Janitor Bob Posted March 25, 2011 Report Share Posted March 25, 2011 OK....first of all...forgive me...I have had very little exerience with clients buying homes. I am confused as to what exactly makes up "points". It is pretty clear on the 1098, but there a lot of charges on the HUD settlement statement. I do not really know what, if any, of these amounts can be considered points. Are all of the loan origination charges considered points or only some of them? I only part of the amount is points, how do I knbow what portion is points? I am a little embarassed that I do not know this and any help provided to educate me is appreciated. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 25, 2011 Report Share Posted March 25, 2011 From the handy dandy Quickfinders: Points - often referred to as loan origination fees, loan discount, discount points or points. The must be computed as a percentage of the principal amount, etc. I just googled points and found this: http://www.moving.com/articles/mortgage-loan-points.asp and this: http://www.bankrate.com/finance/mortgages/mortgage-points.aspx Look at a HUD settlement sheet usually lines 801 and 802, top of second page. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 25, 2011 Report Share Posted March 25, 2011 OK....first of all...forgive me...I have had very little exerience with clients buying homes. I am confused as to what exactly makes up "points". It is pretty clear on the 1098, but there a lot of charges on the HUD settlement statement. I do not really know what, if any, of these amounts can be considered points. Are all of the loan origination charges considered points or only some of them? I only part of the amount is points, how do I knbow what portion is points? I am a little embarassed that I do not know this and any help provided to educate me is appreciated. Most of the time the points that are reported on the 1098 is the one I use. The HUD normally has the same amount as origination charges. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 25, 2011 Author Report Share Posted March 25, 2011 Most of the time the points that are reported on the 1098 is the one I use. The HUD normally has the same amount as origination charges. Thank you for the replies...The 1098 has points of $750.00, but the HUD has origination charges...that "include points" of $3,309.51....so I am unclear if the entire $3,309.51 is points or if only $750.00 of the $3,309.51 is points. Quote Link to comment Share on other sites More sharing options...
rfassett Posted March 25, 2011 Report Share Posted March 25, 2011 Your humililty impresses me. Can I have some of that? Anyway, if the points are broken out on the 1098, that is probably all you will get. In the truest sense, points are what the borrower is paying to "buy down" the interest rate. They, the points, therefore have been determined to be prepaid interest. That is what makes them deductible. They are not very often broken down separately on the hud. Most of what you are looking for on a homeowner hud is interest expense and real estate taxes. The rest is just filler. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted March 25, 2011 Report Share Posted March 25, 2011 I agree JB. Use the figure on the 1098. What the others are saying is you can use the information from the HUD 1 if the points paid are not listed on the 1098. The deductible items are the loan origination fees, and of course, taxes paid. I hope all of the replies clears the mud for you Quote Link to comment Share on other sites More sharing options...
jainen Posted March 25, 2011 Report Share Posted March 25, 2011 >>you can use the information from the HUD 1<< In my opinion only the HUD-1 (or comparable settlement statement) will give you enough information. For one thing, the 1098 might not report additional points paid to a broker or a second lender. On the other hand, it may improperly include points actually paid by the seller or real estate agent. Even if the number is correct, it won't show that the borrower brought in at least that much in cash, a requirement to avoid having to amortize. The HUD-1 has been improved this year, and now shows amounts paid outside of escrow, rebated, paid by the lender to the broker, and other important facts. Quote Link to comment Share on other sites More sharing options...
rfassett Posted March 25, 2011 Report Share Posted March 25, 2011 jainen made be look because his comment made me think of a nuance in this that I knew was there but could not recall. It does not matter if the points are paid by the buyer OR the seller, the buyer is entitled to the deduction irrespective of which party pays. So even though there is a requirement that there be enough cash at closing to pay them, it does not have to be the buyer's cash. Quote Link to comment Share on other sites More sharing options...
Jim Oh Bkkr Posted March 25, 2011 Report Share Posted March 25, 2011 Just a reminder side note Bob, the buyer has NO R/E tax deduction in the year of purchase. And Buyer will (most always) be reimbursed for the portion of the "current" year's accumulated taxes (to be paid in the following year) on the closing statement. Seller will have 13 to 24 months current R/E tax deduction (depending on sale date). You know this, I'm sure. Just reminding you, because - "I have had very little exerience with clients buying homes". To all others - This is OHIO specific and may not apply to your state. Jim Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 25, 2011 Report Share Posted March 25, 2011 One further reminder - points are deductible on the purchase of the home, but if it is a refinance, then they must be amortized over the life of the loan rather than deducted up front. But it sounds like from the original post that this is a purchase. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 25, 2011 Author Report Share Posted March 25, 2011 I think what I will do is scan and post a copy of the HUD settlement statement and see if some of you agree with me on what might qualify as deductible points. Quote Link to comment Share on other sites More sharing options...
clay Posted March 25, 2011 Report Share Posted March 25, 2011 One further reminder - points are deductible on the purchase of the home, but if it is a refinance, then they must be amortized over the life of the loan rather than deducted up front. But it sounds like from the original post that this is a purchase. On a refi the points will probably not show up on the 1098. I believe the box in the 1098 says something to the effect of "original purchase". I just had a client who received a letter on a refi that stated the amount paid for points, but their 1098 did not have the info. Quote Link to comment Share on other sites More sharing options...
chadlonetree Posted March 25, 2011 Report Share Posted March 25, 2011 Yes I always put in the origination fee of a refi on line 12 of SCH A. The "Magic Bunny" brings up the entry that calculates and amortizes it quite nicely. It rolls over every year and will give you a warning when you do an error check just in case you forgot to take the amount from a prior year. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 27, 2011 Author Report Share Posted March 27, 2011 I have attached to this reply the HUD-1 Addendum. It looks to me like points of $1,409.01 would be deductible, but what about the Origination Fee of $1,225.50....is that considered poiints and deductible? Also....the 1098 for this property lists Points of $736. Should I include this AND points from the HUD or just from the HUD? Quote Link to comment Share on other sites More sharing options...
Kea Posted March 27, 2011 Report Share Posted March 27, 2011 It's my understanding that the origination fee is included in points when it is based on a percentage of the loan. I have frequently seen "loan origination (1%) = $xxx." But your posted HUD-1 doesn't say that. So I can't tell if they used a flat fee or based it on a percentage. I had one this year that just listed $500 for origination fee. In that case I didn't include it. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 28, 2011 Author Report Share Posted March 28, 2011 I have attached to this reply the HUD-1 Addendum. It looks to me like points of $1,409.01 would be deductible, but what about the Origination Fee of $1,225.50....is that considered poiints and deductible? Also....the 1098 for this property lists Points of $736. Should I include this AND points from the HUD or just from the HUD? Any opinions on this? Your comments and advice is appreciated. Quote Link to comment Share on other sites More sharing options...
clay Posted March 28, 2011 Report Share Posted March 28, 2011 I would go with the points listed on the 1098. Origination fees are usually the same as "application" fees, which are not the same as points. Quote Link to comment Share on other sites More sharing options...
jainen Posted March 28, 2011 Report Share Posted March 28, 2011 >>points of $1,409.01<< This is not the actual HUD-1, but appears to be an estimate or summary of only the buyer. The term origination fee is a synonym for points, but the statement's figure doesn't match the 1098 so presumably the seller or somebody paid it as I suggested earlier. Note that the $1409.01 was offset with a higher interest rate, so it is not deductible. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 28, 2011 Author Report Share Posted March 28, 2011 >>points of $1,409.01<< This is not the actual HUD-1, but appears to be an estimate or summary of only the buyer. The term origination fee is a synonym for points, but the statement's figure doesn't match the 1098 so presumably the seller or somebody paid it as I suggested earlier. Note that the $1409.01 was offset with a higher interest rate, so it is not deductible. I just get more confused as I go. I will scan and post the actual HUD-1 and see what advice you may have. Quote Link to comment Share on other sites More sharing options...
clay Posted March 28, 2011 Report Share Posted March 28, 2011 I just get more confused as I go. I will scan and post the actual HUD-1 and see what advice you may have. . Many banks charge origination fees, which may or may not be prepaid interest - often they are a fee to process the loan. At least in my area, banks list "origination fees" and "points" (to get a lower interest rate; prepaid interest) separately. For about 5 years I had seen very few "points" but with interest rates reversing and going up, they are becoming more common as borrowers are opting to pay points to obtain a lower rate; and on top of that they almost always pay a fee to the bank to process the mortgage. So it looks like the 1098 is giving you the true cost of points paid by the borower. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 28, 2011 Author Report Share Posted March 28, 2011 Attached is the page from the HUD-1 that details the points. Again....I'm not sure what I can claim for the client. The 1098 states points of $756, but as you can see, the HUD has points of $1,409.01 If someone culd look at this and tell me what you would see as deductiblr points, I would appreciate it. Also...the seller paid closing costs of $2,000.00. This reduced the amount that my client (borrow) had to pay, but the HUD does not detail what comprises this $2,000.00....not sure if all or some of this would be points Quote Link to comment Share on other sites More sharing options...
jainen Posted March 28, 2011 Report Share Posted March 28, 2011 >>as you can see, the HUD has points of $1,409.01<< I DON'T see that! I see yet another number, $1900.50. And I also see that I still don't see the full HUD-1--the numbers on this page are more than $4800 out of balance. Quote Link to comment Share on other sites More sharing options...
grandmabee Posted March 28, 2011 Report Share Posted March 28, 2011 WHO IS the 1098 from? which bank? I see 1901 points on the statement you listed property taxes you highligted are reserve taxes also remember you only deduct them when paid to county not when put into reserves Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 28, 2011 Author Report Share Posted March 28, 2011 WHO IS the 1098 from? which bank? I see 1901 points on the statement you listed property taxes you highligted are reserve taxes also remember you only deduct them when paid to county not when put into reserves Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 29, 2011 Author Report Share Posted March 29, 2011 Please see attached the entire HUD-1 (3 pages). Jainen....please take a look and let me know your thoughts. bcolleen...Thanks for the tip on the property taxes. Quote Link to comment Share on other sites More sharing options...
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