John Fabio Ocampo at EXP Realty, LLC

02/19/2025

Easing the Burden: The Case for Reducing FHA Mortgage Insurance Cost The Role of Mortgage Insurance
Homebuyers using low-down-payment loan products are typically required to purchase mortgage insurance to protect the lender in case of default. While most lenders of conventional loans require borrowers to purchase mortgage insurance if their down payment is less than 20%, FHA loans require mortgage insurance regardless of down payment amount. Beyond whether or not borrowers are required to purchase mortgage insurance, there are other key differences between the private mortgage insurance (PMI) required for some conventional loans and that offered by the FHA:
Private Mortgage Insurance (PMI): The cost of private mortgage insurance typically varies based on the financial characteristics of the homebuyer and the home they are purchasing (e.g., credit score, loan-to-value ratio, etc.) and individual lender guidelines. PMI is paid as a monthly premium, which can increase the cost of homeownership for these buyers. Importantly, PMI can often be canceled once the homeowner reaches 20% equity, meaning they would no longer incur the monthly premium expense.

FHA Mortgage Insurance: Unlike private mortgage insurance, FHA mortgage insurance includes two components: an upfront mortgage insurance premium (MIP) that is usually paid at the time of closing and an annual mortgage insurance premium that is divided into 12 equal monthly payments. The upfront MIP totals 1.75% of the cost of the loan. For example, if a buyer purchases a $400,000 home with 4% ($16,000) down, the upfront MIP would be 1.75% of $386,000. That’s an additional $6,755 due at closing.

Like private mortgage insurance, the FHA annual MIP is calculated based on factors like loan-to-value ratio and loan term. Unlike PMI however, FHA mortgage insurance typically endures for the life of the loan, rather than falling off after the homeowner reaches 20% equity. So, while FHA loans are critical to first-time homebuyers because of their 3% down payment product and more flexible underwriting guidelines, the structure of the MIPs prove costly for these buyers over time.
Source: NAHREP NATIONAL

02/19/2025

Consumer Guide: Escrow and Earnest Money
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NOTE: Consumer guides do not constitute any change in NAR policy. Real estate professionals must ensure they market properties consistent with relevant MLS rules and educate sellers on the choices available.

One of the steps between signing and closing on a home is when homebuyers typically deposit money into an escrow account. An agent who is a REALTOR® can help advise you on your offer and how to keep your deposits safe. When it comes to escrow, here’s what homebuyers should know:

What is escrow?
Escrow is a financial agreement in which a third party, such as an attorney or another settlement or title agent, controls payments between the buyer and seller, only releasing the funds involved when all the terms of the contract are met. As the buyer, once you close on the home, the money you’ve placed in escrow will often be applied toward your down payment and other closing costs. Other costs that can be covered by funds in an escrow account include property taxes and insurance premiums.

What is “earnest money?”
Also known as a “good faith deposit,” an earnest money deposit is paid by a homebuyer to show their interest is legitimate and they intend to close on a home. This may be a percentage of the purchase price or a set amount. To protect the funds, earnest money will be held securely in an escrow account until closing or any disputes are resolved. An escrow account is often set up by your lender with a third party such as a bank, title company, escrow agent, or mortgage servicer. During this time, the buyer and seller will be unable to access the funds. Importantly, earnest money is NOT the same as a down payment, which is the money you put toward the home’s purchase price.

What happens to the earnest money deposit if the transaction is canceled or interrupted?
If the seller stops the sale, the funds in escrow are returned to the buyer. Additionally, if contingencies included in the purchase contract—such as a home inspection, appraisal, or financing, are unable to be resolved—then the money gets refunded to the buyer. However, if the buyer interrupts the sale for other reasons, the seller may get to keep the money. For example, if a buyer waives contingencies prematurely, fails to meet set deadlines, or gets cold feet and abandons the transaction, among other circumstances, this could result in the loss of their earnest money deposit. Work with your agent and a legal professional to ensure you understand the terms of your contract to avoid putting the transaction—and your money—at risk.

Is an earnest money deposit required?
There are no laws requiring an earnest money deposit to be attached to a home offer. However, it is a common practice, particularly in some competitive markets and when a buyer’s down payment is less than 20% of the purchase value. Certain sellers may require or request earnest money deposits or look favorably on offers that include them.

How much earnest money should I offer?
Earnest money deposits can be any amount, but typically range from 1% to 10% of the home’s purchase price. The size of your deposit may depend on several factors, including the competitiveness of the market, your down payment amount, whether you include contingencies in your offer, and the seller’s preferences. Fixed earnest money amounts rather than percentages of the home’s sale price are also becoming more common in some regions.

Are there any risks to placing my money in an escrow account?
As with any transaction, the risk for fraud exists when wiring money, but there are steps you can take to protect yourself during the home closing process involving the transfer of funds. Your agent can educate you on how to avoid falling victim to wire fraud scams. Always confirm wire instructions with your bank, lender, and any other known parties involved in-person or on the phone before initiating the transfer. Check out NAR’s resource on protecting your money from scams here. Source:

Between signing and closing, homebuyers typically deposit money into an escrow account. An agent who is a REALTOR® can help advise you on how to keep your deposits safe.

02/19/2025

Your Guide to Homeownership Tax Savings for 2024
February 18, 2025

Tax Benefits for First-Time Home Buyers
If you purchased a home in 2024, there are additional tax benefits you can utilize:

IRA Withdrawal: Every first-time home buyer — defined as someone who has not owned a personal residence in two years — can withdraw up to $10,000 from a traditional or Roth IRA without being subjected to the 10% early withdrawal penalty.
Alabama’s First-Time/Second Chance Home Buyer Savings Program: Alabama residents who qualify as first-time or second-chance homebuyers can take advantage of a special savings account program designed to assist with future down payments and closing costs.
Single filers can contribute up to $5,000 per year.
Married couples can contribute up to $10,000 per year.
Contributions may be deductible, and earnings grow tax-free if used for a qualified home purchase.
To qualify, individuals must be Alabama residents who have not owned a home in the 10 years prior to their purchase. If funds from the savings account are not used for a home purchase, they may become taxable income.


Additional Tax Benefits for Homeowners
Being a homeowner continues to have its perks. Additional benefits include:

Home Office Deduction: Homeowners may be able to deduct certain expenses related to home ownership when they use a portion of their home exclusively for conducting business, Singletary and Graham said. A tax professional can help you identify the deduction method appropriate for your needs.
Energy Efficient Home Improvement Credit: The Energy Efficient Home Improvement Credit is a tax credit of up to $3,200 for the following home improvements:
Qualified energy efficiency improvements (insulation and exterior windows and doors)
Qualified residential energy property expenditures (water heaters, furnaces, HVAC units, etc.)
Home energy audits
The credit is equal to up to 30% of the taxpayer’s expense, with additional limitations in place.


Successfully Filing Your 2024 Taxes as a Homeowner
There are many advantages to homeownership, including available tax incentives. To maximize your benefits, Singletary and Graham encourage you to work with a qualified tax preparer.

“Homeowners should discuss their homeownership status with a tax professional so that their preparer can work with them on how to take full advantage of the tax credits available to them,” they said.

Source: https://www.alabamarealtors.com/posts/2025/02/18/your-guide-to-homeownership-tax-savings-for-2024

01/27/2025

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01/24/2025

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03/01/2024

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