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We Answer Your 3 Questions About Mortgages and Homeownership
Buying and owning a home isn’t easy. When you have such a large purchase looming on the horizon, you probably have questions about mortgages that you just can’t find online. Or you already own your home and you want to best protect your investment while maximizing every dollar you put into improving your home. Here are three mortgage- and home-related questions, answered.
1. How do solar panels and tax credits work?
I’m thinking about having solar panels installed on my roof in the spring. I plan on living here for many years and think it is a good investment. I want to get it done before the tax credits run out. Found some websites about them but could you help run me through them?
The solar investment tax credit is a program from the federal government that offers a tax credit to anyone installing a solar system on their residential or commercial property, so your home solar panel setup would definitely qualify.
The way it works is that a percentage of the cost of your solar installation can be applied to your taxes the following year as a credit. For example, if you buy a system in 2020, you can apply 26% of the cost of the system to your taxes as a credit. If the system costs $20,000, then you get a tax credit equal to 26% of that, or $5,200.
Note that this is a credit, which means that it applies regardless of whether you itemize your taxes or not. It simply reduces your total income tax owed by that amount. For most people, it means that your income tax return will increase by that much. So, if you bought a $20,000 solar setup by the end of 2020 and filed your taxes correctly, your tax return would go up by $5,200. If you didn’t pay in that much throughout the year, you can carry the remaining tax credit over to future years.
Be aware that this credit percentage drops after 2020. In 2021, the percentage drops to 22%, and in 2022 it drops to 10%. In other words, I’d make sure to get it done by the end of 2021 at the latest, as it could mean thousands of dollars in tax savings.
2. Are mortgage brokers worth it?
My husband and I are looking for a home. We contacted a real estate agent to help us look and she’s been great, but she apparently referred us to a mortgage broker who has called us a couple of times. We were planning on just using the credit union at my husband’s job. Is a mortgage broker worth it?
For readers unfamiliar with the concept, a mortgage broker is a person who assists potential homebuyers by helping them collect mortgage offers from several institutions and helps them find the offer that’s right for them. They usually make money by commission from the financial institution that their client ends up choosing.
If you have a good history with your current credit union, and they’re offering rates in line with local and national averages on mortgages, there’s no reason not to go with the credit union, as you likely won’t save a lot using the broker and it’s probably more convenient to have the mortgage with a local institution you already trust.
[ More: The Best Mortgages ]
A mortgage broker is fine if you don’t have a pre-established positive history with a particular financial institution and if that broker has a good reputation with many references for helping people find good mortgages. If you are considering using this person to hunt for mortgages, I’d do a bit of homework on this broker before signing up, just to make sure that this broker has a good reputation.
3. Am I getting ripped off on closing costs?
How do you know you’re not just getting completely ripped off with closing costs? We got an estimate of our closing costs and there are a ton of them and some of them seem ridiculous.
The closing costs you see are going to depend a lot on your lender, the state you’re in, and the type of mortgage you have. Many lenders, particularly in this low-interest area, like to pad a mortgage with extra fees. The most effective way of avoiding those fees, honestly, is to just shop around for mortgages from other lenders.
However, if you’re otherwise pretty happy with your lender, there are a few things you can do. The first thing I’d do — and this is something I did with my mortgage — is to look up every single closing cost and find out what exactly it is. You’ll likely find that most of them make sense, while a few seem rather pointless. Take the ones that seem pointless to your realtor first, to give them a first pass, then bring those up individually with your lender.
Another thing you can do when you look up those closing costs is to find out what they should approximately cost you. If any of the costs are way out of line, look into finding your provider for those services. Often, lenders will use their own preferred providers who may not be charging a very competitive rate for that service.
Do you have any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, via full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.