Your Home Can Help You Achieve Financial Security
Owning a home pays off in many ways. From tax advantages, to building your
equity. As the equity in your home increases, you can borrow against it to do more
for your family. Whatever your plans are for equity in your home, there are several
things you can do to help it grow faster.
Purchase a home in an appreciating neighborhood
One of the easiest ways to ensure continued growth in your home's equity is to be smart
when purchasing the home initially. Real estate generally increases in value over
time. The actual value of your particular home may vary depending on the house,
location and local economic conditions. However, with a healthy local real estate
market and an attractive home in a desirable area, you should see a nice profit when you
sell. There are several factors which can lead to an increased overall value in your
|Landscaping, painting and otherwise investing hard work
into the home.
|Development of good schools.
|A low crime rate. In any area, the less crime in the
neighborhood, the more desirable the neighborhood. You can help increase safety by
actively promoting safety programs such as a neighborhood Block Watch.
|Vote for improved roadways and major thoroughfares.
Easy access to new businesses and shopping centers adds to a home's demand and increases
|A master planned community tends to increase the relative
values for the individual homes. In an unplanned area, future development may lower
|Upgrades and home improvements
help make your home stand out from the crowd, especially updating the kitchen or
bath. Even adding a deck can help increase your home's appraisal and resale value.
|A clean, well kept neighborhood will increase value and
demand as well as community pride.
Review your loan for the possibility of refinancing
There are two basic type of loans you can choose:
|A Fixed-Rate Loan will keep the same
interest rate over the lifetime of the loan. This loan is advantageous because, regardless
of inflation or other economic factors, your interest rate and your monthly payments will
never change. This makes it easier to budget and to plan for the future.
|A Variable Interest Loan is typically
tied to the prime lending rate, set by the Federal Reserve. In a changing economy,
where interest rates can vary widely, this type of loan can cause your monthly payments to
fluctuate. Be sure your variable interest rate loans have a cap or ceiling rate on them,
so the fluctuations on monthly payments are limited and never to severe.
Paying your mortgage off early really pays off
If you pay off the loan early with no penalty charges you'll save
years of payments and reduce the actual amount of interest you pay. Even paying a
small amount extra each month can significantly reduce the lifetime of your loan.
For example, f you had a $150,000 loan at 9% and you paid $1300 a month instead of $1200,
you would pay off your loan in 23 years instead of 30. That is a savings of about
If you are single, any gain up to $250,000 is exempt; if you are married or
filing a joint return, any gain up to $500,000 is exempt. To qualify for either exemption,
the home must have been your principle residence for a minimum of two years.
If you profit from the sale of a home you've owned for more than a year and
either do not buy a replacement home, or buy a replacement home for less than the price of
the one you sold you will have to pay a capital gains tax.
Due to the Taxpayer Relief Act of 1997, capital gains are now taxed by the Federal
government at 20%. The effective tax rate could be higher; depending on State income
taxes, as well as limits on deductions. You can lower your capital gains on the the sale
through selling expenses or money spent on home improvements. By deducting these expenses,
you can significantly reduce your tax bill. That's why it's important to maintain complete
records on any improvements you make to your home. Check with your tax consultant to
determine which home improvements qualify for deductions. You can defer capital gains
taxes on the sale of you home by purchasing another home within two years. For your new
home you must pay either an equivalent price or more that the adjusted sales price of your
old home. You may rollover profit every time you sell you home. However, you must file a
form 2119, Sale or Exchange of Principal Residence, with your tax return for that year.
Since you may eventually pay a capital gains tax, it is imperative that you save copies of
all applicable form 2119s.
Consider rental opportunities
Some homes have a terrific guest house than you can rent
out. Often the rental income can cover a large part of your mortgage. Keep in mind
that income from the rental may need to be declared as taxable income. I can help
you determine how much a place would rent for and refer you to the appropriate tax
specialist to determine the tax liability involved.
Second homes and vacation properties
The IRS makes a distinction between second homes and vacation homes, depending on
how many days you use the residence. To qualify as a second home it has to be personally
used for more than 14 days a year. If a residence qualifies as a second home, you may
deduct all interest an property taxes. You may also be able to deduct other property
expenses, if the home is a rental property and the deductions don't exceed the rental
Vacation homes may also offer rent expensed deductions, other than interest and
taxes. These deductions may be factored in even if it results in a loss. These
deductions are determined by allocating expenses, including interest and taxes, only
between the time you use the property and the time it is rented.
Since tax laws governing depreciation change frequently, it is advisable to let a tax
consultant determine repair expenses vs. capital improvements.
Maximize your tax savings
State and local property taxes are fully tax deductible and can
reduce the amount of income taxes you pay to the government, also the mortgage interest on
your home loan is tax deductible. This makes any equity borrowed against your home one of
the most affordable ways to borrow money. A home equity loan is typically 80% of the
equity in your home. These loans can be used for anything you or your family needs
|To pay for the major home improvements that would further increase your home's resale value.
|To pay off other, higher interest loans or credit card balances.
|To purchase a car or boat and deduct
the interest on the money you've borrowed to purchase it.
|To pay for your children's education.
If you've outgrown your home, consider moving
You may be better off selling an outgrown home and moving into a
larger one with a greater potential for building up equity. Also if your family has
grown up and you no longer need the space you may be better off moving into a smaller one
that requires less maintenance and has lower monthly payments. Whatever your
decision before making any real estate decisions, it's best to consult a real estate
professional who can help you determine the exact equity that exists in your home and help
you make the best choice on what to do next.
I hope that this information has been helpful to you. If
you have questions about anything at all, don't hesitate to contact me.