $22,000 for 50 and older. This isn’t so much a writeoff as it is a tax deferral to your retirement years.
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Also, try to figure out how many tax deductions you need to reach the lower tax bracket.
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For single filers in 2009 you’re taxed:
33% on the income between $171,550 and $372,950;
35% on the income over $372,950;
.
So depending on your income try to get enough tax benefits so you’re not paying at the 33% or 35% rate on any of your income. (Of course, AMT could throw this out the window anyway.)
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Bottom line: You probaby need to talk to a tax expert about your situation to get an idea of your best option. Remember, this could be tax deductible too!

Tammy Wink Gallego says:

April 24, 2009 at 10:54 am

The higher FHA limits for Orange County have been in place for a month or so at many lenders. They should be able to do an FHA streamline right now. Also, the higher loan limits are available at some lenders for conventional lending. Wells Fargo is rolling it out April 27th and AMX already has it.

Post Reply

ReloMan says:

April 24, 2009 at 11:26 am

Wells Fargo just announced they will start taking applications for the new Agency High Balance loans ($729,750) starting this Monday.

nrgtrader says:

April 28, 2009 at 2:31 pm

Connie,

You ever thought about living debt free? A shock to most Americans and specifically SoCal residents, I know.

You seem to have 300k cash, unless you are able to borrow at a rate lower than your money would return you in the market risk free, having debt is probably the worst financial thing you can do. Again, another shock, I know.

Realtor/Mortgage Broker mind tricks have heavily influenced your way of thinking. You lay out mutliple theories of paying someone your money in order to only get some of your money back, complete foolishness. Thank you to Randy for laying it out in plain English in his last paragraph.

Orange County Register