HOME OWNERSHIP: BENEFITS & REALITIES

Home ownership has its ups and downs. Enjoying the benefits or dealing with the realities?

BENEFITS

A PLACE OF YOUR OWN

Home ownership is an opportunity to settle down and gain a sense of belonging in a community. It can give you a sense of personal satisfaction to have a home of your own to share and enjoy with family and friends.

AN INVESTMENT IN YOUR FUTURE                     

The value of your home can increase over time, making your investment grow. As you pay down your mortgage loan over the years, you can build ownership interest, called equity, which can offer financial flexibility under the right circumstances. Your home is also a something you could leave to your children or grandchildren.

MANAGE YOUR HOUSING PAYMENTS

In some cases, monthly mortgage payments may be lower than rental payments. Many home loans, or mortgages, are fixed rate. This means the amount you pay stays the same month after month, which can help you plan your spending.

TAX BENEFITS

In contrast to renters, most homeowners receive tax breaks, because interest paid on a home mortgage and real estate taxes are often tax deductible, up to a certain amount. Consult your tax advisor for details.

A FINANCIAL STEPPING STONE

Even if your first home isn’t your dream home, paying your mortgage and other expenses on time and in full will benefit your credit rating. Managing your finances responsibly helps to increase your financial strength and options

REALITIES

ONGOING COSTS

Home ownership can be a large, long-term financial responsibility. If you don’t want to commit to a mortgage, taxes, insurance, utilities, and maintenance — or if your future income is extremely uncertain — owning a home may not be practical at this time.

LESS EASY TO MOVE

If you think you may need to move in the near future, buying a home may not be practical because selling it could take time. If you buy a home and then have to move, you could end up paying for the home you already own, plus the added expense of a new home.

UPKEEP OF THE HOME

You’ll be responsible for all utility bills, home repairs, and maintenance, some of which can be costly. You’ll also be responsible for property taxes and homeowner’s insurance, costs that often increase over time.

INCREASED VALUE NOT GUARANTEED

While most homes increase in value over time, it is possible that your home could lose some of its value. You could lose money if you sell it for less than what you paid for it. Even if values in your area remain steady or increase, if you don’t keep your property well-maintained, it could decrease in value.

POSSIBILITY OF FORECLOSURE

In an extreme situation, if you were to fail to make your mortgage payments, the lender has the right to foreclose. This means you would lose ownership of the property.

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HOME WARRANTY PROTECTION

Home Warranty: Protection That May Pay For Itself

A home warranty plan can help you manage the costs of unexpected appliance and major system repairs that pop up during home ownership. A home warranty plan is a contract with a service provider that covers the repair or replacement cost of your home’s appliances and major systems. Depending on the level of coverage you purchase, a home warranty plan may pay to repair or replace your appliance or system — regardless of its age or the length of time you’ve owned it.

Individual home warranty plans vary; however, most generally cover these household appliances and systems:

  • Heating
  • Plumbing
  • Electrical
  • Duct work
  • Range
  • Trash compactor
  • Dishwasher
  • Garbage disposal
  • Ceiling and exhaust fans
  • Jetted bathtub
  • Sump pump
  • Water heater
  • Toilet tank and bowl

Plus, you may also be able to buy additional protection for your:

  • Central air conditioning system
  • Refrigerator
  • Garage door opener
  • Built-in pool or spa
  • Well pump
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Offset the Cost of Repairs

While having a home warranty plan is not legally required, it can be a very good idea because your homeowner’s insurance policy will generally not cover the repair or replacement of your home’s systems or appliances due to normal use. While a manufacturer’s warranty may be included with the purchase of an appliance or major system that warranty will eventually expire — leaving you with the responsibility to repair or replace. These are very common costs of home ownership.

Another benefit of a home warranty plan? Buyer incentive! If you are trying to sell your home, including a home warranty plan may give you an advantage over other sellers in your area.

Whether you want to manage the costs of unexpected appliance and major system repairs or simply want to make your home more attractive to potential buyers, a home warranty plan provides peace of mind.

WORDS YOU SHOULD KNOW

Warranties use a lot of words you might not understand. If you’re considering home ownership, here are a few important words to know:

Manufacturer – The company that makes a system or appliance.

Major system – Mechanical equipment or a network of pipes that are essential to a home’s ventilation, heating, cooling or plumbing functions.

Service provider – A tradesperson or contractor who repairs or replaces systems or appliances.

PROTECTING YOUR HOME AND INVESTMENT

Home ownership is an investment that you pay for over a long time. Because it’s an investment, you’ll want to protect it so you don’t lose it.

Follow these steps and protect yourself from losing your home (or from your home losing value):

Starting with your very first mortgage payment, be sure to make your payments on time. If you don’t make your payments, you could damage your credit rating and lose your home.

Some lenders offer automatic mortgage payment programs that will ensure that your mortgage is paid on time. Some plans allow you to pay off your loan more quickly so that you pay less interest over time and possibly accumulate equity faster. Ask your lender about the automatic mortgage payment options they offer.

Establish a monthly schedule for paying your bills. Consider using an automatic bill pay service. Stick to your spending plan so you don’t overspend. Keep careful financial records so you always know where you stand.

If you’re new to home ownership, avoid opening new credit accounts. Before you make any other major purchases and take on additional debt, be sure you handle your new monthly housing expenses, including your new mortgage, utilities, and other home-related expenses.

With home ownership, it’s more important than ever to set aside money for planned and unexpected expenses. Try to have enough savings available for three to six months of expenses should you need it.

Maintain your home inside and out. Regular maintenance may help you to avoid more expensive repairs later on. It may also help reduce energy costs and keeps up the value of your most important asset, your home.

The value of insurance is to protect you from unexpected expenses. Make sure you have enough coverage in all areas, including homeowners’ insurance.

Take advantage of borrowing against your home equity if you need to but manage it carefully. Always pay on time.

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MANAGING expenses of home ownership

As a homeowner, it’s important to keep on budgeting and saving. Starting with your very first mortgage payment, you need to keep up your good credit rating by making your payments on time.

It’s natural to want to decorate and furnish your new home, but keep in mind that you qualified for your home loan based on your current amount of debt. If you have to borrow money to buy new things like furniture, you may have more difficulty making your house payments. Your new house payment is probably greater than your previous rent payment. In addition, your utility bills are likely to increase. Before making any other major purchases and taking on additional debt, be sure you can handle your new monthly housing expenses.

Be sure to keep the cost of maintaining your home, property taxes, and insurance in mind when managing your expenses. The amount will you spend on maintenance will depend on the condition of your home, its exposure to the elements, the care with which you treat it, the number of people who live in it and the type of usage. You may consider a home warranty to help offset some of the repair costs for major systems such as plumbing, electrical, and heating systems, as well as installed appliances.

Both your property taxes and homeowner’s insurance will likely be included in your monthly mortgage payment. Your property taxes, typically paid at least once a year to one or more governmental authorities, may change based on the market value of your property. Your homeowner’s or hazard insurance protects you and your lender against financial losses on your property as a result of fire, wind, natural disasters or other hazards. Consider doing a homeowner’s insurance check-up once a year and comparison shop with other companies.

  • Note when your first mortgage payment is due. If you haven’t received your payment coupons, call your lender for the payment amount and the payment mailing address.
  • Be aware of the dates during the month when your other bills are due. Note the dates on your monthly budget. Plan your spending accordingly, so you have cash when you need it to pay your bills.
  • Compare the due dates of your monthly bills with your schedule for getting paid.
  • Contact your electric and gas companies and request information on their budget billing plans. These plans allow you to pay the same amount each month, which can make it easier to plan your budget.
  • Plan ahead for large periodic expenses such as insurance premiums and personal or property taxes.
  • Develop a maintenance and repair fund for your home. Consider keeping these funds in a separate account, to ensure you have the funds when you need them.

It pays to have a good system for organizing and filing your home and mortgage-related papers. To receive any of your tax benefits, you’ll need to have records. Be sure to save all purchase information, including the settlement sheet you receive at closing. (The settlement sheet, also called a CD or Closing Disclosure, is a document prepared by the closing agent that describes the real estate transaction in detail.)

Save records of all work you have done on your home, including contracts, receipts and other information. You’ll need records like these if you sell your home.

Here are more suggestions for organizing your records:

  • Collect important papers and store them in a safe place.
  • Keep service contracts and owner’s manuals in a file.
  • Keep a file of warranties and receipts.
  • List all model numbers and serial numbers of your possessions.
  • Take pictures or video of your home (inside and outside) and major possessions. These visual records may help you make an insurance claim if you’re the victim of a natural disaster. Save these photos and recordings in multiple places. Ask your homeowner’s insurance agent to keep a copy.
  • Create home maintenance project files. These will help you plan and budget for future home maintenance, repairs, and improvements.

BE A PART OF YOUR COMMMUNITY

Investing in a home means much more than buying a piece of property and a house. It means becoming a good neighbor and investing in the life of a community. Even before you move in, try to become familiar with facilities in your area such as:

  • The nearest hospital.
  • Public schools and adult education classes.
  • Pharmacies and grocery stores.
  • Public transportation.
  • Local library, parks, and recreation centers.

Here are a few suggestions to become involved in your community and help make it a better place to live.

Getting to know your neighbors can be very rewarding, but many times we’re so busy we don’t have the time to stop and get to know each other. One way to meet your neighbors is to participate in neighborhood yard sales, picnics, and neighborhood association meetings. It’s also a good idea to get to know your local businesses and shop with them or use their services. You’ll both make valuable contacts and support the economy of your neighborhood.

Consider subscribing to the local newspaper. You can often get the first few months free or at a low introductory rate. If you cannot afford a subscription, go to the periodicals section of your neighborhood library, where you’ll be able to read the newspaper for free. Read the local news sections to find out about issues important to your neighborhood. If you have children, look for information about school events that interest you. You can learn about upcoming events sponsored by local organizations. You can also learn about community events in your city’s independent weekly newspaper, if available. These independent newspapers are often free and found in local cafes and bookstores.

Voice your concerns, opinions, and views at the polls. Remember, it doesn’t cost you anything to register to vote, and your vote counts!

In many communities, residents join together to prevent crime by organizing neighborhood watch groups. Members work with the police and learn how to make homes safer, protect themselves from crime, and watch after the safety of one another. If your new neighborhood doesn’t have a watch group, you can call the crime prevention unit of your local police department for information on starting one. Other community projects you may want to get involved in include neighborhood recycling, clean-up projects, food banks, or housing rehabilitation.

The information contained herein is being provided as-is and without representation or warranty. The enclosed information is not intended as legal, tax or financial planning advice. Any discussion of tax or accounting matters herein (including any attachments) should not and may not be relied on by any recipient or reader. The recipient/reader should consult their tax adviser, legal consultant and/or accountant for a statement of tax and accounting rules applicable to their particular situation and for all other tax and accounting advice.