Explaining Tax Benefits of Home Ownership

photo courtesy of www.zillow.com



April 15th is slowly approaching so I think it is appropriate to write about the tax benefits of home ownership. I am a Realtor and not a CPA therefore you should consult with a CPA before purchasing a home because of the tax benefit of home ownership.  I should also warn you that if numbers make you nauseous, do not read any further. Now the benefits I am about to explain only apply to homes purchased with a mortgage and would not benefit those paying cash.  First of all, if you own a home with a home mortgage under $1,000,000 100% of the interest and property tax are deductible from your income tax.  For the first 12 years that you own your home 77% of your principal and interest payment of your home is interest.  Also, if you purchased a home and made less than a 20% down payment you may have mortgage insurance that you are required to pay.  Some of that mortgage insurance is tax deductible as well.  These rules apply for your personal residence.  There are also tax benefits of owning investment property but for this article I am going to concentrate on how tax benefits apply to your personal residence.

Let's say you purchased a $210,000 home and made a down payment of 5% meaning you have a mortgage of $200,000.  Lets also say that your interest rate is 5% and this is a 30 year loan.  In this scenario your principle and interest payment would be $1,073.64 per month.  Included in your monthly payment are also property taxes, homeowners insurance, and mortgage insurance.  In Fayetteville a home with a tax value of $210,000 would require $2,016.66 a year in taxes or $168.05 per month.  Let's estimate $75 a month for homeowners insurance and $140 per month for mortgage insurance.  This would bring your total monthly payment to $1,456.69 and mean you are paying $17,480.28 per year.

Total Monthly Payment for a $200,000 mortgage (estimate)

                                           

                                            Principle and Interest Payment=     $1,073.64
                                            Property Tax=                               $   168.05
                                            Mortgage Insurance=                     $   140.00
                                            Homeowners Insurance=                $     75.00
                                            Total=                                           $1,456.69

Now lets talk about what is deductible.  For the first year that you own this home $9,932.99 of your yearly mortgage is interest.  This number will change every year and if you want an accurate assessment of your mortgage you should view an amortization table.  Your property taxes that you have paid for the year in the amount of $2,016.66 are deductible as well as part of your mortgage insurance.  For this example I am estimating that $600 of your mortgage insurance is deductible.  This gives you $12,549.65 that you can deduct from your income on your taxes.

Total Tax Deductions for this example

                                            Interest=                                      $9,932.99

                                           Property Tax=                              $2,016.66

                                           Reportable Mortgage Insurance=  $  600.00

                                           Total=                                          $12,549.65

What does this mean as far as real money?  Let's say you are in the 30% tax bracket and you do not owe any taxes at tax time.  This means that because you are a homeowner you would receive a check from Uncle Sam for $3,764.90 ($12,549.65 x 30%) .  This breaks down to a savings of $313.74 per month meaning that monthly payment of $1,456.69 is only costing you  $1,142.95.  This beats renting doesn't it!

The Home Inspection! Relax It's not that scary.

photo courtesy of www.examiner.com



One of the most frightening things for a home buyer can be the home inspection.  Words like mold spores, moisture damage, standing water, and structural problems can terrify a buyer so badly that they are ready to back out of buying the home of their dreams.  In most cases the inspection is no where near as bad as it seems.

The fact that mold spores have appeared under your home and on your inspection report shouldn't send you running for the hills.  During the summer there is a pretty good possibility that you may have some mold under your home. This is due to the high levels of humidity and possibly some standing water.  In most cases this is not a problem and can be resolved.  If you can put a stop to the humidity or water source, you can stop the mold.  It is important that you as the home buyer speak with the home inspector to get his opinion of the severity of the issue.  It is also important to speak with a mold removal expert to find out how big of a problem this is.  Many times you may be able to install dehumidifiers under the house or ad french drains to prevent the issue at hand.

My mold example is just one of many.  The point is that almost everything can be fixed and is not as bad as it appears. If you have major concerns about certain issues on the report you should always consult with a general contractor or a specialist.  For example: If there is an issue with the heating and air system then you should seek guidance from a heating and air specialist.  It should also be noted that a "whole house" home inspector does not inspect everything.  If the house you are buying has a swimming pool then you should have a pool inspector take a look at it.  If you want a more thorough investigation of the heating and air system then you should have a heating and air company take a look at it.

Whatever issues do come up......relax...... take a deep breath.... and scream at your realtor!! Just kidding please don't do that.  Instead have the proper people inspect your concerns and see what the seller is willing to have fixed for you.  Your realtor will be able to negotiate repairs for you and many times may be able to have everything fixed for you.  This brings up another point.  If you are selling your house it is wise to have a pre-market home inspection.  That way you are not blindsided when the buyer asks for you to repair everything on the report after you have already negotiated down to your bottom line.  By having a pre-market inspection you can either go ahead and fix the problems your home has or at least have that knowledge when negotiating the price on your home.

870 Duval Dr. $225,000

One of my favorite newer listings that I have is a home on Duval Dr. in Stonebridge.  The first home I bought was right around the corner from this house in Autumn Chase.  I enjoyed my time there.  Stonebridge is in a great location in town. Close to downtown and just off of HWY 87 giving you quick access to the beach!  This neighborhood is only about 10 years old which is very unique for this area of Fayetteville.

This home is great for young families.  Downstairs you will find great flow in the house between the family room, dining room, and kitchen.  Just outside you can find 2 porches and a deck which extends your living space into the outdoors.  All three bedrooms plus the bonus room are upstairs.  The master bathroom has a separate tub and shower, a walk in closet and a double vanity sink.  I think a double sink is something I just couldn't live without and my wife says it is the key to a happy marriage!

You can find out more about 870 Duval Dr. including viewing a photo tour by clicking here.

On the Fence?

photo courtesy of www.gatesnfences.com



Every Wednesday morning all of the agents at Townsend Real Estate meet for our weekly sales meeting.  We discuss different topics such as the firm's production, market statistics, the real estate contract, and issues that we have recently faced.  One of the first things we always mention are the current interest rates for a home mortgage.  Today it was discussed that rates were 5%.  If you look back at history this is an incredible rate for a home loan.  But if you look back over the past year this is as high as it has been.  When I bought my first home in 2005 my rate was 6.25% and at that time it was unreal that rates had gotten that low.

What difference does all of this make?  It means that as far as monthly payment goes it will cost you more to buy a house today than it would have last year.  You should also look for rates to gradually increase meaning it will become only more expensive to purchase a home.  Let's take a $200,000 mortgage and look at only principal and interest.  Other costs in a monthly payment are taxes, property insurance, and maybe mortgage insurance. If you purchased this home at a rate of 4.25% (which is what it was for much of the last year) your monthly principal and interest (p&i) payment would be $983.88.  With rates being 5% today that same home would now cost you $1,073.64.  If you are on the fence about buying a home and you wait until rates increase to 6% this same house would cost you $1,199.10 per month.

My advice is that if you are thinking of buying a home soon you should do it now.  The inventory that you have to choose from has never been better and even at 5% interest rates are great.

So How's the Market?

photo courtesy of www.cloud9living.com



So the question always comes up......"So how's the market"?  And it seems like it usually comes up at a cocktail party when I may have had one too many!  That is the joy of being a real estate agent.  No one ever goes up to the insurance salesman (no offense to anyone in the insurance business) and asks them "so what sorts of new policies have you written lately"?  There are a hundred different ways you can answer this question.  I usually stick with a somewhat short answer so I don't trap someone who is just being friendly and doesn't want the 20 minute spill.

photo courtesy of www.tvbythenumbers.zap2it.com

The answer is that it is good........and bad. Confused yet?  Well, its good because the average sales price of a home in Fayetteville increased over the last year.  In fact the average sales price has increased every year since 2001 .  This is a positive thing for most homeowners in Fayetteville because more than likely your home has either maintained value or gone up in value. There are some small exceptions to this.  Over a 10 year span the average sales price in Fayetteville has increased 52%! This is definitely not the case across the country where many people owe much more on their home than it is worth.  The market is also good because it is a great time to buy a home.  Although interest rates have gone up recently they are still below 5%.  This is incredible!  We are also in a buyers market meaning typically the buyer may have the upper hand in negotiating because there is a larger than normal inventory of homes on the market and sellers may be having a tougher time selling their home.
The market is not so good because for the 4th consecutive year the number of homes that have sold in Fayetteville has decreased.  But on a positive note there has been a 52% increase of number of homes sold since 2001.  It typically takes longer to sell a home which makes it more important than ever to have your home priced right and present itself well when you are selling it. The decline in home sales is due to many factors.  First, because Fayetteville has a large military influence we are a transient city.  Many people moving to Fayetteville are forced to rent because they are unable to sell the home in the city they are coming from.  The overall economy definitely has an effect as well.  Many peoples salaries are accelerating at a slower rate so they are unable to afford more expensive homes therefore they stay where they are. And because of the mortgage crisis people are only given loans that banks think they can pay back. Imagine that.  Most 100% financing has been done away with and the buyer is now having to put down between 3.5% and 5% as a down payment.

Overall I have a positive view of our market and am optimistic of where it is going.  I definitely think that it is a great time to buy a home. 

photo courtesy of www.cimarronalliance.org

Welcome!

The Fayetteville Market House
photo courtesy of http://www.panoramio.com/

Today I have decided to try something new. As a real estate agent I am always looking for ways to maximize exposure for myself and my listings.  I have always tried to dip into different avenues of marketing (print, email, social media, direct mail). And today I have decided to start a blog and I am pretty excited about it. 

My father, Jimmy Townsend, who started the company I work for (Townsend Real Estate) 27 years ago when I was 3 years old always comes back from our national conferences with the thought that we need to start a blog.  I have always thought that maybe that would be a good idea but that was as far as it ever got.  My wonderful wife, Lauren, is really into reading blogs and her cousin Beth is writing her own blog Covet du Jour about design.  A combination of all of these things have given me my new idea.

My hope for this blog is to be able to share with you my experiences in real estate, discuss my views on the wonderful city of Fayetteville, and give updates on our local real estate market.  I hope you will visit my blog frequently and I hope you enjoy what I have to say.