Tag Archives: owning a home

Homeownership 101: Are You Ready?

Owning your own home is part of the American dream. But it takes more than just dreaming of buying and maintaining a home. Before you take the plunge, here are some things to ask yourself.

Does it make sense to buy?

Buying instead of renting needs to make sense financially. To help you decide, play with Zillow’s Buy vs. Rent calculator to see how many years it will take before the cost of buying equals the cost of renting. It’s called the breakeven horizon, and it varies by area of the country.

If you plan to stay in your home past your breakeven horizon, then buying makes financial sense. If you think you’ll move earlier, then renting may be the way to go.

Are you financially ready?

Buying a house involves raising a down payment and paying a monthly mortgage, which lasts anywhere from 5 to 30 years, depending on the home loan you can afford and are offered. There are other costs as well, but let’s focus on the big money.

Down payment: It’s the lump sum you’ll pay upfront that funds equity in the property and proves to lenders that you’ve got skin in this homeowner game. Down payments vary. In the go-go days that led up to the housing collapse, some lenders dismissed the down payment altogether – and we see how well that ended. Today, 20 percent is preferred and often gets you the best rates, but some loans allow down payments as low as 3 percent. Sometimes parents or friends can offer help with the down payment. If you have a choice, take a gift rather than a loan, not only for obvious reasons, but because lenders will add that debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 43 percent to qualify for a home loan.

Monthly mortgage payments: This is what you’ll pay each month. In most cases, a mortgage includes the loan principal and interest (both amortized over the life of the loan) plus homeowners insurance and property taxes (pro-rated). When credit was tight, getting a mortgage at any rate was reserved for only the most credit-worthy borrowers. Things have loosened, but lenders still want to know that you’re a responsible, gainfully employed and credit-worthy candidate.

Are you emotionally ready?

Owning a home is a huge commitment so before jumping in, consider if you are ready to make lots of decisions, from picking an agent to picking paint colors. Are you confident enough to select a neighborhood where you’ll want to stay for a while? And are you up for devoting the time and attention to maintaining a home? Weekends will disappear under chores like pulling weeds, cleaning gutters, shoveling snow, sealing counters and decks, and on and on. Taking care of your biggest investment can be gratifying but only if you’re ready.

Do you have the skills?

Your home will require regular maintenance and repair, and there’s no landlord to call for help. You’ll need some basic handyperson skills so you won’t go broke hiring a repair professional to remedy every odd sound or smell. Here are some things every homeowner should learn how to do:
• Change a toilet flapper
• Shut off the main water valve and outdoor faucets
• Change a furnace filter
• Clean gutters of debris
• Change smoke detector batteries
• Locate and flip breaker switches
• Locate studs to hang shelves
• Paint a room

Post courtesy of zillow.com

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Homeowner Tax Benefits

Did you know that paying money to own a home can actually save you money? This April 15, take advantage of these tax benefits and reap your homeowner rewards for the rest of the year.

  • Reduce the interest on your mortgage

No longer do mortgage payments have to be a burden. Now you can take advantage of those homeowner fees and deduct them from your taxes. The more you pay on your mortgage now, the more you’ll save when April rolls around.

If you’ve taken out a mortgage recently, you’re in even more luck. Because early mortgage payments are mostly all interest, you can claim a deduction for these interest payments and save on your taxes.

  • Deduct your property taxes

 

With deductible property taxes comes hefty savings. The average household property tax is $2,127, according to the U.S. Census Bureau. This can either be deducted from your monthly payment on your mortgage, or by writing off the payment after paying your property taxes off early.

Something important to note: you must claim the tax deduction in the same year you write the check. For more details, check out how to calculate property taxes.

  • Insurance on your private mortgage

 

You might be paying private mortgage insurance if you initially paid less than 20% for your home. You can deduct the small percentage of interest on this insurance from your annual income and pay less in taxes.

 

For example, if you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut taxable income by $1,500.

 

  • Putting “green” updates in your home puts more “green” in your wallet

For any equipment you’ve updated in your home that uses renewable energy sources, you can claim up to 30% of the installation costs from The Renewable Energy Efficiency Property Credit.

Upgrades such as wind turbines, solar panels, HVAC systems, energy-efficient windows, and storm doors could help you earn a tax credit of up to $500. While some of the credit for these updates might have expired in 2016, the credit for installing solar panels runs until 2019, so hurry and take advantage of these extra “green” savings.

  • Stay in – work from home

Working in your pajamas never had so many benefits. By claiming your “office space” at home, you can take a $5-per-square-foot deduction off your annual taxes, for up to 300 sq./ft. of office space. Check with your accountant to make sure you fulfill all the requirements before taking advantage of this money-saving opportunity.

  • Age in place

By renovating your home to make it more accessible as an older homeowner, you could save on your taxes this year. Wheelchair ramps and grab bars in bathrooms are two updates that could help you save big.

Jayson Mullin, owner of Top Tax Defenders, says “You can deduct the amount by which the cost of the improvements exceeds the increase in your home’s value.” If you spend $5000 installing a wheelchair-accessible ramp in your home, and it increases the value of your home by $3,000, the end deduction you could claim would be $2,000.

The only catch is the renovations must cost more than 10% of your AGI, unless you or your spouse are 65 or older, then the cost must only exceed 7.5% of your AGI.

 

  • Take advantage of your HELOC

Deduct the interest you pay on your home equity line by spending it on repairs and renovations for your home. The bigger the loan you take out, the more you can save later on your taxes. So this year, upgrade your home and you might reap big financial benefits.