Five tips for those looking to buy a home
◙ July 22, 2020 | Posted by: foodsupport.org | Written by: Scarlett D. | Related: Downpayment Assistance
It's considered the American Dream to purchase your own home. Many people have been unable to achieve this goal in the past due to market conditions. This trend appears to be reversing itself. According to a study performed by NerdWallet, thirty-two percent of Americans are planning on making a home purchase within the next five years. This is a positive sign that the economy is headed in the right direction. For those looking to buy a home in the near future, here are some things that you need to take under advisement.
1. Try to make the highest down payment possible
Putting at least twenty percent down for the purchase of your home will eliminate some of the extra costs associated with your mortgage. While it's still possible to qualify for a loan without having twenty percent down, you will be required to purchase private mortgage insurance (PMI). This is because you're a greater risk to the lending agency. The PMI is not typically a large amount. However, it will add to the cost of your loan until you pay it down.
2. You can deduct your mortgage interest up to a certain amount
There is a common misconception that with the changing tax code you're unable to deduct your mortgage interest. This is not actually the case. However, there are limitations on the amount of interest you're allowed to deduct. You can deduct the full amount of your mortgage interest up to the $750,000 mark of the value of your home. Most areas of the country still have a median home value that is under 300,000. What this means is that unless you live in an area with high home values, you can still deduct the full amount of your mortgage interest from your taxes. This can help you to offset the cost of your home purchase initially, because you will be paying more interest on your home until you pay the loan amount down further.
3. Property tax deductions may be limited
State, local, and property tax deductions combined have been capped at $10,000. This means that this is the total amount that you can deduct from your federal taxes for all of these taxes added together. Depending on where you live, this may have no effect on you. There are some states that have extremely high property taxes. This may be something that you want to take consideration before deciding to make a home purchase. Check out the estimated property taxes before you buy a home. Many realtors have this information available to potential home buyers.
4. The home equity loan interest deduction has been eliminated
It was a common practice for people to purchase a fixer upper, and take out a home equity loan in order to pay for these renovations. This doesn't mean that you shouldn't purchase a fixer upper. You just have to be more creative in how you fund your renovations. Consider taking out extra money from your primary mortgage loan, if it's allowed by your lender. The caution with this is that you don't want to exceed the $750,000 mark to get the most benefit from your tax deductions. You may need to wait a few years, and refinance your current mortgage in order to complete your renovation projects.
5. Take into account the cost of home maintenance
The rule of thumb is that your housing costs shouldn't be more than thirty percent of your total income. Experts say that this includes your mortgage, property taxes, and home insurance. In order to be financially responsible, you also need to take into consideration the additional costs associated with upkeep. Owning a home is expensive. NerdWallet estimates that the projected costs of home maintenance are one to two percent of the value of your home. You need to have some money set aside for unexpected expenses, such as a new roof or a broken furnace. Having this contingency budget can keep you out of financial hardship when it comes to owning a home.
A home is a great investment opportunity. You just have to play it safe when making your home purchase. Take into account all the benefits and pitfalls of owning a home.