Benefits – Homeowner Savings

Home Ownership: Why it’s Good for Everyone

It’s no wonder that owning a home is often referred to as the American Dream. While statistics show that homeownership is down from historical levels, it is still an aspiration for 61% of Americans. That number is likely to rise as the housing industry continues to recover. That is good news not only for potential first-time homebuyers, but also for the overall economy.

The Importance of Homeownership

For many people, owning a home represents the stability, independence and freedom of reaching adulthood. While that perception may be changing to some degree as more people wait longer to buy homes, it is still a major milestone. Real estate is considered by many to be a sound investment that offers unique wealth-building opportunities.

Buying a home expands options for the future, whether you plan to sell and make a profit or leverage the equity in your home to pay for other major expenses.

Benefitting a Community

Homeownership also helps to improve the areas surrounding individual homes. The housing industry is closely tied to the economy—when home sales are up, so are jobs. Together, these complementary forces create a more stable local, state and national economy. This is why many economic analysts wait for the latest housing numbers to be released before announcing their forecasts, as these numbers help indicate where the overall economy is headed.

The community also benefits from the real estate taxes paid by the property owner. These funds are used for infrastructure services and projects including:

government social services
road repair
library operations
police and fire protection
snow removal
parks and greenways
other enriching infrastructure projects
construction of schools

The impact goes beyond the financial aspect. In fact, some of the greatest community benefits are intangible. Homeowners in a city or town are often very invested in the area. They get involved in activities, volunteer for charity organizations and help out with special events. They feel a sense of belonging that is often greater than someone who is renting for a short term.

Homeowners often get involved in the politics of the community, attending city council meetings and volunteering for groups and organizations, such as neighborhood watches and school boards. In addition, they work hard to keep their properties looking nice. This sense of responsibility carries over into other areas of the community as well. That is not to say that renters don’t have the same intentions, but they often cannot stay in the same place long enough to develop roots and a sense of belonging.

Homeownership has far-reaching effects, financial and otherwise, starting with the buyer and continuing throughout the community.

Mortgage Mistakes You Should Avoid

Bad decisions on a $400,000 home loan can easily cost you $100,000.

If you already have a mortgage, it’s not too late to fix old mistakes (or avoid making them with your next loan).

You should review your mortgage every 2 years anyway.

Why? Because less income needed to payout your mortgage means more money for other areas of your life. Your mortgage is probably the biggest financial commitment you will make in life. It is easy to get right and just as easy to get completely wrong.

Most people are surprised to find out that a low interest rate is not the only factor in reducing mortgage cost and paying out a loan faster.

You won’t see lenders advertising most of the tactics available to you, as it’s not in their best interests – the longer it takes to payout your loan, the more money they make. Lenders make money by lending you as much as possible, for as long as possible and with fees as high as they can get away with.

1. You didn’t set up your loan with the right features

There are loan features that you might need now or down the track, such as an offset account or the ability to top up. These features do not have to make your loan more expensive, regardless of what an individual lender might tell you. It’s important to design a loan based on your needs now and in the future.

This is why independent mortgage advice, combined with the assistance of your financial planner, is so important.

2. You’re not getting commission refunded

Some mortgage brokers will cap their income and provide a commission refund. Getting commission refunded on an ongoing basis is probably the easiest way to put $10,000’s back in your pocket over the life of your loan.

It’s also the strategy that’s possibly least utilised, as not many people know about it.

The mortgage broker who arranges your loan receives an immediate commission payment. For a $450,000 loan, your broker would receive around $3,000 at settlement.

In addition, that broker will receive a yearly commission payment (called trailing commission). On a $450,000 loan, your broker would receive about $700 every year. Although that commission reduces as your loan size decreases, trailing commission can last up to 30 years. Mortgage brokers build their businesses on this recurring income. And while they should be paid, you may find one that caps the commission they take.

Trailing commission can create a bias towards lenders who pay a higher % to brokers. In other words, your broker might be swayed to recommend the loan that pays them the most. While many brokers put their clients interests first, this ongoing commission can reduce the incentive for your broker to give you advice on how to pay out your loan more quickly. They may be more inclined to recommend a fixed term with a fixed interest rate, when a variable may be more appropriate.

There are only a few mortgage brokers in Australia who will refund any commission.

Getting this money back, and using it as additional repayments, can take years off your loan.

A note: Some mortgage brokers will tell you they don’t receive commission, but their employers do – and those brokers are paid salary and bonuses to recommend particular lenders.

Can you avoid commission by going direct to a lender?

No – lenders will not bite the hand that feeds them by undercutting every broker in Australia. In addition, they use the commission saved to provide you with loan service otherwise provided by the broker.

How do you get trailing commission refunded if you already have a mortgage?

You can’t get trail commission back on a current mortgage, unless your broker is kind enough to start giving it back to you. However, you can review your current mortgage and work out if it’s worth refinancing.

To summarise, getting a commission refund:

1. Puts money back in your pocket, to help pay out your loan faster

2. Removes the chance your broker will recommend a particular loan because it pays them more.

3. You fell for cheap tricks with rate comparisons

You should almost never pay the Standard Variable Rate (SVR). Each lender’s SVR will vary with others – it is the basis by which your interest rate is determined but not the final rate you are likely to pay. Some banks have higher SVR and so will discount theirs by more to reach the ultimate rate you will pay. Some have lower SVR and so will only apply a small discount.

Therefore, comparing the SVR across lenders does not help you work out which loan is cheapest.

2 tricks to look out for:

Showing a large discount off their SVR to make you think you are getting a great deal. A big discount off a high price still costs more than a small discount off a lower price.
A lender comparing their lowest interest rate with the SVR of other lenders – rates you would never pay if you used those companies.

4. You’re sticking with the same mortgage ‘til the end

Home loans can become uncompetitive in only a few years, or less.

For starters, it pays to check your lender hasn’t jacked up the rate of your loan and is no longer competitive.

Competition improves loan features and you might be missing out on benefits if you stick with the same loan to too long.

You should check your loan remains the best option every 2 years. It costs nothing (but some of your time) to check if there is a better deal. And that time can save you thousands of dollars a year.

A tip: When you set up your mortgage, always assume that you will need to repay early or refinance. If suitable given your overall needs, take out a loan that has low or negligible break costs. This is another reason you should get advice from a broker who will consider the costs of exiting your loan early – ideally a fee based broker who takes their payment only from you, and not the lender.

5. You set your loan term as long as possible

Reducing your loan term just a few years can take $100,000’s off the cost of the average loan.

It’s not always the best strategy to go for the longest loan period possible. Paying a little more off your loan each month can make you significantly more wealthily over the long-term, or at least debt free earlier. You should look at the opportunities presented by a shorter mortgage, such as the ability to focus on your kids’ education once you’re debt free.

Your lender and mortgage broker want you to take out a 25 – 30 year loan as they are being paid interest and trailing commission for the entire time. The longer the loan the more money your lender and broker make.

And using a mortgage offset is not always the best strategy for some people, as the easy access to funds presents a temptation to spend the cash (a redraw facility adds an additional layer of admin and gives access to funds if needed). Always get financial advice with your mortgage advice.

6. You relied 100% on rating websites to make your choice

While useful as a tool for adding to a short list, rating websites are incomplete and often contain inaccurate information. The lenders they feature generally pay these sites and most sites will exclude lenders who aren’t willing to pay a fee. Some sites promote a lender’s most profitable (expensive) loans, rather than the cheaper loans also offered by the same lender.

There are often many inconsistencies in the results of top rating sites when compared with independent research.

7. You focused too much on interest rate

Interest rate is only one factor that influences the total cost of your loan. Going with the lender that offers the best initial interest rate doesn’t mean you have the cheapest loan.

Interest rates can change soon after your loan starts and you can quickly end up with a very uncompetitive and expensive rate. In addition, there are other costs that can make a loan significantly more expensive than it seems, based on the interest rate alone.

Fees might include:

– Lenders mortgage insurance

– Application fees

– Valuation fees

– Legal and settlement fees

– Rate lock fees

– Early payout fees (deferred establishment fees)

– Discharge fees

– Establishment fees

8. You went direct to the lender

Lenders love it when you walk in their doors without being referred by a broker, as they can pocket the commission they would normally have to give the broker. Lenders save by you going direct, not you.

If you deal directly with your bank, you will waste the opportunity to ask a mortgage broker for more broad advice (beyond one lender’s products) and you will never get any commission refunded.

In addition, there are some lenders who do not deal with brokers (or pay commission) and therefore promote cheaper loans. An independent mortgage broker can recommended one of these lenders, as they do not get paid via commission anyway (a traditional commission-based broker will never recommend one of these lenders).

9. You used personal rather than professional reasons for choosing your mortgage broker

Not all mortgage brokers are the same. I’d say almost 100% of people have no idea if they got the best mortgage available; and yet are happy to recommend their broker to their friends (let’s face it, usually because they ‘like’ them personally).

So don’t decide to use a broker simply because your mate is one, or recommends theirs because they ‘got a good rate’. Unless you happen to know an independent mortgage broker, if you use anyone else, you are using one of the 99.99% of compromised and biased brokers in Australia. And, this means you’re giving away $10,000’s of your hard earned cash in the form of commission over the life of your loan. And you may not get the best loan (and therefore pay more in interest and ongoing costs as well).

Everyone wants to support friends and family – and use people they recommend. Just keep this article in mind when you decide to give your business (and hard earned cash) to someone you know or a broker referred by a friend without a professional basis.

To be fair to many mortgage brokers, most are not aware of the inherent conflicts and costs associated with their profession (although most don’t ask or think about it critically). Brokers are taught by their employers, who make billions out of their associations with a hand full of lenders.

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.

Remodelling Your Home: Government Programs That Help

Federal, state, and local government incentive programs for home remodeling are aimed at helping homeowners improve the value of their homes, which in turn supports the economy and helps strengthen communities. These are official programs that provide tax relief, low-interest loans, and other incentives, but they can be hard to find. For example, you may find a notice of a program on a postcard for a property tax increase. Currently, three major programs may be available in your area.

What They Are: Home improvement property tax exemptions.

What They Do: These programs allow for total or partial exemptions from your local property taxes when remodeling your home.

Eligibility Requirements: Eligibility varies by county or town, but typically any owner of one property can qualify. The property usually must be owner-occupied but not always.

Counties rarely itemize which remodels are allowed; instead, they define them in broad terms, such as “material, actual, and permanent property improvements that increase value.”

Downside: Relief from property tax is only temporary.

Who Offers Them: Written into state law, these programs are administered by tax assessors and counties or towns.

What They Are: FHA 203(k) Rehab Loan programs.

What They Do: Typically, when purchasing a home that needs remodeling, your first mortgage covers only the cost of the purchase, not the subsequent remodeling. Concurrently obtaining a remodeling loan may mean long approval times, high-interest rates, and balloon payments. Also, lenders don’t like to approve remodel loans at this time because your intended house, in its current less-than-perfect state, cannot act as proper collateral. Through FHA rehab loan programs, the U.S. government will insure your loan, wrapping the purchase and remodel amounts into one package and insuring it all for the lender.

Eligibility Requirements: Requirements are broad, ranging from minor (which HUD defines as $5,000 or more) up to a home that will be razed and completely rebuilt.

Downside: Inevitable red tape. However, independent consultants can help streamline the process for you.

Government home programs are limited to upgrades that increase a home’s value. Incentives do not apply to luxuries or amenities such as spas or outdoor kitchens. They also come with a few common rules for eligibility:

You must apply before doing the work. Incentives are not available for past renovations.
Types of remodels are limited. Programs primarily support basic rehabs that increase property value. For example, some property tax exemption programs will not cover replacing a composite roof with another composite roof but will cover an upgrade from composite to a higher-value material because this represents a property value upgrade. Some incentives even apply to tearing down a house and building a completely new one.
Oversight is required. At least one inspection is required to make sure that the project exists and that it is proceeding according to plans.
Home Improvement Programs

What They Are: Home improvement programs (HIPs); typically low-interest or no-interest loans.

What They Do: Help you save thousands when counties or other local governments subsidize the interest on home remodeling loans. Interest may be completely or partially subsidized.

Eligibility Requirements: Various eligibility rules may apply, but generally:
- You must be rehabilitating an existing structure; it’s not for buying a new home and not for building another structure on your property.
- Your gross income may not exceed a certain limit.
- The loan is not used for luxury items, such as pools or decks.
Downside: Not all areas offer HIPs.

Who Offers Them: Learn about loans offered in your area by contacting the local county tax assessor. You may be directed to a private lender to obtain a home equity loan, or HELOC, subsidized by the county.

Home Improvement Grants for Your Next Project

A home improvement grant also called a “home repair grant,” is a type of financial aid issued by the government at the federal, state or municipality level. It’s designed to help homeowners in that region make select improvements to their properties.

As long as the applicant and the project meet certain requirements, a home improvement grant does not need to be repaid.

One of the primary problems when doing a home improvement project is the cost to do the project correctly. Luckily, there may be a grant that will help you offset the expense. Dozens of government-sponsored home improvement grants offer money to homeowners making selected updates to their properties. Of course, not everyone—nor every project—will qualify for grant funds.

Grants are highly competitive, and many are designed for specific improvements that ensure the home is safe, accessible, livable and non-hazardous to those on the property and in the community. Read on to see if a home improvement grant can help you achieve your goals.

Requirements & Eligibility

Eligibility requirements vary by the grant. For the most part, grants will have requirements pertaining to the homeowner’s income, their location and the projects the money can be used on.

Just like with your mortgage application, you will need to produce documentation to prove your income. You may also need to prove your financial need, as well as offer assessments of your home’s conditions, your estimated project costs and more. Make sure you know the full scope of requirements for each grant you apply for. Remember, most grants are very limited in number and only a few homeowners are chosen.

Where to Find Home Improvement Grants

There are several places you can find available home improvement grants. Your best bet is to start with your local HUD office (Housing and Urban Development). HUD offers grants like the HOME Investment Partnerships Program for low-income homeowners, as well as various types of home repair loans. Visit HUD.gov to find the office in your area.

You can also look to the National Residential Improvement Association for grants. Just fill out the NRIA’s brief application form, and tell them about your property, the home’s history and the projects or improvements you’d like to take on. An NRIA specialist will get back to you with potential grants you may be eligible for. They might also include options for tax credits, home improvement loans, discount programs and local incentives that can help you cover—or at least reduce—the cost of your projects.

Finally, if you’re in a designated rural area, you can also apply for a home improvement grant with the U.S. Department of Agriculture. These grants offer up to $7,500 toward addressing health and safety hazards at the home or improving its accessibility.

Home Improvement Grants vs. Other Options

Grants aren’t the only way you can fund your much-needed home improvement projects. You can also use a loan, refinance your property or leverage the equity in your home.

The Federal Housing Administration’s 203K loan is a popular choice for homeowners looking to improve their properties. The 203K improvement loan lets you borrow cash to use toward your home repairs and projects, typically at a low rate. There are also low-cost loans from the USDA and HUD if you meet certain location and income requirements.

If you’ve lived in your home a few years and have built up some equity, you can also look to home equity lines of credit (HELOCs), home equity loans or a cash-out refinance. Make sure you shop around first for the best rates. You do not have to use your current lender when refinancing or taking out a home equity loan.

In the event you’re making green or eco-friendly improvements to your home, you may also qualify for certain green energy grants or tax credits that can help offset your costs. For information on this, check out EnergyStar.gov, contact your city or state energy commission and call up local energy companies. Many will offer grants or even reduce your monthly costs when you add certain energy-saving upgrades. The PACE loan is also a good option for green improvements if you’re looking to borrow funds.

Homeowner Tax Benefits

Indeed, there’s no place like home.

Let’s examine how homeownership makes “cents” – from the tax benefits, to good old fashioned financial stability. The financial benefits of homeownership are evident year round, but particularly around tax time – they seem to jump off the page!

1. You Build Equity Every Month

Your equity in your home is the amount of money you can sell it for minus what you still owe on it. Every month you make a mortgage payment, and every month a portion of what you pay reduces the amount you owe. That reduction of your mortgage every month increases your equity. That is especially true now with the elimination of risky mortgages like negative amortized and interest-only loans – thanks to the new “Qualified Mortgage” rules. The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows!

2. Homeownership Builds Wealth Over Time

We were always taught growing up that owning a home is a financially savvy move. Our parents knew it, and their parents knew it. But this past decade of real estate turbulence has shaken everyone’s confidence in homeownership. That is why it’s so important that we discuss this again now that we’re in a ‘new market.’ Homeownership can be a very savvy financial move – but only if people buy homes they can actually afford. In 2014, this idea of sticking to a home you can afford to gradually build wealth is a “rule” that just happens to be new and old at the same time.

3. You Reap Mortgage Tax Deduction Benefits

Mortgage deduction: The tax code allows homeowners to deduct the mortgage interest from their tax obligations. For many people this is a huge deduction, since interest payments can be the largest component of your mortgage payment in the early years of owning a home.
Some closing cost deductions: The first year you buy your home, you are able to claim the points (also called origination fees) on your loan, no matter whether they are paid by you or the seller. And because origination fees of 1 percent or more are common, the savings are considerable.
Property tax is deductible: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.

4. Long Term, Buying Is Cheaper than Renting

In the first few years, it may be cheaper to rent. But over time, as the interest portion of your mortgage payment decreases, the interest that you pay will eventually be lower than the rent you would have been paying. But more importantly, you are not throwing away all that money on rent. You gotta live someplace, so instead of paying off your landlord’s home or building, pay off your own!

5. Tax Deductions on Home Equity Lines

In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan (or line of credit). This allows you to shift your credit card debts to your home equity loan, pay a lower interest rate than the horrendously exorbitant credit card interest rates, and get a deduction on the interest as well.

6. A Mortgage Is Like a Forced Savings Plan

Paying that mortgage every month and reducing the amount of your principal is like a forced savings plan. Each month you are building up more valuable equity in your home. In a sense, you are being forced to save—and that’s a good thing.

7. You Get a Capital Gains Exclusion

If you buy a home to live in as your primary residence for more than two years then you will qualify. When you sell, you can keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes. Now, it may sound ridiculous that your house could be worth more than when you purchased it after these past several years of falling house prices. However, if you purchased your home anytime prior to 2003, chances are it has appreciated in value and this tax benefit will come in very handy.

Home Ownership: Financial Benefits to Think About

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.

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.
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.
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.
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).
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.

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.

Tax Benefits for Homeowners

We asked ourselves: What tax benefits do you exactly have by owning a house? That’s why we put together a little overview for every houseowner who wants to save tax money!

The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income. Additionally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home.

OVERVIEW

The tax code provides several benefits for people who own their homes. The main benefit is that the owners do not pay taxes on the imputed rental income from their own homes. They do not have to count the rental value of their homes as taxable income, even though that value is just as much a return on investment as are stock dividends or interest on a savings account. It is a form of income that is not taxed.

Homeowners may deduct both mortgage interest and property tax payments as well as certain other expenses from their federal income tax. In a well-functioning income tax, all income would be taxable and all costs of earning that income would be deductible. Thus, in a well-functioning income tax, there should be deductions for mortgage interest and property taxes. However, our current system does not tax the imputed rental income that homeowners receive, so the justification for giving a deduction for the costs of earning that income is not clear.

Finally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home. All of these benefits are worth more to taxpayers in higher-income tax brackets than to those in lower brackets.

MORTGAGE INTEREST DEDUCTION

Homeowners who itemize deductions may reduce their taxable income by deducting interest paid on a home mortgage. Taxpayers who do not own their homes have no comparable ability to deduct interest paid on debt incurred to purchase goods and services.

The Tax Cuts and Jobs Act (TCJA) trimmed this important tax break for homeowners. Prior to TCJA, the deduction was limited to interest paid on up to $1 million of debt incurred to purchase or substantially rehabilitate a home. Homeowners also could deduct interest paid on up to $100,000 of home equity debt, regardless of how they used the borrowed funds. TCJA limited the deduction to interest on up to $750,000 of mortgage debt incurred after December 14, 2017, to buy or improve a first or second home. It also generally eliminated the deduction for home equity debt.

The congressional Joint Committee on Taxation (JCT) estimated that the cost of the mortgage interest deduction will shrink from $72 billion to $41 billion in fiscal year 2018, because of the lower cap on deductible mortgage interest and because other provisions of TCJA will result in many fewer taxpayers itemizing their deductions. The Urban-Brookings Tax Policy Center estimates that the share of tax units that benefit from the deduction in 2018 will shrink from 21 percent to 9 percent because of TCJA.

PROPERTY TAX DEDUCTION

Homeowners who itemize deductions may also reduce their taxable income by deducting property taxes they pay on their homes. That deduction is effectively a transfer of federal funds to jurisdictions that impose a property tax (mostly local but also some state governments), allowing them to raise property tax revenue at a lower cost to their constituents. The JCT estimated that the deduction saved millions of homeowners a total of $33 billion in income tax in fiscal year 2017. The cost of that deduction will also go down because of TCJA, as many fewer homeowners will itemize and because TCJA puts an overall cap of $10,000 on the state and local taxes that taxpayers can deduct.

EFFECT OF DEDUCTIONS AND EXCLUSIONS

The deductions and exclusions available to homeowners are worth more to taxpayers in higher tax brackets than to those in lower brackets. For example, deducting $2,000 for property taxes paid saves a taxpayer in the 37 percent top tax bracket $740, but saves a taxpayer in the 22 percent bracket only $440. Additionally, even though they only represent about 20 percent of all tax units, those with more than $100,000 in income received over 85 percent of the mortgage interest deduction tax benefits in 2017. That difference results largely from three factors: compared with lower-income homeowners, those with higher incomes face higher marginal tax rates, typically pay more mortgage interest and property tax, and are more likely to itemize deductions on their tax returns.

PROFITS FROM HOME SALES

Taxpayers who sell assets must generally pay capital gains tax on any profits made on the sale. But homeowners may exclude from taxable income up to $250,000 ($500,000 for joint filers) of capital gains on the sale of their homes if they satisfy certain criteria: they must have maintained the home as their principal residence in two out of the preceding five years, and they generally may not have claimed the capital gains exclusion for the sale of another home during the previous two years. The JCT estimated that the exclusion provision saved homeowners $32 billion in income tax in fiscal 2017.

IMPUTED RENT

Buying a home is an investment, part of the returns being the opportunity to live in the home rent free. Unlike returns from other investments, the return on homeownership—what economists call “imputed rent”—is excluded from taxable income. In contrast, landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their simultaneous role as their own landlords. The Office of Management and Budget estimates that the exclusion of imputed rent reduced federal revenue by nearly $110 billion in fiscal year 2017.