Being a Homeowner: Struggling with Mortgage

If you are now struggling to make your mortgage payments, you’re not alone. According to RealtyTrac, 1 in every 2,253 homes is in foreclosure. In New Jersey, it’s 1 in every 1,043 homes; in Ohio, it’s 1 in every 1,503 homes.1 And with the novel coronavirus pandemic leading to rising levels of unemployment and income loss, you may feel that you’re also on the fast track to becoming another foreclosure statistic. Know that the federal government is suspending all evictions and foreclosures until the end of April. And if your mortgage payment issues are related to COVID-19, both Fannie Mae and Freddie Mac, which together guarantee more than two-thirds of all mortgages, are offering assistance to those financially struggling due to the fallout of the virus.

Whether your trouble meeting your mortgage payments is coronavirus-related or not, the first thing to do is to call your loan provider. If you can, try doing this before missing payments, as this will keep the largest number of options available to you. Here, experts lay out different options for when you’re struggling to pay on time.

Solution #1: Refinance to Change Your Interest Rate Terms

Refinancing to an adjustable rate mortgage (ARM) is a viable option if you’ve almost finished paying off your mortgage. “More and more consumers recognize the financial benefits an adjustable rate mortgage can provide under the right circumstances,” says Hensling. A perfect example is a homeowner who anticipates selling their home in the next three years and currently has a $400,000 fixed rate loan at 4.25% paying $1,976.76 per month.

Hensling says if the homeowner refinanced to a hybrid adjustable rate mortgage fixed for five years at 2.875%, this would reduce the monthly payment to $1,695.57 per month and save $281.19 per month.

Jeremy Brandt, CEO of WeBuyHouses.com, agrees, adding, “If a home is nearly paid off, the vast majority of the monthly payments are going to equity and not interest. Refinancing to an ARM might solve short-term cash flow issues by reducing the monthly payment at the expense of subsequent payments.” That being said, if interest rates start increasing, the monthly payments may increase over a period.

Alternatively, if you have an ARM, switching to a fixed rate mortgage may not lower your current monthly payments, but it can stop your payments from growing. “This makes sense if current fixed rates are lower than the ARM interest rate, or if you expect to move later than the next three years,” says Brandt. However, he warns that if you’ve been in an ARM for a while, the fixed rate you refinance into may be higher than your existing rate and this can cause your monthly payment to go up.

Solution #2: Request Mortgage Forbearance

Both Freddie Mac and Fannie May released guidelines for mortgage forbearance related to COVID-19. Essentially, they each are providing mortgage forbearance to borrowers financially affected by the novel coronavirus for up to 12 months. That means that individuals can reduce or suspend their payments for that time. Additionally, any related mortgage delinquency won’t be reported to the credit bureaus, so missing payments won’t tank your credit score. After the forbearance is over, lenders will work with borrowers to modify loans to lower monthly payments as necessary.2 3

Solution #3: Refinance to a Longer-Term Loan

Spacing your loan out over a longer period is one option that can reduce your monthly payment amount. Refinancing to a longer-term loan is the simplest way to reduce monthly mortgage payments, especially when cash flow is a problem, according to Al Hensling, president of United American Mortgage in Irvine, Calif.

However, it’s important to note that your interest rate will increase. To offset this, Matt Hackett, underwriting and operations manager at New York-based Equity Now, recommends making higher payments to increase the speed at which you pay down the principal. The majority of mortgages have no prepayment penalty (though you should definitely check yours).

Solution #4: Modify the Loan

A loan modification is an alternative for those who cannot refinance their loan but need to lower their monthly house payment. But, unlike a refinance, it requires a hardship. Pierce says borrowers must show the lender that as a result of a financial hardship, they are not able to continue making the regular monthly house payment. “This process involves extensive paperwork that must be completed and sent to the lender for review,” says Pierce.

She recommends that homeowners get counseling through a HUD-certified organization to fully understand their options and get help contacting the lender. “However, not all lenders offer loan modifications or may just offer short term loan modifications,” says Pierce.

As part of their mortgage assistance plans related to COVID-19, Fannie Mae and Freddie Mac are both allowing borrowers to modify their loans after forbearance.32

Solution #5: Get a Home Equity Loan

Getting a home equity loan may provide immediate assistance to struggling homeowners, but this strategy only works if you have a lot of equity in your house, which means that your home is valued at much more than you owe on it. Anthony Pili, director of strategic planning at Greater Hudson Bank in Bardonia, New York, advises struggling homeowners to consider paying off a mortgage with a home equity line. “Banks usually cover all closing costs on home equity lines. The savings in closing costs can be used to pay off the principal balance quicker,” says Pili.

He adds that this strategy is highly effective for borrowers who have the self-discipline to pay more than what is owed each month, since the minimum payment is usually just the interest that has accrued during the month.

Solution #6: Get the Lender to Eliminate Private Mortgage Insurance

Depending on how much equity is in your home, eliminating the private mortgage insurance (PMI) can lower your mortgage payments. “If you have at least 20% equity in the property, I recommend contacting the lender about dropping the mortgage insurance,” says Pierce. She explains that borrowers who usually don’t pay 20% down are required to have PMI for at least two years, but says there may be exceptions to the two-year rule. For example, if the homeowner made improvements to the house that increased the value, the requirement may be waived.

Solution #7: Challenge Property Taxes

If the value of your home has dropped, challenging your property tax may provide some financial relief, says Cara Pierce, a certified housing counselor at Clearpoint Credit Counseling Solutions, a national nonprofit organization. “You’ll need to contact the county tax assessor’s office in the county in which the house is located to see what type of information they will need as proof that the housing values have dropped,” says Pierce.

However, Pierce says this is a short-term strategy. She warns that as property values increase, property taxes will rise. Also, be advised that it may cost several hundred dollars to have your home appraised.

The Bottom Line

If you’re struggling with your mortgage, don’t throw in the towel. There are various solutions that can help you stay in your home and manage your monthly mortgage payments.

Being a Homeowner: Common Problems

Congrats, you own a home! Your dream of being a homeowner is finally a reality. But lurking just beneath the euphoria is the realization that you’re on your own now. No building superintendent to fix a leak. No landlord to repair the air conditioner. Home maintenance and repairs are now your responsibility.

Maybe you have a homeowner’s warranty that protects you from major problems — but it’s not going to replace light bulbs or clean your gutters.

Here are five common problems new homeowners have (and how to solve them):

1. Alone in the Dark

If your entire home goes dark during a storm, you’ll have to wait it out until the power company does its thing. But if the power goes out in just part of the home, a circuit breaker has tripped. This may be because you plugged too many things into a single circuit or because you have a power fluctuation or short circuit in your system. Every home has an electrical panel containing fuses or circuit breakers. Know where yours is located and which fuses or switches control each circuit. If your problem is a simple overload, the fuse has burned out or the switch for that circuit will have flipped itself to the off position. Unplug some appliances from the circuit and replace the fuse or flip the switch on again. If it goes out again, you may have a bigger problem. Call an electrician. Caution: You do not want to attempt any electrical work without killing the circuit.

2. It’s Alive!

Your home might be made up of wood, metal, and fabric, but your yard is a living thing that requires your attention. If you’re starting from bare ground, you have to consider seeding or sodding and what grass and plants work best for your location. If your lawn is established, you have to think about watering (how often and how much?). Then there’s fertilizing (what kind and when?), spraying herbicide, (pre-emergent, post-emergent — what does that mean?), and mowing (how short, how tall?) Your first decision is whether to hire a lawn care professional or take on the work yourself. If you choose the latter, you’re in for a crash course on lawn care — and a trip to the store for a lawnmower, edger, fertilizer spreader, and weed whacker.

3. Water, Water Everywhere!

Water overflow occurs when your drain or toilet gets clogged. Whether the drain was clogged by hair or an entire roll of paper your 4-year-old flushed down the toilet, the first priority should be to stop the water immediately. Most sinks, lavatories, and toilets have a water cut-off valve on the wall where the water lines come in. If cutting that off doesn’t work, you will have to shut off the water at the meter in the yard. This involves a special key, available at home centers. While you’re there, arm yourself with a plunger, a can of drain cleaner, and a snake (a flexible rod that clears minor obstructions that you will eventually need). If you are not able to fix the problem, call a plumbing company and let the pros take care of it.

4. It’s Always Something!

Even if your home is brand new, you’ll face handyman chores from hanging pictures to tightening knobs on kitchen cabinets. Start building your toolbox with the essentials right away.

Your starter toolbox should contain:

A hammer.
Screwdrivers (both flathead and Phillips).
Tape measure.
Pliers.
Adjustable wrench.
Utility knife.
Putty knife.
Flashlight.

Most tools can be purchased online, and whether you need a common torque wrench or a specific type of drill press, there are plenty of buying guides on the internet to help you get the best tool. Your toolbox will get bigger as new needs come along.

5. Sweating It Out

One of the obligations of homeownership is changing the filter on your HVAC system. Although your air conditioner compressor is outside, your main unit is in a utility closet, basement, or attic and that’s where the filter is. The filter keeps dust and other gunk from being sucked into your blower fan, and if it’s not changed regularly, you’ll develop HVAC problems. Different units need different sized filters, and you’ll find them at home improvement centers. Follow the manufacturer’s recommendations on how often to change the filter — usually monthly or quarterly.

Homeownership comes with challenges, but you’ll get the hang of it. Besides, investing a little elbow grease and sweat will put your personal stamp on your home.

Being a Homeowner: Mistakes Everyone Makes in the Summer

Dreams of the summer season tend to focus on long, lazy days spent reading the latest bestsellers, napping in the rope hammock, or watching white clouds drift across a blue sky. But if you’re a homeowner, you know that summer isn’t always a day at the beach.

Forgetting the HVAC Filter

Your air conditioner works hard over the summer. Don’t make it work any harder than necessary. Keep the unit running smoothly—and keep cooling costs low—by checking the HVAC filter on a regular basis (as often as once per month if you own pets or live with a smoker). While slightly more expensive washable filters can be reused, cheaper fiberglass filters, once dirty, must be replaced. Consult the manual to learn the recommended filter type for your unit.

Letting the Siding Slide

Exterior siding: So highly visible to neighbors and passersby, its condition says a lot about your priorities as a homeowner. But while curb appeal may be one motivation for performing exterior maintenance, there’s a practical and even more compelling reason to do so. Over the summer months, dirt, mold, pollen and tree sap steadily accumulate. Unchecked, such surface imperfections could ultimately shorten the lifespan of your siding material.

Paying Pavement No Mind

It’s not impossible to repair concrete driveways, walkways, and patios in fall and winter, but cold weather makes it a lot more difficult to ensure a satisfying result. For that reason, there’s no better time than now to repair cracked, crumbling, or chipping concrete before it inevitably worsens, sometimes irretrievably. Use latex or epoxy patching compound, and if you wish to disguise the repair or give the paved area a smooth new look, applying a resurfacer.

Passing Over Pests

Insects are an unavoidable fact of life, particularly in the summer. Unpleasant though they may be, household pests are usually benign. However, it would be a mistake to forget that some critters pose a genuine threat—termites most of all. Do due diligence to prevent an infestation. Indoors, keep the basement and attic dry and well-ventilated. Outdoors, maintain a one-inch gap between soil and wood portions of the home, and tightly seal foundation cracks.

Overlooking the Roof

There are summer winds that blow in from the sea, bringing welcome relief on the hottest days of the year. And then there are tenacious gales that, on their own or in the course of a summer thunderstorm, put your home at risk of considerable damage. If and when especially rough weather visits your town, don’t forget to assess your roof in the aftermath. Upset shingles—whether loose, torn, or warped—are an open invitation to roof leaks and water damage.

Neglecting the Gutters

When’s the last time you inspected the gutters? Even beyond the fall season, leaves and debris can accumulate enough to form clogs. Combine heavy summer downpours with obstructed gutters, and your home becomes vulnerable to extensive, expensive damage. Now, for your gutters to drain away stormwater with persistent reliability, experts recommend twice-annual cleaning. If you’re tired of the hassle and hazards of climbing up a ladder to remove gutter gunk year after year, you wouldn’t be the only one! Perhaps it’s finally time to consider the alternative—a storm drainage system that requires zero maintenance. Guaranteed not to clog, seamless one-piece LeafGuard Brand Gutters eliminate the need for homeowners to clean—or even think about—their gutters. It’s a get-it-and-forget-it solution.

Being a Homeowner: Responsibilities

A recent survey showed that 64% of U.S. adults indicated that they believe home prices will continue to raise over the next year. This marks the highest percentage since before the market crash over 10 years ago. If you are in the market for a house, know what responsibilities come with a property owner.

Do I need to maintain the property?

Slip and falls are the sixth most serious cause of death. Over eight million people each year have to visit the hospital for this personal injury. One of the leading causes of slip and falls is from a homeowner’s failure to maintain his or her property. A homeowner cannot neglect or abandon their property without facing legal liability.

The law states that an owner has a duty to keep the property reasonable safe and make adequate repairs for anyone entering the property (except for unknown trespassers). These responsibilities do vary state to state. For example, in Florida a property owner can be responsible even if they did not have knowledge of the dangerous condition.

This responsibility extends to inspecting the property on a regular basis to discover any dangerous conditions and either repair them or provide notice (with a sign) to anyone who enters the property. The result for failure to maintain your property is that you can be sued for the personal injuries that are caused by your neglect.

Am I responsible for property insurance?

Property insurance substantially serves the interests of the insured. These insurances provide financial compensation after a natural disaster or similar loss. In fact, one in 15 homeowners have a property insurance claim each year. Legally, you can own a home without property insurance; however, many lenders require that borrowers have property insurance on the home.

One consequence for failure to pay homeowners insurance and/or a cancellation of a homeowner’s insurance policy is foreclosure. It’s important to check the language of your mortgage for the following language: “Failure to pay insurance is a default.” If this is present in your mortgage, it this signifies that the lender has the right to foreclose the property against you for failure to pay property insurance.

What happens if I neglect to pay my mortgage payments?

In 2016, new first lien mortgages surpassed the $2 trillion mark for the first time since the end of the housing bubble nearly eight years prior. As the data indicates, more individuals are obtaining loans; however, it’s important to know what happens as a result for failure to pay those loans.

Mortgage payments are monthly payments to the lending institution from the borrower for principal interest on the home loan. Within as little of 90 days after a borrower fails to make a mortgage payment, the lender can initiate a foreclosure proceeding against the borrower. This means the lender can sell the house and collect the proceeds to apply towards the borrowed amount of the home.

Do I have to pay property taxes on my home?

The U.S. Census Bureau conducted a recent survey on the average American household. They found that the average family pays $2,127 per year on property taxes. These property taxes aren’t optional either, and they continue to rise. Between 2000 and 2010, property taxes rose to $476 billion from from $247 billion.

Failure to pay property taxes can lead to a forced sale of your home through a foreclosure proceeding. Additionally, the taxing authority may impose a tax lien and sell that tax lien. Ultimately, this could lead to the purchaser initiating foreclosure proceedings.

Being a Homeowner: Big Financial Benefits

Home is where the heart is. It’s also where a big chunk of your financial responsibility lies. Home ownership is a pillar of the American dream, and while many of those in younger generations either can’t afford to or actively choose not to pursue it, those who buy in to the housing market often see major financial benefits.

There is no doubt that becoming a homeowner is one of the biggest financial decisions you will make in your entire life. It’s also undeniable that simply getting to that point requires a certain degree of financial success. You need to come up with a down payment and closing costs (generally about 3 percent to 4 percent of the total home purchase price for buyers) before you can even turn the key in the door. But among those who take on the big task of home ownership, many see financial benefits that far outweigh their initial investment, especially during tax season. Here are 5 of them.

Amass equity

Every single month that you pay your mortgage you own just a bit more of your home. This is a big benefit over renting, where you’re paying comparable monthly fees without any comparable stakes. The equity in your home builds in two ways and often concurrently: (1) equity builds as the value of your home increases, and (2) equity builds as you pay off more of your loan. These two factors mean that after the first couple of years (when, again, you’re mostly just paying mortgage interest), every month you pay money toward your loan you are building up your financial resources for the future. It’s why some people refer to mortgage payments as “forced savings.”

Want to build equity even faster? Take steps to pay off your debt quicker (like financing with a shorter term loan or paying more than you owe every month) or increase your property value (think home improvements and a focus on routine maintenance).

Build up a stronger financial future

The recent recession threw a wrench into the idea that home ownership always builds wealth over time. But the fact remains that owning a home is one of the fundamental means of accumulating wealth as we age. The caveat: you have to buy a house that you can actually afford.
Asset-wealth is a much more secure predictor of future financial stability than income, which can—and often does, in today’s evolving economy—change from year to year. In a strong economy, home values generally increase by 3 percent to 4 percent every year, thanks to inflation and natural population growth. From 2011 to 2016, as the housing market has recovered from the bubble that contributed to the recession, home values have been increasing even higher at an average rate of 6.3 percent a year. Putting money into home ownership versus a rental is akin to the difference between putting money into an investment account versus a no-interest checking account, with the latter being only as valuable as it is in the moment while the former increases over time.

More control over day-to-day housing-related costs

Unless you change the terms of your mortgage, you know the base cost that you’re going to be spending to live in your home every month, both now and in the future. This affords more stability than rent, which is variable and can (and often does) change over time. And control over costs goes even further than that. As a renter, you don’t have a say over whether your landlord supplies you with energy-efficient appliances that can save you hundreds of dollars every year, but you do have to pay the utility bill either way. As a homeowner, you can make better short and long-term financial decisions that are geared specifically toward your own financial goals and abilities. While this isn’t likely going to help you save for your future in the same way building equity does, it should bring you peace of mind to know that you’re saving money everywhere that you can.

Home ownership tax deductions

You get a number of tax breaks for owning a home, most notably a deduction for the interest and property tax portion of your mortgage. This deduction is particularly useful for off-setting the initial financial blow that comes with purchasing your property, since in the first years of owning your home you’re mostly just paying off the interest on your mortgage, as opposed to the principal. The first year you buy your home you are also able to write off any mortgage points on your loan, which can lead to pretty considerable savings depending on how many points you claimed. And if you ever decide to refinance your home after building sufficient equity in it, you also have the option of taking out a home equity line of credit, which is itself tax deductible.

Do keep in mind: the Tax Cuts and Jobs Act, passed in 2017, limits mortgage interest deductions to $750,000 of your total mortgage debt, including any home equity credit you take out. Previously, the limit was $1,000,000 in mortgage interest deductions plus a $100,000 for home equity credit.

Positive perks

Home ownership has other financial benefits that may come in handy for you someday. For example, a mortgage is considered “good debt,” and as such, it is likely to increase your credit score, provided you always make your payments on time. It also proves your credit-worthiness for other things you may want to consider, like a business loan or a new line of credit. It can even lower your monthly car insurance payments. While perks like these should certainly not be deciding factors when determining whether or not you should purchase a home, they do add up as additional benefits if you choose to opt in to the housing market.

But what about the financial risks?…

Owning a home isn’t all equity building and cost cutting. Aside from the significant payments that have to be made in order to own a home in the first place, there are also some financial risks that all potential and current homeowners need to keep in mind when trying to balance their budgets.

The biggest financial risks for homeowners are in terms of maintenance costs. There’s no landlord to put the responsibility on if the roof starts leaking or the heating system goes out in the middle of winter. While you’re unlikely to face major repairs like this all of the time, they do occasionally come up and it’s important for all homeowners to have savings set aside to deal with them when they happen.

Then there’s the risk of home depreciation. Ultimately, it’s your home’s land that appreciates in value over time, barring any major negative changes in your area like a natural disaster or a school or major business closing. The structure of your home, however, tends to depreciate in value as things get worn out and lived in. While you don’t have a lot of control over what goes on in your neighborhood that may negatively impact the price of your land, you do, fortunately, have some control over maintaining and increasing value on your home’s structure by keeping up with maintenance and putting in certain home improvements. Don’t let your home’s value be something that you just tacitly accept—work toward making sure your home, and not just the land it sits on, is appreciating as the years go on.

Being a Homeowner: Responsibilities

When a person goes from renting an apartment to owning a home, it is one of the greatest accomplishments of their lives. It takes many people several years to build their credit and to become financially ready to purchase their own home. While home ownership is a huge accomplishment, it also involves a great deal of work. When you were renting, your landlord was responsible for everything. Your only responsibility was to keep your unit clean and pay your rent on time. This is not the case when you own a home. There are several responsibilities that you would need to learn to embrace now that you are a homeowner.

We want to set you up for success on your journey to home ownership, so here are 10 tips:

1. Schedule trash pick-up.

When you were living in an apartment, you took your rubbish to the curb once a week and it was picked up. This was likely set up by your landlord. When you buy your home, you are responsible for setting up your rubbish collection.

2. Make your mortgage payments.

One of the biggest responsibilities that you have when you purchase your home is making your monthly mortgage payments. It is important that you make these payments on time every month. When you were renting, if you were short on cash one month, you could sometimes get away with an apology and a promise to be on time next month. This is not the case when you are paying a mortgage. If you are late, the late payments would have a negative effect on your credit report. If you cannot make your mortgage payments, you risk having your home go into foreclosure.

3. Pay your property taxes.

Now that you are a property owner, you need to start paying property taxes. This is something that you never had to worry about when you were renting. If you stop making your property tax payments, interest would be added to the amount of money that you owe. Also, over time, the government can put a lien on your house. Paying property tax is a very important responsibility.

4. Pay your water bill.

When you are renting, often, the only payment you are responsible for is your rent, electricity, and heat. Most landlords pay for the building’s water bills. When you own a home, you will need to start paying your own water bill. Your bill would depend on how much water you use. If you have a large family who takes long showers, if you do laundry in the home often, or if you use your water to fill a pool, your bill would be higher than the average.

5. Landscaping duties.

When you were living in an apartment, it was the responsibility of the property owner to take care of the landscaping duties. When you own your home, you would need to do all of the landscaping yourself. This would include mowing and watering the lawn, trimming the bushes and hedges, and planting any plants or flowers that you want to have in your yard. If curb appeal is important to you, you should start to assume landscaping responsibilities right away.

6. Schedule snow removal.

After a snow storm, your landlord was responsible for plowing the driveway and clearing the stairs and walkways of snow and ice, to make getting in and out of your home safe. When you purchase your home, you would be responsible for the snow removal yourself. Some homeowners shovel and treat their driveways, walkways, and stairs, while others hire a professional to do the job. Either way, you can no longer rely on a landlord to handle the snow removal duties for you.

7. Pest control.

There is nothing worse than a pest infestation. Whether it is ants, spiders, bed bugs, termites, mice, or any other pest, you need to get the pests out of your home as soon as possible. When you lived in your apartment, you did not need to worry about pest control. It was the responsibility of your landlord. When you own your home and you have a pest problem, you would need to hire and pay for an exterminator yourself.

8. Clean the gutters.

The gutters on the home are designed to drain all of the water from the roof down to the ground. Over time, leaves and other debris can clog up the gutters, which can result in standing water. During the summer, this standing water can result in a mosquito problem. During the winter, the water can freeze, creating ice dams. These can be very damaging to the roof. As a homeowner, it would be your responsibility to clean your gutters regularly.

9. Regular maintenance of the furnace and water heater.

To be sure that a furnace and water heater are running as efficiently as possible, they need to be maintained every year. If they aren’t, it can be a waste of money and it can result in an expensive breakdown. As a homeowner, it would be your responsibility to make the appointments for regular maintenance.

10. Home repairs.

When you were living in your apartment and something needed repaired, you would call your landlord and they would have it fixed as soon as possible. When you own your home, any necessary home repairs would be your responsibility. This is one of the most expensive responsibilities of being a homeowner. There are certain home repairs that can be very costly. If you are handy, you can handle the job on your own. If not, you would need to hire someone to make the necessary repairs for you.

Becoming a homeowner is one of the most fulfilling and exciting times of your life. There are, however, several new responsibilities that you need to start taking on yourself to make sure home ownership is a positive experience!

Being a Homeowner: Benefits

With a whopping 64% of Americans owning homes, the United States has the highest percentage rate of home owners than any other nation. Our nation was built upon people working with passion and vigor to pursue anything they wanted. Over the past century, becoming a homeowner has been considered a part of this American Dream. Broker President of Phipps Realty said,”There’s a reason why home ownership is called the American Dream – it’s part of our collective history and an essential part of building our nation’s future, as well.”

History of Home Owning

In 1917, the U.S Department of Labor established the first federal program designed to encourage home ownership.

In 1933, after the Great Depression hit, FDR created work programs and mortgage relief reforms to help ensure people they would be able to keep their homes.

We’ve come along way since then, making many reforms and changes to help make it easier for individuals to purchase a home for their family. If you look through the history of home ownership, you can get a better understanding of how much the Federal Government truly encourages and supports the American people to purchase their own homes.

Today new home buyers chase after this dream not just for the stability and security, but now studies are finding, for the financial investments. Researchers and Real Estate agents find all sorts of reasons people benefit from purchasing their own home. Here are our top 5 benefits.

1. Gain Equity

Home equity is considered the current market value of your home minus any outstanding home loan balances. The rate of a return on a home investment increases the longer you live there. This is why becoming a homeowner is one of the best investments that you can make.

Real Story, a New Jersey real estate commentator states, that homeowners can use home equity that has been built up to get cash for emergencies or to purchase items for home improvements thereby possibly increasing a home’s net worth even more than before.

Buying a home allows you to drastically increase your long term wealth as opposed to those who rent. One of the greatest benefits of owning a home is that this allows you to live a “rent free” retirement once you’ve paid off your mortgage. Or as you get older, you could also sell the home and use the money to purchase something smaller.

2. Home Improvements

There’s not much wiggle room allowed for upgrading or changing up your home if you’re renting. One of the benefits of owning a home is there’s no permission needed. Add a pool, re-paint the entire house- its your home and you can do as you please! Modifying your living space to whats aesthetically pleasing to YOU is the most satisfying feeling and worth all the work put in. It’s also considered a worthwhile investment and most upgrades add value to your home.

3. Tax Advantages

Everyone benefits from home ownership-especially our economy and federal government. This is why the government offers many tax incentives for new home buyers. Home related purchases and private mortgage insurance can also qualify you for tax benefits.

According to the MIT Federal Credit Union, interest on first and second mortgages, home equity loans of up to $100,000, and refinanced loans are all deductible and local property taxes are deductible in the year that they are paid.

4. Promotes Good Community & Neighborhoods

Buying a home in a place you plan to stay in for a long time also benefits you and your neighborhood! It feels good making connections and new friendships with neighbors, becoming a part of local organizations, and participating in traditional events. This community involvement is a major benefit to becoming a homeowner and something your children will grow up to thank you for one day.

5. Sustainability

When people think of home, they think of safety, security, and being comfortable. As a renter, it’s unsettling not knowing what changes you can or cannot make in your home, if the landlord is going to randomly raise rent, or run an inspection on the house. These are just some of the many pitfalls of being a renter. As a homeowner, none of those are an issue. It puts new homeowners at ease knowing they can settle into a home they can raise their families in and make memories. They know their consistent monthly mortgage payment and overall have so much more freedom than renters do. This peace of mind is priceless and one of the main reasons individuals finally decide to become homeowners.

Becoming a homeowner is the most rewarding experience where families will build lives and memories, along with positive financial futures. So if you have been on the fence about whether to continue renting or to purchase your own home, if you choose a great team to work with you will see just how simple the home buying process really is! Sun American Mortgage has over 33 years experience and always leaves every customer feeling valued and incredibly happy about their new home.

Being a Homeowner: Pros & Cons

Homeownership has always been part of the American Dream. Because of that, many people accept owning a home as the right, even obligatory thing to do without considering the benefits and the risks. If you are contemplating buying a home, you should know and review the pros and cons of the investment you are about to make—as you would any investment decision—before signing on the dotted line.

Pros:

The Tax Cuts and Jobs Act’s Effect

The Tax Cuts and Jobs Act, passed in December 2017, made substantial changes to the parts of the tax code that have to do with homeownership. Unless a future Congress amends the law, all provisions will expire after Dec. 31, 2025. But for now, changes in that law have reduced the value of owning a home.

The law limits mortgage interest deductions to $750,000 of total mortgage debt, including for a first and second home and any home-equity or HELOC loans. The previous limit was $1,000,000 in mortgage debt plus an additional $100,000 in home-equity debt.

There is an exception allowing $1,000,000 in total mortgage debt if you bought your home on or before Dec. 14, 2017. This provision even applies if you refinance that older mortgage. Home equity loan interest is only deductible if the money is used for substantial improvements to the home on which you took out the loan. Previously, interest on up to $100,000 was deductible no matter how the home-equity money was used.

The law also set the SALT deduction limit to $10,000. Previously, all SALT payments were deductible, unless you were subject to the alternative minimum tax.

Other new provisions include restrictions on claiming casualty losses except for federally declared disasters. The moving expenses deduction no longer exist except for the active-duty military moving for reasons of work.

All these changes have lowered the value of owning a home—including the fact that, with the doubling of the standard deduction (another feature of the Act), fewer people will have enough deductions to file Schedule A instead of taking the standard deduction. So the fact that you are eligible for a tax deduction does not mean that it will end up being useful to you. The severe limiting of the SALT deduction will be particularly detrimental in lowering available deductions for people who live in highly taxed states.

Attractive Long-Term Investment

Appreciation represents the increase in home values over time. Real estate prices are cyclical, and homeowners shouldn’t expect the property’s value to increase drastically in the short-term. But if you stay in your home long enough, there’s a very good likelihood you will be able to sell your home for a profit because of appreciation later in the future.

Despite some dramatic dips, such as that in 2008-10, residential real estate tends to rise in value. According to the Federal Reserve Bank of St. Louis, the average price of sold houses in the U.S. rose from $340,400 in Q3 2014 to $380,300 in Q3 2019—a 10% increase in value over five years. Go back a decade, when the average home fetched $274,100 (Q3 2009), and you have a 28% increase. That’s not a bad return on an investment that also provides you with a place to live.

Consider a home that is rundown and dilapidated to the point that it’s uninhabitable. The land underneath the home may still be worth a significant amount of money—more than the residence, in this case,. A seller may consider selling it as is—with the structure still intact—or spending a little extra to demolish the home and sell the land at a higher price on its own.

Capital Gains Exclusion

Eventually, you will sell your home. When you do, the law allows you to keep the profits and pay no capital gains taxes. Well, not necessarily all the profits. There’s a tax-free profit of up to $250,000 for single homeowners and $500,000 for married couples. This is for your main residence only—not for a second home or vacation property.

There are a few requirements you need to meet in order to qualify for this exclusion. You must own the home for at least two years—24 months—within the last five years up to the closing date. The residence requirement dictates that you should have lived in the home for at least 730 days, or two years, during the five-year period leading up to the sale. The final requirement, the look-back requirement, outlines that you didn’t profit from selling another primary residence during the two-year period leading up to the most recent sale.

Tax Deductions

After appreciation, the benefit of homeownership that is cited most often is tax deductions or savings. When you buy a home, you can deduct some of the expenses of owning that home from the taxes you pay to the government. This includes mortgage interest on both your principal residence and a second home, which can amount to thousands of dollars per year.

Interest on home-equity loans or home-equity lines of credit (HELOCs) is also deductible if the funds are used to substantially improve your home.

You can also deduct up to $10,000 in state and local taxes (SALT), including property taxes.

Home equity represents the difference between how much you still owe on your mortgage and the market price or value of your home. Home equity and appreciation may be considered together. As noted above, your home is likely to grow in market value over time. Your equity also grows as you pay down your mortgage, with less of your payment going toward interest and more toward lowering the balance on your loan.

Building equity does take some time because it takes time to lower the principal balance owing on the mortgage loan—unless, of course, you make a large down payment or regular prepayments. One thing to keep in mind, though, is that the length of time you have your home is a big factor in how much equity you build and the appreciation you can realize. The longer you keep it, the more equity you obtain.

As you pay down your mortgage and reduce the amount you owe, without realizing it, you are saving as the value of your home is increasing—just as the value of savings account increases with interest. When you sell, you will likely get back every dollar you paid out and more, assuming you stay in your house long enough. Over time the average 6% return (interest rate) on your savings should more than
cover your outlay.

Another plus: Home equity provides flexibility to get a loan that is tied to the amount of your home equity. Many investors follow their home equity and home appreciation simultaneously. If an investor believes their home value is greatly appreciating they may put off a home equity loan to have a better opportunity to realize seller’s appreciation.

Cons:

Illiquidity

Unlike stock, which can be sold within a matter of days, homes typically take much longer to unload. The fact that you may have access to $500,000 in tax-free capital gains doesn’t mean you have ready access. Meanwhile, you still must make mortgage payments and maintain the house until you sell it.

High Upfront Costs

The cost of investing in a home can be high—there’s more to your expenses than the property’s selling price and the interest rate on your mortgage. For starters, you can expect to pay anywhere from 2% to 5% of the purchase price in closing costs. Some of the most common closing costs include an application fee, appraisal fee, attorney fees, property taxes, mortgage insurance, home inspection, first-year homeowner’s insurance premium, title search, title insurance, points (prepaid interest), origination fee, recording fees, and survey fee.

Experts say you should plan to stay in your house at least five years to recover those costs.

Pride and Financial Responsibilities

One often-cited benefit of homeownership is the knowledge that you own your little corner of the world. You can customize your house, remodel, paint, and decorate without the need to get permission from a landlord.

Ownership comes with responsibilities, however. You must pay your mortgage or risk losing your home and the equity you’ve built. Maintenance and upkeep are your responsibility. You can’t call the landlord at 2 a.m. to have a leaky water pipe repaired. If the roof is damaged, you must repair it—or have it repaired—yourself. Lawn mowing, snow removal, homeowners insurance, and liability insurance all fall on you.

Potential Depreciation

Not all homes grow in value. The housing crisis of 2008 resulted in many homeowners being underwater, which means owing more on your mortgage than your home is worth. It doesn’t take a housing crisis for home prices to stagnate or drop. Regional or local economic conditions can result in home values that don’t keep up with inflation.

Remember, as well, that the actual structure you live in will depreciate over time. This can be due to wear and tear on the property, or a lack of maintenance and repairs.

The Bottom Line

A home is an investment that comes with many investment benefits but also risks, which makes it an investment that is not for everyone. Weighing the investment benefits against the risks is important. A rational comparison of pros and cons can help you decide whether to put your money into a home investment or potentially find better returns elsewhere.