Buying a home, even in normal times, is an exhausting process. From the search to the bid to the closing, there is little time for peace. But just because you've sealed the deal and are moving into your house doesn’t mean that there isn't work left to do. Before you start measuring the drapes and hitting up the Pottery Barn, here are three things that every new homeowner should keep their eye on.
To paraphrase Spiderman, with great property comes great liability. Well, with any property, really. Make sure you lock up your homeowner's insurance right away because disaster doesn't believe in grace periods. According to the Insurance Information Institute (III), to keep premiums low, get insurance with the highest deductible you can afford. Most homeowners only file a claim every eight to 10 years, so having a high deductible shouldn't affect you. Other things to consider when exploring insurance options:
- Personal umbrella insurance: While homeowner's insurance covers a percentage of liability, for those with a lot to lose, personal umbrella insurance can protect you against lawsuits. For about $150 to $300 a year, you can get coverage up to $1 million in personal liability.
- Auto combo: Getting your homeowner's insurance from the same carrier as your auto insurance can help you save. According to the III, most companies offer 5% to 15% discounts if you combine home and auto.
Take Back the Tax
Mortgage interest is tax deductible, making it more attractive than throwing your money into a rental. What you can't deduct is any payments on the principle. So, it's not your total payment of your mortgage loan, but only the interest share. But your interest isn't the only thing you can save money on.
- Points: Points are essentially pre-paid mortgage interest, therefore, they're deductible. Generally, they are deducted over the life of the loan, but if you meet a set of nine criteria, you can deduct them in the first year.
- Property taxes: As the buyer, the IRS considers you the payer of real estate taxes from the day of sale onward, no matter what agreement was reached during closing. For example, it doesn't make a difference if the seller offered to pay the taxes through the month, but the sale closed mid-month. The IRS counts you as the taxpayer from mid-month on.
- Late fees: If you're late on your mortgage payment (why didn't you set up that direct deposit?!), you can deduct a late fee from your taxes.
- Tax credits: Be sure to find out what state and federal tax credits are available to you. First time home buyers might be eligible for a $7,500 (or 10% of the purchase price of your home, whichever is smaller) tax credit.
Massage That Mortgage
As a wise man once told me upon purchasing my first home, "Congratulations, you're in debt for the rest of your life." But that doesn't mean you should let your mortgage run your life. Here are a few steps to massaging your mortgage to dull the pain of those inevitable monthly payments.
- Auto-pay account: Many lenders require this, but if yours doesn’t, set up a separate checking account from which to pay your mortgage every month. This way you can keep your discretionary spending separate from your mortgage money. Then set up an auto-pay feature so you don't have to write the check. This does two things: alleviates the difficulty of remembering (or forgetting!) to make your payment, and allows you to focus solely on getting the money into the account. To make it even easier, consider setting up direct deposit into the account so that no matter what the money is always there.
- Consider bi-weekly payments: Split your monthly payment in half and then pay that every two weeks. It will increase the amount you pay per year, but in the long run it can help you pay down your principle faster, which will free you from your mortgage sooner. This option, however, does not benefit those who don't plan on being in their homes for a longer period of time, according to BankingMyWay.com, which calculates it will help you pay off your mortgage four to six years earlier.
- Watch the markets: Keeping your eye on the interest rates and special refinancing products. If the market drops, figure out whether it makes sense to refinance. Even if you've only been in your home a short time, refinancing could make sense if you can save at least a point on your mortgage, which could save you tens of thousands in the long run.