Tag Archives: property taxes

6 Hidden Costs to Consider When Buying a Home

Six Hidden Costs of Buying a HomeYou’ve saved a down payment, chosen an experienced local Realtor, set your budget, and you know how much you can afford to pay for a home. But your mortgage is not the only cost you need to consider when buying a home. There are many other costs. Here are six expenses you might not think about but should plan for:

  1. Transportation costs: In the greater Seattle area, transportation costs can be quite expensive, especially if you have a long commute, use the toll lanes or take the ferry to and from work each day. Mass transit is also an option, but it isn’t free. Regardless of your method of transportation, you’ll want to budget for transportation expenses, including parking, car insurance, fuel and car maintenance if you’ll be driving yourself to and from work.
  2. Taxes: There are many kinds of taxes (e.g., property taxes, income taxes, personal property taxes, etc.), and they will vary by state and local jurisdiction. Before moving to a brand new area, especially if you are moving out of state, make sure you know what all of the taxes are that you will be responsible for paying.
  3. Utilities: The types of utilities you’ll pay will depend on where you’re located and the types of services you need (e.g., gas, electric, water, sewer, stormwater, etc.) In addition to the monthly expenses, some utilities will require a deposit, especially if you are moving from outside the area.
  4. HOA fees: If the home you are buying or building belongs to an HOA, there will be HOA dues. Find out what these are in advance and under what circumstances the fees can be raised.
  5. Moving: Are you hiring a moving company to help you get from home A to home B? Are you moving yourself? Consider the costs of a moving company or truck rental, packing materials, gas, mileage, etc.
  6. Cleaning: If you are moving from a rental apartment or home, you may have cleaning or repair fees to cover.

 

What Homeowners Can and Can’t Deduct on Their Federal Tax Return

What Homeowners Can and Cannot Deduct on Their Federal TaxesOne of the many advantages to being a homeowner is the ability to deduct certain home-related expenses from your federal taxes. Here are some tax deductions and credits you’ll want to be sure to take advantage of when you file your 2016 federal tax return.

  1. Mortgage interest deduction. You can deduct mortgage interest paid annually. For singles, you can deduct interest on a mortgage up to $500,000. Joint filers can deduct interest paid on a mortgage up to $1 million.
  2. Deduction for interest paid on a home improvement loan. If you take out a home improvement loan, you can deduct the interest paid on that loan. There is no limit. However, there is a caveat – this deduction only applies to capital improvements made to your home, not to costly home repairs.
  3. Private mortgage interest (PMI) deduction. If you put less than 20 percent down, your lender likely required that you carry private mortgage insurance. Depending on your income, you may be able to deduct the premiums paid for PMI. Check with your accountant or tax preparer to see what the current year’s limits are and where you fall on the spectrum.
  4. Deduction for mortgage points. When you purchased your home, you may have paid mortgage points – or up-front fees – to get a lower interest rate. A point is typically equal to 1% of the total loan amount, so points can be costly. For example, a point on a $300,000 mortgage would cost $3,000. You are eligible for the deduction for the tax year in which you paid the points. If you bought a home in 2016 and paid points to lower your rate, you can deduct that amount on your 2016 federal tax return. If you refinanced a home or bought a second home, you may have to spread that deduction out over the life of the loan.
  5. Property tax deduction. Homeowners can deduct the amount of their property taxes on their federal income tax return. Your tax preparer can help you figure out the amount of the deduction which is not always straightforward because of how and when property taxes are billed and paid.
  6. Tax credits for residential and renewable energy efficiency improvements. If you made certain energy efficiency improvements (e.g., biomass stoves, air source heat pumps, insulation, etc.) to your primary residence in 2016, you may be eligible for a tax credit. Visit EnergyStar.gov for details.
  7. Home office deduction. Homeowners who have a separate home office that they use exclusively for business may qualify for a home office deduction. Visit IRS.gov for rules, restrictions and documentation required to qualify.

Here is a partial list of items you cannot deduct, courtesy of the IRS, publication 530:

  • Homeowner’s insurance premiums
  • The principal portion of your mortgage payment
  • Depreciation
  • Cost of utilities (e.g., gas, water, electricity)
  • Forfeited deposits, down payments or earnest money

We are not tax experts, however, so please talk with your accountant or tax preparer to confirm the deductions you are eligible for and what documentation you’ll need to provide to back up those deductions.

Sources: The Motley Fool, https://www.fool.com/retirement/2017/01/04/6-tax-deductions-homeowners-wont-want-to-miss.aspx

Energy Star, https://www.energystar.gov/about/2016_federal_tax_credits

IRS, https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

IRS, https://www.irs.gov/publications/p530/ar02.html

5 Commonly Asked Questions from First Time-Homebuyers

5 Commonly Asked Questions from First Time-HomebuyersWith 11 years as a Realtor® and 30 years of related industry experience, I’ve heard just about every question you can imagine from first-time homebuyers. Here are some of the most common questions I get along with the answers. I hope you find them helpful.

Why should I buy a home instead of rent?

A home is a long-term investment that gives you secure long-term housing and financial security. When you pay rent, that money goes to pay your landlord’s mortgage. When you make a mortgage payment, however, you are putting money toward your future. You can deduct the cost of mortgage loan interest, as well as property taxes, from your federal income taxes and, in some states, from your state taxes. You’ll also have something that’s yours and that reflects you and your personal style.

How much do I need for a down payment on a home?

A down payment on a home is a percentage of the home’s purchase price that you pay up front. Ideally, you should plan on a down payment of 20%, but depending on a variety of factors, you may qualify for a loan with as little as 3% down. For a conventional loan, if you are putting less than 20% down, your lender may require private mortgage insurance (PMI) which will increase your mortgage payments. The more you put down, the less your monthly mortgage will be. Also, remember that your down payment is not the only amount of up-front cash you’ll need to buy a home. There will be other expenses including closing costs to budget for.

Can I qualify for a mortgage if I don’t have a lot of money for a down payment or closing costs or poor credit?

The Federal Housing Administration (FHA) offers a variety of loan programs to help homebuyers with less-than-ideal circumstances. Learn more here. Click here for more information from the U.S. Department of Housing and Urban Development (HUD) including advice on buying a home and credit issues.

How do I find the right real estate agent?

I always recommend that prospective homebuyers work with a Realtor® rather than a real estate agent. While Realtors® and agents hold the same state licenses, a Realtor® adheres to the National Association of Realtor’s Code of Ethics and often has additional education. Read more about the differences between Realtors® and real estate agents here. To find the right Realtor®, ask friends and family for referrals and schedule an appointment with a couple of them to get to know them.

You’ll also want to visit their website, see what homes they’ve helped buy and sell recently, and what special qualifications they have, such as continuing education, special certifications or industry awards. Ask about their marketing plan, information about the current market where you plan to buy a home, and see if their communication style complements or conflicts with your own. When you’ve found a good fit, you’ll know!

How do I find a lender?

There are many entities that provide mortgage loans – traditional banks, credit unions, savings and loans, private mortgage companies and government-approved lenders. You can work directly with a lender, or work with a mortgage broker who will charge a fee to help you shop for the mortgage that best meets your needs. To choose the best option, I recommend you get referrals from family and friends and from your Realtor®. Then choose a few lenders to talk to. Ask what mortgage options they can offer, the price range of fees, time line to close, interest rates, etc.

In future posts, we’ll address other commonly asked questions.

 

Top 5 Reasons to Own a Home in 2016

Top 5 Reasons to Own a Home in 2016Whether you already own a home or are considering buying a home this year, a home purchase is a long-term commitment, even if you have enough money to buy it outright. Here are the top 5 reasons to own a home in 2016:

  1. Your home is an appreciable asset and an investment that will grow over time to help you grow and preserve your wealth.
  2. You have to pay for housing whether you own a home or rent one. Wouldn’t you rather pay toward something you can call your own versus paying your landlord’s mortgage?
  3. Setting money aside for your future can be hard to do, but owning a home forces you to put money away – toward something that you will one day own free and clear.
  4. There are huge tax savings associated with home ownership, like deducting mortgage interest and property tax payments.
  5. Inflation is a fact of life. Housing costs will rise over time. If you buy a home in 2016 and finance it with a fixed rate mortgage, you are locking in your housing costs for the length of your loan.

If you’re still not sure owning a home is right for you, contact a local Realtor® to discuss home ownership opportunities in your community.