FROM RENTER TO BUYER
One of the joys of being a Homeowner is paying taxes! Investing in your City, County or Local School District. The payment is 100% deductible from your federal income tax.
DEDUCTING MORTGAGE INTEREST
You have a $250,000, 30-year mortgage with a fixed rate of 4.5% interest rate. You will pay roughly $11,000 interest during the first year. Assuming you are in a 25% tax bracket, deducting the interest will save you about $2,750 in taxes.
Renters do not get the same benefit. The landlord takes these tax savings while the tenant carries the burden of paying for their mortgage.
LOWERING YOUR INTEREST RATE
Typically a “discount point” cost 1% of the loan and will yield the borrower savings. NOTE: the lender should indicate how long it will take you to “pay off” this up front cost with long term savings. Ask so you can make an informed decision with regard to buying down your interest rate.
What many buyers don’t know is that a one time tax saving is applied to your investment of buying down a “point(s)”. Assuming again that you are in a 25% tax bracket and spend $2500 on Discount Point(s), your total savings would be $625 ($2500 X 0.25% = $625).
If you are planning to live in your home for at least 7 years, give discount points a serious thought. They will save you money in the long run.
MAKING BUYING A HOME AFFORDABLE
The Federal House Administration (FHA) allows buyers to make zero-down or low-down options when buying a home, but FHA also requires PMI on all loans. Mortgage Insurance is a way that lenders protect themselves against the risk of buyers defaulting on their loan. The good news is you can deduct your mortgage insurance from your federal income tax as itemized deductions up to a gross income of $109,000 and half of that if you are married but file separately.
BUILT IN BENEFITS
Contrary to popular belief these aren’t “loopholes”! These tax benefits are built into our system to encourage and support the dream of home ownership in America.
Buying a home is a huge decision. For many it is the single largest investment they will make in their life. Renting has some perks. You have to decide for yourself if you are ready to invest in a home. Just know that when you are ready, there is tax code to help make home ownership more affordable.