BEFORE buying a home, you should be debt-free with 3-6 months of expenses saved for emergencies, and have a down payment saved of at least 10%. A 20% down payment is even better to avoid PMI. Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
Remember, just because you're approved for a loan amount doesn't mean you should borrow that much. Make sure your mortgage payment is no more than 25% of your take home pay on a 15-year, fixed rate conventional loan. (Source: Dave Ramsey)
In today’s housing market, there are clear financial benefits to owning a home: increasing equity, the chance to build your net worth, and appreciating home values, just to name a few. If you’re a renter, it’s never too early to think about how homeownership can propel you toward a stronger future. Here’s a dive into three often-overlooked financial benefits of homeownership and how preparing for them now can steer you in the direction of greater financial security and savings.
1. You Won’t Always Have a Monthly Housing Payment
“Every payment brings you closer to owning the house. When you pay your rent, that money is spent. Gone. Bye. Not returning. But when you pay your mortgage, you work toward full ownership.” - Personal finance advisor Dave Ramsey
As a homeowner, you can eventually eliminate the monthly payment you make on your house. That’s a huge win and a big factor in how homeownership can drive stability and savings in your life. As soon as you buy a home, your monthly housing costs begin to work for you as forced savings in the form of equity. When you build equity and grow your net worth, you can continue to reinvest those savings into your future, maybe even by buying that next dream home. The possibilities are truly endless.
2. Homeownership Is a Tax Break
One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. The same article states:
“You have tax advantages. Many of the costs of owning a home—like property taxes—are tax deductible. And if you’re paying off a mortgage, you’ll get to count your mortgage interest as a deduction when you file your tax return.”
Whether you’re living in your first home or your fifth, it’s a huge financial advantage to have some tax relief tied to the interest you pay each year. It’s one thing you definitely don’t get when you’re renting. Be sure to work with a tax professional to get the best possible benefits on your annual return.
3. Monthly Housing Costs Are Predictable
A third benefit is the fact that monthly costs start to become more predictable with homeownership, something that doesn’t happen if you’re renting. Ramsey also notes:
“Rent rates will go up. Even if you found a killer deal in a hot area, inflation, competition, and rising property values will cause your rent to go up year after year.”
With a mortgage, you can keep your monthly housing costs relatively steady and predictable. Your monthly costs are most likely based on a fixed-rate mortgage, which allows you to budget your finances over a longer period of time. Rental prices have been since skyrocketing 2012, and with today’s low mortgage rates, it’s a great time to get more for your money when purchasing a home. If you want to lock-in your monthly payment at a low rate and have a solid understanding of what you’re going to spend in your mortgage payment each month, buying a home may be your best bet.
The goal is to OWN your own home, not let it own you.
Tips on Purchasing a New Home:
BEFORE you even start looking for a home to buy: GET PREQUALIFIED.
Again, the obvious one....save your money prior to purchasing a new home. Set up a separate savings account and SAVE, SAVE, SAVE until you reach that goal number! I suggest a HIGH YIELD SAVINGS ACCOUNT for this.
Talk to a MORTGAGE LOAN COMPANY to figure out the LOWEST DOWN PAYMENT you can get - it doesn't always have to be 20%.
DON'T SETTLE! BE PATIENT and wait for what it is you really want.
Things To Look for When House Hunting:
Location - Consider any potential home's proximity to your work, the charm of the neighborhood, how the home is situated on the lot, ease of access, noise from neighbors, traffic, and pets, as well as access to parks, shopping, schools, and public transportation.
"If you aren’t sure you can be located in that metro area for work for a fairly long period of time, DON’T BUY."
Why?
1. Sales costs are significant at 6% of sales price. If you assume you’ve built 30% equity when you’ve sold, you’re paying 20% of your equity in sales costs. This could be your entire profit.
2. Prices don’t always go up. Price increases are partially a result of lowered interest rates, which have been declining since 1982. At some point, rates may rise causing prices to decline. This is ok if you can stay in your home, the tax advantages and increased savings makeup for the price decline. However, if you need to sell because you are forced to move for work/family then you will not recover the loss. (Source: David Zislin, CFA a Financial Advisor in Manhattan)
The Site - Beyond location, look at the site of the home. If the home is on a hill, does it have a view, a walkout basement, or lots of stairs to climb? Do neighbors' windows look directly into the home? Is the yard suitable for kids, pets, gardening, or other uses? Is access to the property safe regarding driveway elevation or stairs to the front door?
The Neighborhood - Be sure the neighborhood, and not just the house, meets your expectations. They say that you should own the smallest home in the nicest neighborhood that you can afford. You'll have a great view! Drive around on weekdays and weekends, during the day and in the evening. Are homes in the neighborhood consistent in size and features? Do the neighbors keep the yards clean and tidy, or are there old cars and trash around? Is the neighborhood safe enough for people to walk, run, or bike, and are there children playing in the yards?
Curb Appeal - Your home should reflect your lifestyle. Do you live a laid-back life? Then you might not want a formal Victorian or Tudor-style home. Something simpler and more contemporary might be in order. Look at the exterior features. A brick home is easier to maintain, unless, of course, you live in an earthquake-prone area. Ask yourself whether the roof is in good condition. Is the landscaping attractive and are the sidewalks leading to the home safe?
The Size and the Floor Plan - You may be thinking about buying your dream home. But is your dream home impractical? Do you need four bedrooms and four baths when you live alone? A large home can give you the extra space you've always wanted for a home office or crafts or art projects. But you'll pay higher heating bills and have higher taxes. It will take more furniture to fill it and money to decorate. Think about how the new home space will be used and whether it will fit your lifestyle now and in the future.
The Bedrooms and Bathrooms - Decide how many bedrooms and bathrooms you need, and only look at homes that meet your criteria. It would be a shame to fall in love with a cozy, charming cottage that isn't big enough. An extra bedroom is always a plus, as it can be used for a home office, craft studio, or guest room. If you think you'll be adding more room later, be sure to consult an architect who can advise you on space planning, lot usage, and city regulations.
The Kitchen - If the kitchen is the heart of your home, don't settle for a home with a kitchen that won't work. You can always remodel, but it's very costly. Can you replace cabinet faces and countertops? Will an inexpensive makeover be sufficient? Don't worry about appliances, as they can usually be easily replaced.
The Closets and Storage - Older homes tend to have little closets and not a lot of storage space. If you have lots of sports equipment, craft supplies, out-of-season clothes, and holiday decorations, be sure you know where all this will go in your new home. Newer homes tend to have big closets and lots of storage. You can always add storage space, but you might have to sacrifice living space in your rooms.
The Windows and Lighting - Do you love a bright sunny room or do you love privacy? Look at home with light and sunshine in mind. Look at the locations of electrical outlets and fixtures. Will they accommodate your lighting needs? Is there recessed lighting in the kitchen, cove lighting in the family room and a lovely chandelier in the dining room? If not, you can add them later, but it's nice to have it in place when you move in.
The Finishing Touches - Sometimes the simplest home looks spectacular thanks to the installed moldings, hardware, and fireplace. If these elements are important to you, look for them while house hunting or be ready to add them after you move in. If you keep these specific elements of a home in mind, your house hunting will be more successful, and you'll likely end up with the home of your dreams.
Appliances - are they new or old?
Interior doors - are they new or old?
Electrical & Plumbing - are they updated?
Windows - are they updated?
Roof - is it in good shape?
Fireplace - Make sure it has been inspected annually, to remove any creosote build-up, which can block the chimney, forcing toxic fumes back into your room. Always keep a window open (even a crack) to allow pollutants to escape the room. And finally, install a smoke and carbon monoxide detector near your fireplace and check the battery regularly.
Basement - Radon, the invisible odorless, radioactive natural gas found in many basements, causes lung cancer. Radon enters basements through cracks in the floor, the walls, crawl spaces and sump pumps, and it's microscopic particles attach themselves to airborne materials like dust or cigarette smoke. You risk inhaling these harmful particles into your lungs. To protect yourself, test your home with an inexpensive kit sold at hardware and home improvement stores. Look for a kit approved by the Environmental Protection Agency (EPA). Or hire a professional inspector to test for it. If the test indicates that you have radon levels above 4 picocuries per liter of air (pCi/1), the EPA recommends that you work with a licensed radon contractor to install a radon mitigation system in your basement, which typically costs $1,000 - $2,000. If you have lower levels, you can try cheaper options, like opening a basement window to increase ventilation, or using caulk and cement to seal spaces that allow radon to enter. Retest to see if these measures lower the radon to a safe level (below 4 picocuries per liter). If they don't, experts advise that you hire a contractor.
If a basement is damp, its walls are likely to swarm with mold and mites.
Refinancing:
Two years ago, when a friend purchased her home she secured a 4.625% interest rate with a 30 year loan. Most of her mortgage payments were going to interest instead of her principal, so the total balance barely made any change. Her mortgage is one of her biggest monthly costs, so she looked into refinancing after hearing how good interest rates are now and started the process. She was able to refinance and saved 2% which actually turned out to be a lot for her.
She is going to keep making the same payments she was to pay off the loan 9 years faster. It could be a good time to look into it also, if you're a homeowner.
Check Your Tap Water:
Since 2012, water utilities' testing has found pollutants in Americans' tap water, according to an EWG (Environmental Working Group) drinking water quality analysis of 32 million state water records. The Environmental Working Group is an American activist group that specializes in research and advocacy in the areas of agricultural subsidies, toxic chemicals, drinking water pollutants, and corporate accountability. EWG is a nonprofit organization.
To check the pollutants in your home's tap water, go to EWG's Tap Water Database HERE .
All you need to do is enter your zip code. When I put in my zip code, it shows:
26 Total Contaminants and 11 of those contaminants EXCEED The Environmental Working Group's (EWG) Health Guidelines. It also gives you a breakdown of which specific contaminants are detected in your water.
Legal does not necessarily equal safe. Getting a passing grade from the federal government does not mean the water meets the latest health guidelines.
Legal limits for contaminants in tap water have not been updated in almost 20 years.
The best way to ensure clean tap water is to keep pollution out of source water in the first place.
What To Do?
FILTER CONTAMINANTS OUT
Most Effective: Reverse Osmosis Systems (A reverse osmosis system combined with a carbon filter is most effective at removing water contaminants) Read more about Reverse Osmosis Systems HERE .
Least Expensive: Carbon Filters (ie: countertop pitcher filters to faucet-mounted filters, undersink filters and whole-house filters) Learn more about carbon filters HERE.
Soften Hard Water - A whole-house water softener combined with an ion exchange filter softens your water and reduces the levels of some contaminants. Read about water softeners HERE .
Remove Specific Contaminants - Find the right filter for your water – and budget. Check out the guide HERE .
Water Filters - One brand that I recommend is Crystal Quest for their selection of water filters. Check out their website HERE . Before making a purchase, contact me so I can give you my affiliate discount code!
CONTACT YOUR LOCAL OFFICIAL - Read more HERE .
WHAT ABOUT LEAD? Read more HERE .
I'll be sharing A LOT more about being a homeowner on upcoming posts, but in the meantime, I'd love to know if this post helped you or if you have anything to add. Leave me a comment below. I love hearing from you!