How Long Should You Keep Your Mortgage Documents?
Tax season is the perfect time to sort through your paperwork to make “keep” and “shred” piles.
But when it comes to mortgage documents, which do you keep, and for how long? And which can you safely toss?
IRS Could Ask For Proof
As a rule of thumb, you should keep all of the contract papers detailing your home purchase and original loan for the life of the loan.
And sometimes longer.
Since home loans can have tax implications, the IRS provides guidelines on what paperwork you need to keep and for how long. You could be required to produce records that prove income, deductions or credit claimed for at least three years from the date of a return.
If you failed to file a tax return in any given year, there is no statute of limitations. In that case, the IRS recommends you keep documents related to those records indefinitely.
You also should keep records of any major home improvements, such as a remodel or addition, and records of expenses incurred while buying and selling, such as legal fees and agent commissions, to calculate capital gains.
A capital gain is a profit that results from the sale of an asset that amounts to more than the purchase cost. Any improvements you’ve made on your house, as well as expenses when selling it, are added to the original purchase price. The difference between the sale price and the original price is the capital gain. Keeping records of these expenses can help lower your capital gains tax.
Other paperwork associated with the loan, such as refinancing agreements, should be kept for at least three years, although some real estate professionals recommend keeping this paperwork for up to 10 years. That’s because you might want to refer to it if your monthly mortgage statements seem inaccurate or if there’s a sudden, unexpected change in your monthly interest rate, for instance.
You’ll need to keep monthly statements, such as those detailing paid monthly mortgage loan fees, only as long as you feel necessary – perhaps a few months – to ensure the payments were credited to your account.
Three Keepers Tied To Your Mortgage
These documents should be kept in a safe place while you still own the home:
The U.S. government recommends that you hang on to any deeds as long as you own the property. But if you’ve paid off your mortgage, and the deed to your property has been recorded in land records, the documents can be tossed. That’s because most municipalities have copies of these documents available online. Even so, your personal copy is the quickest way to prove that you are, in fact, the owner of your home.
Before discarding these papers, make sure you have a document labeled “release” or “certificate of satisfaction.” You can verify this with the title company that handled your closing.
Mortgage (Or Deed Of Trust) And Promissory Note
Much like your deed, you’ll want to keep these documents for at least as long as you own the property. In the old days, homeowners had “note burning” parties at which they torched their mortgages to celebrate paying them off. While that may have been fun, these documents are still incredibly important, and you’re much better off filing them in a storage cabinet.
Consumers should hold on to the Closing Disclosure for at least a year after closing on their mortgage.
The disclosure details the fees you paid to the lender and third parties, as well as whether or not you paid discount points. Under some circumstances, you can deduct discount points from income taxes, but you’ll need to keep the Closing Disclosure for as long as you use the deduction.
Three To Keep Even If You Don’t Have A Mortgage
Even if you’re not signing a mortgage, there is paperwork you should keep until it’s no longer needed:
Purchase Contract And Seller Disclosures
If any undisclosed problems crop up with your home during your first two or three years of ownership, you may want to refer to the contract and disclosure documents to prove that the seller didn’t mention the problems. Keep these documents until you’re confident you’re past the point when undisclosed issues will emerge.
If you have a home warranty, keep a copy until it’s expired (they’re often annual contracts that would need to be renewed). Checking through this paperwork is the fastest and easiest way to know what’s covered.
Home Inspection Report
You should keep the home inspection report for two to three years, since it’s likely to convey information about the ages and conditions of systems and appliances, among other things. For example, the home inspector may have estimated the age of the roof, which gives you an idea of when it will need to be replaced.
How To Keep Your Records Safe
Online or cloud-based records can be hacked, and hard drives can fail.
We recommend you keep important real estate records in a locked fireproof cabinet or safe deposit box. Make sure to tell any other party named on your mortgage where the files are and how to access them.
If you’re still feeling overwhelmed by documentation, talk to your tax advisor or call a Home Loan Expert at (800) 785-4788 before heading to the shredder.