Published on: February 11, 2020 Last modified: May 26, 2020

Essential Tax Information First-Time Home Buyers Need to Know

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    Becoming a homeowner can provide you with many tax benefits. It can also be a tedious process because it involves many steps, from looking over listings to finally closing the deal and getting your keys. For other buyers, the process can be much simpler, it all depends on your particular circumstances.

    Below, we dive into some helpful tax tips for first-time homebuyers, the benefits of owning versus renting, and some of the perks only afforded to homeowners. If you’re currently planning on buying your first home, read on and find out how to take that first step.

    Owning > Renting

    By purchasing a home you’re playing the long game. You make payments to a lender for years but at the end when all debts are paid, you have a property in your name. Renting also has its advantages like not paying certain fees or incurring maintenance costs. And yet, it doesn’t matter how many years you rent a property, it will always belong to someone else. A sobering realization is to do the math and find that you’ve spent thousands of dollars that could’ve been put to better use as an investment.

    And that’s exactly what a mortgage is, it’s an investment. Throughout the life of the mortgage, you’ll be building equity and your investment will undoubtedly pay off in the future in one way or another. Furthermore, having a mortgage opens you up to certain tax benefits.

    How Much House Can I actually Afford?

    A first-time home buyer needs to be aware that there will be a need for some cash upfront for various closing costs and a down payment. Another important consideration are some remodeling and moving costs such as: hiring a moving company, paint jobs, a new couch, curtains, and any other modifications you would like to make to able to make your new investment, your home!

    It is important that before you actually start looking for a home these two factors should be established:

    The Amount of Loan you Realistically Qualify: Potential mortgage lenders look very carefully at a homebuyer’s debt-to-income ratio. Lenders also look into credit history, liquid cash available for closing costs, student loan payments, alimony or child support payments.

    In many occasions, homebuyers look into being preapproved for a mortgage before making an offer for any home. This helps the buying process tremendously and home close a lot quicker with this being done beforehand.

    It is crucial to look at homes considering the maximum amount of loan you will qualify for.

    Monthly expenses: It is important to establish a budget and what a new homebuyer can afford comfortably. These costs would include a mortgage, insurances, utilities, taxes. Please make sure not to consider hidden costs like food, transportation, a new television, etc.

    Buying a home is one of the most important financial decisions someone can make during their lifetime. It is important to have a plan in place, so that a new home does not jeopardize your financial flexibility in the long-run and figuring out your monthly expenses is crucial for this.

    Did You Say Tax-Deductible?

    Mortgage interest and property taxes are tax-deductible. Depending on your local laws, this may apply to your primary residence and to a second home. Lots of factors can have an impact on what is and isn’t tax-deductible as it relates to your mortgage. We would encourage you to consult with an accountant and also see how the Tax Jobs and Cuts Act of 2017 may have an effect on your returns.

    Research Your Potential Lenders

    When you get started on buying your first home, it’s essential to look into the wide range of lenders available so you’re able to make a well-informed decision. This choice will determine the quality of the service you’ll receive and the all-too-important mortgage rates. As you search for the best mortgage lender, keep in mind that there are other costs involved in this process besides the price of the home, such as closing costs, lawyer fees, and property appraisals.

    The following are some of the potential lenders that are usually available to first-time buyers: Wholesale lenders, direct lenders, portfolio lenders, national banks, regional banks, mortgage bankers, credit unions, and mortgage brokers. They all have different benefits to offer you, so put in the time to find a lender that not only meets your expectations but will also provide you with the necessary support throughout of process.

    Make sure you ask a potential lender about special programs, and what you possibly could help you make smaller down payment. Veterans usually are better off using a VA loan for example, and if have any questions about the program they are better off speaking directly to the Department of Veterans Affairs. Another option is an FHA loan that is ran by the Federal Housing Administration.

    Types of Mortgages Available To You

    Depending on the kind of home you want to buy, there are many different types of mortgages that can help you get there. Qualified and non-qualified mortgages assess the risk to determine if you’re eligible. Conforming and non-conforming mortgages depend on their compliance with government-sponsored entities. Government-backed mortgages are ensured by agencies run by the federal government. And conventional mortgages are insured by lenders in the private sector and they’re usually dependant on buyers who have the resources for a considerable down payment.

    Yes, there are plenty of options. To find out which is the best lender that will benefit your particular case, look into credible online sources and/or consult with professionals whose mission is to provide unbiased information. With truthful data at your disposal, you will be empowered to make the best decisions.

    While there are some tax benefits to being a homeowner, the best way to assure a good monthly payment is to make the right moves from the offset. The process can be frustrating at times, but nothing as good as owning your own home was meant to be easy. Just know that once it’s over, you’ll be a homeowner and that’s a lovely return on your investment.

    Need more information? We can help! Click here to contact our team of tax attorneys and let’s get started today.

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