Buying a home can be as exciting as it can be overwhelming. But it doesn’t have to be, if you’re prepared and make good choices. It’s critical to understand your options and take advantage of the resources that are available to you to help you choose the best possible mortgage for your situation.
You’ll need funds for a down payment (typically 20% of the purchase price) and any mortgage closing costs before you buy. After you buy, you’ll have monthly mortgage payments, property taxes and insurance. Then there are the other expenses like utilities, maintenance and repairs — not to mention furniture and appliances.
Determine what’s affordable
You probably want a nice home, but you ultimately have to be able to afford it. What you can afford depends on the size of your mortgage, mortgage rates, costs of home ownership, other expenses and income. A good rule of thumb is that the total of your mortgage payment (principle and interest), property taxes, insurance and homeowner’s association dues should be no more than 28% of your household income. [Use one of our handy calculators to help you estimate your mortgage payments.]
Estimate your monthly home payment. As an example, consider your monthly payment for a $200,000 mortgage at different interest rates, with a 30-year fixed mortgage:
3.25% – $870.31
3.50% – $898.09
3.75% – $926.24
4.00% – $954.83
4.50% – $1,013.37
5.00% – $1,073.64
Tax benefits from home ownership
Many taxpayers find that the interest on their mortgage and the annual property taxes they pay are large enough to enable them to itemize their deductions instead of using what is commonly referred to as the standard deduction. Be sure to keep track of when you pay your property taxes. Some taxing districts have due dates close to the end of the year and you must have paid the tax before December 31st to get the deduction.
The IRS also allows you to exclude any gain on selling your house up to $500,000 if you file a joint income tax return and meet certain requirements. You may want to investigate these tax advantages further or talk to a tax accountant to completely understand the tax advantages.
Potential gains from selling your home
The housing market in many areas of the country is currently suffering. While that may be bad news for existing owners, it can be very good news for those buying their first home. When the housing market improves, and the odds are good that it ultimately will, the value of your home may rise.
If you are like millions of others, owning your own home is a primary financial and lifestyle goal. The pride of home ownership and the financial rewards are attractive. Just make sure you understand that there can be some downsides before you make the decision. As always, contact one of our knowledgeable mortgage loan officers if you have any questions.