Michigan Real Estate

What are mortgage interest deductions?

One of the many benefits to owning Michigan real estate is the ability to deduct mortgage interest at tax time. In fact, depending upon your individual financial and tax situation, the tax incentives to owning real estate can be significant. Unfortunately, there is also a great deal of confusion when it comes to calculating the true benefit to be derived. Here to help are some quick tips to keep in mind while comparing Michigan homes for sale.

1. Run the Numbers: Whether you are interested in Michigan new homes or pre-existing home sales, be sure to run the numbers before making a final decision. Often, if two homes are competitively priced, the additional tax benefits derived from one home might make it more affordable than a similar priced home.

2. Make Sure You Qualify: One of the most common errors among new home buyers is assuming they will actually qualify to take the mortgage interest deduction when in fact, they don't. In order to qualify you must itemize deductions but many people do better with the standard deductions instead. Here is how to quickly estimate if the mortgage interest deduction will help you or not.

a. Add up your typical standard deduction allocation.

b. Add up the total amount of annual interest you would pay on the mortgage (remember: only the interest portion counts...not the amount that goes toward the principle on the loan).

c. Calculate other major deductions you are eligible to receive if itemizing deductions then add it to the total amount of interest paid from "b" above.

d. If your anticipated itemized deductions are greater than the standard deductions then you may benefit from taking the mortgage interest deduction.

3. Decreasing Benefit: Keep in mind that the amount of interest paid on a loan decreased over the life of the loan so the future benefits may eventually phase out as you pay more toward the principle and less toward interest each year.

4. Qualified Home: To take advantage of the mortgage interest deduction the home must be a "qualified home" according to IRS definitions. This typically is limited to your primary residence or second home.

5. Secured Debt: To deduct mortgage interest the loan must be in the form of a secured debt as opposed to a non-secured debt. This means a private loan or other terms not insured by the home itself are ineligible.

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Should I buy a home in Michigan?

Michigan led the nation in the number of foreclosures as recently as of a year ago but today, while many other areas of the nation continue to experience double digit declines in the number of home sold and new construction permits, Michigan is experiencing what looks to many as a recovery.

While it is still too early to tell for sure, new Michigan homes and other Michigan real estate listings are gaining a great deal of renewed attention. Here are the top considerations to keep in mind while considering the purchase of a Michigan home.

1. Price is Right: Interest rates are low and many Michigan homes are priced to sell. Unlike other areas of the nation, Michigan has a wide variety of affordable housing alternatives that remain attractive options for new families, retirees on limited incomes and even those able to telecommute. The ability to reduce the largest single expense for most household incomes is an attractive benefit for many nearing retirement age hit by the ravages of sinking stocks and dwindling 401-K plans.

2. Foreign Interest: The weakening dollar and favorable exchange rates have renewed foreign interest in manufacturing and other sectors. In a radical change of events, foreign manufacturers from Europe and elsewhere are turning to American soil when searching to build a factory and conduct business.

3. Investment: Investors are taking a new look at Michigan homes for sale with an eye toward revitalization and renovation for long term profitability.

Remember, the best time to buy is before an area begins to boom.

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What are contingency clauses?

It is always a good idea to have a solid back-up plan especially when it comes to purchasing Michigan real estate. Now that real estate in Michigan has shifted to a buyer’s market, contingency planning and negotiation is becoming a critical concern. Here are some of the most common contingencies listed in today's contracts and tips on how to use them.

1. Homes Sales and Closing Clauses: A few years ago when the real estate market was red hot most sellers frowned on doing business with a buyer who insisted upon a contingency clause requiring the sale of their existing home. Today, that has changed. Buyers can demand longer closing dates in order to accommodate the sale of an existing home and may insist upon the sale of an existing home in order to afford the new mortgage.

2. Inspections: Even if a home is listed "as is" an inspection clause is still a good idea for most buyers in order to avoid excessively large repairs or unexpected problems not initially visible. Set a limit on required repairs then obtain an independent inspection.

3. Appraisal: In order to obtain financing a home must meet a minimum value however, given a more conservative approach to recent appraisals, it is still a good idea to include an appraisal clause to avoid sellers from "shopping" for appraisals.

4. Legal Review: When making an offer on any houses for sale in Michigan, or elsewhere, it is a good idea to obtain independent legal review of the contract. Everything is negotiable including the time of acceptance in order to obtain final legal review.

5. Interest Rate or Financing: Given the volatile state of banking, many buyers may benefit from stipulating a maximum rate of interest they are willing to obtain financing at. For instance: contingent upon the buyer securing a 30 year mortgage at a fixed rate not to exceed x percentage.

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What are Fair housing standards?

Fair Housing. It is a common enough term but what does it really mean to Michigan home buyers? Fair Housing is an umbrella term used to indicate different levels and types of protection designed to help avoid discrimination when buying Michigan real estate.

1. Federal Protection: Nationwide it is against the law to discriminate on housing or the purchase of a Michigan condo or other property for sale in Michigan based upon age, color, disability, family or marital status, national origin, race, religion or gender.

2. Blockbusting: This is a specific law that prohibits real estate agents to suggest that selling or renting Michigan real estate listings to a minority or other protected class because they believe it will impact property values.

3. Steering: This law prohibits real estate agents from showing or selecting only specific neighborhoods based upon protected class, and requires that prospective Michigan home buyers be allowed to view Michigan real estate listings in any area they desire.

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What are the transfer taxes in Michigan?

Depending upon which state you live in there are a host of taxes to be aware of when buying or selling property. Buying or selling Michigan real estate involves what is generally referred to as a transfer tax. Unlike annual property taxes, the transfer tax is a onetime fee assessed on the value of the Michigan condo or other property being sold or transferred.

Thirteen states don't assess a transfer tax at all so if you are relocating to one of the following, you will only pay a transfer tax on the Michigan property being sold:

• Alaska
• Idaho
• Indiana
• Louisiana
• Mississippi
• Missouri
• Montana
• New Mexico
• North Dakota
• Oregon
• Texas
• Utah
• Wyoming

Rate of County tax - $.55 for each $500

Rate of State tax - $3.75 for each $500

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What is the proper procedure for dealing with earnest money?

If you are in the market for Michigan real estate, you will sooner or later need to set aside earnest money to demonstrate your intent to purchase the home or property. Most sellers will continue to show the home until a buyer has demonstrated a serious interest in purchasing the property and nothing says "serious" quite like cold hard cash. Used properly, earnest money is an important part of the negotiation process. Use these tips to make the most of your earnest money and avoid potential pitfalls when making an offer on homes for sale in Michigan.

1. Never use cash for an earnest money transaction.

2. Never make the earnest money check out to an individual – only an escrow company or real estate brokerage.

3. Obtain a copy and contact information for the account and bank where the earnest money will be held.

4. Cashiers' Checks may be required for a quick closing.

5. Always obtain a receipt for all earnest money funds sent to the real estate agent or broker. Receipts should be on official business stationary, signed by the person accepting the earnest money, dated with a copy of the check included.

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