Tag: Saving Money

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.

Property Tax Exemptions

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.

FHA Rehab Loans

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.

Basic Requirements

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:

  1. You must apply before doing the work. Incentives are not available for past renovations.
  2. 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.
  3. 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.

How to Increase Your Home Value

Making your house more efficient, adding square footage, upgrading the kitchen or bath and installing smart-home technology can help increase its value.

Nearly two-thirds (65%) of U.S. homeowners believe the value of their home will continue to rise over the next 10 years, according to a NerdWallet survey conducted online by The Harris Poll among over 1,400 homeowners in August 2018.

That may be optimistic, considering that some factors that determine what a house is worth, like its location and the popularity of that market, are out of your control.

If, like 70% of American homeowners, you believe your house is your biggest asset, taking care of it is probably a top priority. The good news is, keeping up with repairs and making smart improvements are both proven ways to increase home value over time.

Whether you want to build equity or get top dollar when you sell, use the tips below to raise the value of your home.

1. Make it low-maintenance

Since many home buyers worry about buying a home that will need constant maintenance, replacing a major component before putting it up for sale — like the furnace, water heater or even the roof — may calm fears of an emergency repair in the near future and help get you a higher price.

Improvements that make things easy to clean and maintain may also increase home value. Consider replacing easily stained carpet with hardwood floors or replace high-maintenance wood siding with vinyl siding.

2. Make it more efficient

Energy conservation features can have a significant impact on home value, depending on what area of the country you’re in, Joanne Theunissen, chair of the National Association of Home Builders Remodelers, said in an email. Energy-efficient mortgages (EEMs) allow borrowers to take on additional debt to cover both the purchase of the home as well as energy-efficient upgrades. EEMs can also offer lower mortgage rates to increase purchasing power, according to Energy.gov.

Consider double-paned windows, enhanced attic insulation, LED lighting and efficient appliances as a way to increase home value and entice energy-conscious buyers.

If you’re willing to go bigger, put solar panels on the roof. Thirty-nine percent of agents surveyed recently by the National Association of Realtors said solar panels increased perceived property value. But since solar panels are a big financial and structural commitment, they only make sense if you’re hoping to increase value over the long term, not looking for a quick boost in resale value.

Schedule an assessment with a certified energy auditor or your utility company to determine where your home is wasting energy and which upgrades will save you the most money.

3. Make it more attractive

Curb appeal — how your home looks from the street — is your first chance to make a good impression, says James Murrett, president of the Appraisal Institute, a professional association for real estate appraisers. A home’s exterior needs to make a prospective buyer want to walk through the front door.

Make sure existing landscaping is well-maintained. If your yard seems dull in comparison with your neighbors, consider planting flowers or repainting the front door.

Once the exterior looks good, focus on the kitchen and bathroom. When these two rooms are outdated, they can keep a property from reaching its highest valuation, Lori Noble, a senior residential appraiser (SRA) in Charleston, West Virginia, said in an email.

And you don’t have to spring for heated towel racks or marble floors, either. A minor kitchen remodel recoups 81% of its cost in added value on average, versus 53% for an upscale kitchen remodel with stone countertops, custom cabinets and commercial-grade appliances, according to Remodeling magazine’s “2018 Cost vs. Value Report.”The same is true for bathrooms; a midrange remodel — new flooring and a few updated fixtures — delivers a 70% return on investment, while an upscale bathroom remodel — heated flooring, custom cabinets and designer fixtures — sees 56% on average.

4. Make it smarter

Safety-enhancing gadgets top the list of “smart” technologies buyers want in their new homes, according to a 2018 survey by Coldwell Banker. These safe and smart devices include thermostats, fire detectors, carbon monoxide detectors, security cameras, door locks and lighting.

While smart tech doesn’t always increase home value, it does add appeal, Tavia Galvin, a licensed Realtor in Arvada, Colorado, said in an email.

Those who see themselves as “techies” are more likely to pay more for these items, Martin said.

Unlike replacing the roof or renovating the bathroom, you can usually install these devices yourself for about $1,000 or less.

5. Make it bigger

“Square footage has a huge impact on value,” Angie Martin, director of operations at Hales and Associates in Overland Park, Kansas, said in an email. Price per square foot is one way she helps clients compare homes that are similar in style and upgrades.

Bigger homes often command higher values, and even if an appraiser doesn’t officially acknowledge the full value of added space, a buyer will likely notice.

Adding a room is the obvious way to make your house bigger, but you can also create additional living space by finishing the basement or building a deck.

How to pay for improvements that increase value

When thinking about how to increase home value, root your expectations in reality. Updates rarely recoup 100% of their cost, but they can make your family more comfortable and even help your home sell faster.

If you can’t pay for home improvements in cash, be sure to choose the right method of financing for you.

Cash-out refinance: This popular refinance option may be a good fit if you want to tap equity but don’t fancy a second mortgage. Of the 36% of homeowners who reported taking a cash-out refinance in the NerdWallet survey, over half (52%) used the funds for home improvements and repairs. A cash-out refinance doesn’t make sense if your equity is limited or current cash-out mortgage rates are higher than your existing rate.
Credit card: Putting home renovations on a credit card may be OK as long as you’ll be able to pay off the entire balance in a short amount of time.
Home equity loan or line of credit: These second mortgages turn your home’s equity into easily accessible funds. Home equity loans pay out in a lump sum while home equity lines of credit, or HELOCs, are a line of financing you can borrow against over time. Both home equity loans and HELOCs have interest rates, fees, monthly payments and tax advantages to consider.
Personal loan: If you don’t have enough equity for a home equity loan or HELOC, consider a personal loan. The interest rate will be higher than home-equity-based financing, but lower than a credit card in most cases.

Homeowner Tips: Tax Deduction

Owning a home is a big financial responsibility, and it’s one of the largest investments you’ll probably ever make. Knowing the tax deductions and credits available to homeowners can help ensure your big investment pays you back a bit at tax time.

“Many homeowners miss out on a lot of deductions every year because they aren’t aware of all the savings opportunities available to them,” says Josh Zimmelman, president of Westwood Tax and Consulting.

These tax tips could help you make the most of the many tax breaks for homeowners and maximize any income tax refund you may be owed.

1. Save your tax records

Here’s one tax tip for homeowners: Once you take advantage of all the available tax benefits you’re able to claim in the current tax year, hold onto the documentation for those expenses.

“You never know when you might get audited,” Zimmelman says. “It’s important to have the documentation to back up your deductions.”

The law requires that you keep all the records you use to file your tax returns for three years from the date a return was filed. That’s typically how far the IRS goes back when doing an audit. But keep in mind that the IRS can go back further (usually no more than six years back) if it identifies a substantial error in a return.

2. Make energy-efficient updates

Adding a solar energy system to your home is not only good for the environment — it can also be good for your tax refund. The IRS allows you to take a tax credit worth 30% of the cost of installing a solar energy system.

If you’re thinking about holding off on taking advantage of this federal tax credit, don’t wait too long. The credit amount for residential improvements decreases to 26% in the year 2020, and then to 22% in 2021, after which it’s set to go away entirely.

3. Stay organized

Many of the federal income tax deductions or credits you can take as a homeowner require you to keep detailed records of your home-related expenses. Start saving receipts and other information right away — don’t wait for tax time to roll around.

“If you take a few minutes to set up an organization system for your tax paperwork and financial records, it should be quick and easy to maintain,” Zimmelman says.

To stay organized, keep hard copies of all your financial documents and receipts. Or if you’d rather go paperless, you can scan and store your documents digitally.

4. Hold onto home improvement receipts

If you make any improvements to your home, the expenses aren’t deductible for the current tax year. But when you sell the home in the future, they can help lower your tax burden then.

That’s because you can add home improvements expenses to your adjusted basis. This is generally what you paid to buy the house, plus the cost of construction, renovation or other improvements you’ve made, minus any losses you’ve experienced from damage to the home.

For the tax year in which you sell the home, your taxes on the sale are based on the sale price plus any concessions you get from the seller (such as them paying closing costs) minus your selling expenses. If the amount you gain from that equation is higher than your adjusted basis, you have a capital gain on the sale. So the higher your adjusted basis, the less taxes you may have to pay on your profit from the sale.

5. Track your home office expenses

If you’re self-employed and work from home, you may be able to deduct some of the expenses you incur for your business use of your home.

“Not every person who works from home can claim a home office,” Zimmelman says. “The home office must be used regularly and exclusively for business and be the primary site of the business.”

Because tax reform suspended certain deductions, including unreimbursed employee expenses (with some exceptions), until Dec. 31, 2025, you can’t take a home office deduction if you work from home as an employee.

Types of expenses you can deduct include the actual expenses you incur for the home office and depreciation for the portion of the home used.

6. Think ahead about deduction options

Deductions can help you lower your total tax obligation by reducing your taxable income. For the 2019 tax year, the federal standard deduction is $24,400 if you’re married filing jointly, $12,200 if you’re single or married filing separately, and $18,350 if you’re filing as head of household.

As a homeowner, though, you may have enough in eligible expenses to itemize your deductions. If those itemized deductions add up to more than the standard deduction, you could lower your tax bill even more.

Eligible expenses could include the following:

  • Charitable contributions — If you made a tax-deductible donation to a qualified charity, you can add it to your total itemized deductions. In most cases, you’re allowed to deduct cash contributions that equal up to 60% of your adjusted gross income.
  • Medical expense deduction — You may be able to write off some medical expenses that insurance didn’t pay for.
  • Home mortgage interest — If you took out a mortgage on or after Dec. 15, 2017, you may be able to take a mortgage interest deduction on up to $750,000 of mortgage debt for your primary residence. If your mortgage predates Dec. 15, 2017, the limit is $1 million. Interest paid on your home equity loan or line of credit may also be deductible if you used the money to buy, build or substantially improve the house that secures the loan.
  • State and local taxes — Real estate taxes can be high in some areas, but you may be able to deduct some (or all) of your property taxes. For federal tax returns, the law allows taxpayers to deduct up to $10,000 ($5,000 if married filing separately) of the total of your state and local property taxes plus either income taxes or state and local sales taxes.

Keep in mind that the Tax Cuts and Jobs Act of 2017 limited the amount of certain deductions, which may make it harder to come up with an itemized deduction total that will exceed your standard deduction amount. In that situation, itemizing might not give you the most tax benefit. That said, if you have deductible expenses that exceed your standard deduction amount, there’s no longer an income-based limit on the amount of itemized deductions you’re allowed to claim (though there may be other limitations).

Bottom line

Owning a home can be expensive — but fortunately, the tax breaks can help make up for the extra costs. As a homeowner, it’s critical to know which deductions and credits you qualify for and to make sure you maximize them to your benefit. Using Credit Karma Tax to file your taxes for free, and following these tax tips for homeowners could help.

A Guide to Owner Financing

Asking a seller to help you buy their home is not something most homeowners, or even their listing agents, usually consider. However, for a seller whose home isn’t selling or for a buyer having trouble with traditional lender guidelines, owner financing is definitely a viable option. Also known as seller financing, it’s especially popular if the local real estate scene is a buyer’s market.

What Is Owner Financing?

Owner or seller financing means that the current homeowner puts up part or all of the money required to buy a property. In other words, instead of taking out a mortgage with a commercial lender, the buyer is borrowing the money from the seller. Buyers can completely finance a purchase in this way, or combine a loan from the seller with one from the bank.

For the financed portion, the buyer and seller agree upon an interest rate, monthly payment amount and schedule, and other details of the loan, and the buyer gives the seller a promissory note agreeing to these terms. The promissory note is generally entered in the public records, thus protecting both parties.

It doesn’t matter if the property has an existing mortgage on it, although the homeowner’s lender might accelerate the loan upon sale due to an alienation clause. Generally, the seller retains the title to the home until the buyer has repaid the loan in full.

Types of Owner Financing

Sellers and buyers are free to negotiate the terms of owner financing, subject to state-specific usury laws and other local regulations; some state laws, for example, prohibit balloon payments.

While not required, many sellers do expect the buyer to provide some sort of downpayment on the property. Their rationale is similar to any mortgage lender’s: They assume that buyers who have some equity in a home are less likely to default on the payments and let it go into foreclosure.

Owner financing can take several forms. Some variations include the following.

Land Contracts

Land contracts do not pass the full legal title of the property to the buyer but give them an equitable title. The buyer makes payments to the seller for a certain period. Upon final payment or a refinance, the buyer receives the deed.

Mortgages

Sellers can carry the mortgage for the entire balance of the purchase price⁠—less the down payment, which may include an underlying loan. This type of financing is called an all-inclusive mortgage or all-inclusive trust deed (AITD), also known as a wrap-around mortgage. The seller receives an override of interest on the underlying loan. A seller may also carry a junior mortgage, in which case the buyer would take title subject to the existing loan or obtain a new first mortgage. The buyer receives a deed and gives the seller a second mortgage for the balance of the purchase price, less the down payment and the first mortgage amount.

Lease-purchase Agreements

A lease-purchase agreement, also known as rent to own, means the seller is leasing the property to the buyer, giving them an equitable title to it. Upon fulfillment of the lease-purchase agreement, the buyer receives the full title and typically obtains a loan to pay the seller, after receiving credit for all or part of the rental payments toward the purchase price.

Owner-Financing Benefits for Buyers

Buyers who opt for seller financing can enjoy several advantages.

Quicker Sale

Offering owner financing is one way to stand out from the sea of inventory, attracting a different set of buyers and moving an otherwise hard-to-sell property.

Little or No Qualifying

The seller’s interpretation of buyer qualifications is typically less stringent and more flexible than those imposed by conventional lenders.

Down Payment Flexibility

Down payments are negotiable. If a seller wants a larger down payment than the buyer possesses, sometimes sellers will let a buyer make periodic lump-sum payments toward a down payment.

 

Higher Interest Rate

The owner-financed loan can carry a higher rate of interest than a seller might receive in a money market account or other low-risk types of investments.

Faster Possession

Because buyers and sellers aren’t waiting for a lender to process the financing, buyers can close faster and get possession of the property sooner than with a conventional loan transaction.

Lower Closing Costs

Without an institutional lender, there are no loan or discount points, and no origination fees, processing fees, administration fees, or any of the other assorted miscellaneous fees that lenders routinely charge, which automatically saves money on buyer closing costs.

Owner-Financing Benefits for Sellers

A variety of advantages for sellers arise in owner-financing situations as well.

Higher Sales Price

Because the seller is offering the financing, they may be in a position to command full list price or higher.

Tax Breaks

The seller might pay less in taxes on an installment sale, reporting only the income received in each calendar year.

Monthly Income

Payments from a buyer increase the seller’s monthly cash flow, resulting in a spendable income.

 

Tailored Financing

Unlike conventional loans, sellers and buyers can choose from a variety of loan repayment options, such as interest-only, fixed-rate amortization, less-than-interest, or a balloon payment⁠—if the state allows it—or even a combination of these. Interest rates can adjust periodically or remain at one rate for the term of the loan.​

Advantageous as it can be, owner financing is a complex process. Neither buyer nor seller should rely just on their respective real estate agents but instead should engage real estate lawyers to help them negotiate the transaction, ensuring that their agreement conforms to all state laws, covers every contingency, and protects both parties equally.

Tips Every New Homeowner Should Know

Congratulations! You’ve just purchased your first home. Buying a home is a smart investment and offers a lot of benefits for you and your family. But owning a home also comes with a few disadvantages, like not being able to call your landlord when something goes awry.

But don’t worry. We have some homeowner tips and tricks that will help you prepare for those surprises and maybe even save you a few dollars down the road.

Use these new homeowner tips to make your transition to property owner a little smoother.

1. Change Your Air Filter Regularly

This probably sounds obvious, but it is an often overlooked homeowner maintenance tip. When you move into your home, change your air filter right away. Mark the date on your calendar and change it every 90 days moving forward. Consider changing it every 60 days if you have pets or if you suffer from allergies.

Changing your air filter not only helps keep your air clean, but it also reduces dust in your home and extends the life of your furnace.

2. Know How to Turn Off Your Water Valve

Picture this: You wake up in the middle of the night to find a busted pipe filling your basement with water. It takes you five minutes to locate your main water valve and two more minutes to turn it off. That’s seven additional minutes of water flowing into your basement.

It’s a good idea to locate this valve when you move in and learn how it works to save yourself time during an emergency. Learn how to shut off your power and gas lines while you’re at it.

Another homeowner tip is to turn off your main water valve whenever you leave on vacation. This will prevent flooding if something should go wrong when you are out of town.

3. Create a Homeowner’s Binder

You may have noticed during the purchasing process that there is a lot of paperwork involved in owning a home. Before you move into your new home, create a binder for important documents, such as mortgage and home insurance paperwork.

After your move in, use the same binder to store all of the guides and warranties for your new appliances. Store receipts for any home improvement and moving expenses here as well. You’ll want to hang on to these for your taxes. You can also start collecting contact information for reliable contractors in this binder.

4. Wait to Start Any Large Projects

One thing every homeowner should know: home improvement projects are expensive. Avoid completing unnecessary projects. Unless your new home is not livable, hold off on any major construction projects until you’ve lived in the home for at least six months.

Waiting a few months to make any huge changes will allow you to get a feel for your home and put your priorities in order. After a few months, you may learn that the floor plan doesn’t bother you as much as expected, but you’ve discovered you can’t live with the current bathroom configuration. Waiting will also give you time to save for the cost of any upcoming projects.

It is a good idea to complete small projects such as painting or removing carpet before moving into your new home.

5. Start an Emergency House Fund

You never know when something is going to go wrong, or how much it is going to cost. A great homeowner tip is to start an emergency savings account as soon as possible.

The longer you live in your home, the more likely you are to experience a surprise plumbing, heating or roofing issue. Start saving early to take a little stress out of this typical homeowner experience.

6. Pay Attention to Your Energy Usage

Owning a home means paying your own utility bills. Pay attention to how your home is using energy and use the information to reduce your carbon footprint and save money. You’ll be surprised how small changes can affect your electric bill.

Homeowner tips and tricks for reducing your energy costs:

  • Move your refrigerator away from your oven.
  • Schedule a home energy audit.
  • Lower your water heater’s thermostat to 120 degrees.
  • Switch out lightbulbs for energy-efficient LED lightbulbs.

7. Learn How to Identify Potential Issues in Your New Home

One of the best homeowner maintenance tips is to detect minor problems before they become huge issues. After purchasing your home, take some time to learn about some of the common issues homes face, especially if you’ve purchased an older home or one that was unoccupied for a period of time. Being able to identify a potential problem early on could save you money later.

Learn to recognize:

  • Basement leaks and flooding.
  • Signs of a roof leak.
  • Foundation issues.

If you can catch these issues early, you can prevent further damage to your home and save yourself a lot of headaches.

8. Make Friends With Your Neighbors

As many homeowners know, having bad neighbors can make your living situation less than pleasant. Work to be a good neighbor right away by introducing yourself and making friends as soon as you move in. Building a relationship with your neighbors will help you learn about your neighborhood, find reliable contractors and maybe even allow you to borrow tools when you need them.

Knowing your neighbors will also make it easier to address any issues that arise later, such as property line or noise concerns.

9. Invest in New Tools

Now that you’re a homeowner, it’s time to get yourself a toolbox. From measuring for a new couch to hanging curtains and photographs, you’re going to need tools even if you’re not planning any big DIY projects.

Best tools for new homeowners:

  • Ladder
  • Electric drill
  • Measuring tape
  • Hammer
  • Stud finder

Owning these tools will make following the rest of these new homeowner maintenance tips easier.

10. Complete One Project at a Time

Don’t work on multiple home projects at once. You may want to get all your improvements finished as soon as possible, but this isn’t the answer. Not only will you exhaust your finances, but you will also make your new home unlivable and add unnecessary stress to your everyday life.

Instead of starting all your projects at once, learn how to plan a home remodel that won’t make you miserable.