Purchasing a home — whether it’s your first one or your fifth — is exciting. Having a piece of property to call your own provides a sense of well-deserved accomplishment and satisfaction. Home ownership is part of the American Dream because of all the tangible benefits that come along with it; here are just a few.
If you take the amount your home is worth and subtract what is currently owed, you arrive at its equity. Here’s how it works: as your mortgage matures, the principal portion of your payment increases slightly every month while the interest portion decreases. Thus, with every month that you make a mortgage payment, you reduce the amount you owe and your equity grows. This, essentially, acts as a forced savings program — and that’s a good thing!
One of the first things people will often tell you about the perks of owning a home is that you’ll be eligible for a number of tax breaks. They’re not wrong! Included among them are:
Interest Deductions. A mortgage interest deduction is largely considered the most advantageous of all homeowner-related tax benefits, mainly because interest payments can be the largest component of a mortgage payment, particularly in the early years. Homeowners can deduct the interest paid up to $1 million of their mortgage principal. For owners of more expensive homes — like many here in Bergen County — this means a big tax advantage. Anyone who has paid mortgage interest in the past year can deduct it. Keep in mind that various factors can prevent you from being able to deduct this interest, so be sure to consult with a financial advisor or accountant.
Insurance Pay-Off. If you’ve been paying private mortgage insurance (PMI) every month because you put down less than 20%, you may be able to get some dollars back by claiming it on your federal return. You qualify for this deduction if you received your loan in 2007 or later, your mortgage is for your primary residence or a second home that’s not a rental property, and your adjusted gross income (AGI) is $109,000 or less. One final qualifier is that you can only deduct your mortgage insurance if you itemize deductions. The IRS instructs taxpayers to treat mortgage insurance the same as mortgage interest.
Property Tax Write-Off. As a homeowner, as long as you itemize your deductions, you may claim property taxes as a write-off. There is no limit to the amount of taxes eligible for the deduction. This applies to your primary residence and any secondary properties you own. If you pay real estate taxes through you mortgage company, as many do, reference the tax form supplied by your lender to find your deductible tax amount.
Some Closing Cost Deductions. Typically, closing costs are comprised of points charged by the lender (also called origination fees), as well as fees to process the sale, check the title, appraise the property, draft the contract and record the sale. Some of these may be attributed to the cost basis of the new home, but many can be deducted partially or completely on your Federal Tax Return. For example, you can claim any points on your loan the first year of home ownership. Because origination fees of 1 percent or more are common, the savings can be considerable.
Bonus Tip. If your deductions total more than the standard deduction every taxpayer receives, which is usually the case if you’re a homeowner, you may benefit from filing itemized deductions. It will take a bit more time, but it could be worth it.
Tax exceptions and laws change each year, and from state to state. Always consult with your tax preparer before making any claims or deductions.
Long Term Savings.
The debate over renting versus owning is ubiquitous. It may often be the case that renting is cheaper…in the first few years. Over time, however, the interest that you pay on your mortgage — which progressively decreases — will eventually be lower than the rent you would have been paying. More importantly, every mortgage payment brings you closer to home ownership, as opposed to a never-ending cycle of rent payments that yield no return.
In addition to financial advantages, homeowners enjoy “bonus perks” such as social benefits that go beyond new friends and social engagements. According to a report from the National Association of REALTORS®, owning a home has “a significant effect on children’s success.” An additional study shows that “homeownership has positive effects on the academic achievement of children (with) significant effects of home environment, neighborhood quality, and residential stability on the reading and math performance of children between the ages of three and twelve.”
If you are interested in exploring home ownership options, it’s good to do so with a member of your community. With headquarters in Englewood, New Jersey and branches located throughout Northern New Jersey, the professionals at NVE live and work locally, providing the ability to offer you expert guidance with a local point of view. No matter what stage of life you’re in, NVE Bank has you covered with great mortgage loan products and services, and our Mortgage Specialist will lead you through the often confusing process of choosing and getting the exact loan that meets your specific needs. Call our Mortgage Loan Relationship Manager at (201) 816-2800, ext. 1230 or e-mail firstname.lastname@example.org. You can also visit one of our 12 convenient neighborhood branches.