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By Ilyce Glink
2/13/2009 8:00:00 AM
Q: I'm a full-time student who's about to graduate this year. My plans are to hopefully begin the process of buying a home six months after I start working. How will my student loans affect my ability to qualify for a mortgage loan?
I expect to have $100,000 in student loans. Also I should have started repaying these loans at the same time I'm trying to qualify for a mortgage.
A: Like so many students, you're graduating with what amounts to a mortgage on your education. In fact, many people have home loans this big!
The monthly payment for your loans (referred to as the "debt service") will be subtracted from the total amount you can use to pay for your mortgage, real estate taxes, homeowner's insurance and total debt.
Lenders will commonly allow you to use up to 28 percent of your total gross monthly income for your mortgage, real estate taxes and homeowner's insurance payments. You will be able to spend up to 36 percent of your gross monthly income on your total debt. If you get an FHA loan (as opposed to a conventional loan), you'll be able to stretch those debt-to-income ratios a little higher.
It's possible that with your student loan monthly payments, you may not be able to afford to buy anything until you've paid down those loans significantly. If your income is high enough, you may be able to afford to buy even while you begin repayment.
I'd take the safe road: Don't begin to even look for a home until you know how much you'll be making, and what kind of a bite your debts will take out of that monthly income. And remember -- if you spend 43 percent of your gross monthly income on your mortgage, taxes, insurance and student loans, it can eat up as much as 65 percent of your take-home pay, leaving little for everything else in your life.
For more help calculating these costs, please read my book: "100 Questions Every First-Time Home Buyer Should Ask" (3rd edition) to help you get started (it's available in most local libraries).
Q: Last March, we helped our son buy a townhouse. He makes the monthly mortgage payments. However, the deed is in our name. Which one of us can claim the interest on the mortgage for 2008? Your expertise in this matter would be greatly appreciated.
A: If your name is on the deed and your name is on the mortgage, then I believe you would take whatever write-off is possible. What he is doing (if he isn't on the deed or named on the mortgage) is paying you rent, only he is paying it directly to your mortgage company for you. Which isn't good for his credit and it isn't good for his long-term financial planning.
I'm not sure what you and your husband were hoping to achieve with this arrangement, other than to get your son moved into another place. I hope the arrangement is working out for everyone. Please talk to your accountant or tax preparer for more details.
Q: My wife and I purchased our second home in Wisconsin for $320,000 in 1991. My wife passed away last year. The house has been valued at $1.5 million. How do I calculate taxes on my gain if I sell this year?
A: On a second-home sale, you will be taxed on long-term capital gains. You can calculate this by taking the sales price, and subtracting the costs of the purchase and sale of the property, then subtracting the cost of any capital improvements (not including decorating) or structural additions you made to the property over the years.
Let's assume that after subtracting the costs of sale, you net out at $1.3 million. If you spent $320,000 to buy the place, and had another $250,000 in structural improvements over the years, your capital gains would be around $730,000. On that amount, you'd owe federal capital gains tax of 15 percent plus any applicable state tax.
For more details, please speak to your accountant or tax preparer.
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