The Perks of Being a First Time Home Buyer

The real estate market continues to march along. Interest rates are still low yet bidding wars still erupt. If you are thinking about becoming a first time home buyer, then considering which houses to see, information to collect, and the documents to sign can be very intimidating. 

On the other side, given the number of incentives and programs available, it can also be a fantastic time to be a first-time home buyer. Here are several incentives and programs that can help you afford your first home easily. 

You can deduct the interest you pay on your loan.  

A very well-known benefit of being a homeowner is the ability to deduct the mortgage interest you pay, with the following exceptions: 

  • Your mortgage must be on a home that is eligible for such deductions. 
  • Your mortgage must be secured by your home. 
  • Your mortgage must be less than $1 million. 

Additionally, it does not matter if married couples own the property jointly or if it is in one name only – the deductions still apply. 

To make things even easier, at the end of every year, your lender will send you a 1098 form that indicates the amount of interest you have paid, and therefore the amount you can deduct. 

You may be able to deduct mortgage points.  

Mortgage discount points are prepaid interest that you purchase at the time of closing to decrease your rate on your mortgage. If you can afford the extra expense, then the more points you purchase, the better deal you get. 

If you plan on staying in your home for a longer time, then you will eventually recoup that upfront cost and save on your overall mortgage. What’s better is that you can deduct these points in the year you pay them, assuming that you meet certain requirements.

You can deduct your private mortgage insurance.  

Having private mortgage insurance can be a condition of buying a home. This insurance is needed for those who do not have a certain minimum down payment or other requirement. It is intended to protect the mortgage lender in case you default on your loan. 

Since 2015, eligible homeowners may be allowed to deduct their private mortgage insurance on their primary residence for additional savings. 

You can deduct real estate taxes.   

Your municipal and state governments require that homeowners pay a tax based on the value of the home. Your mortgage lender may factor the cost of these taxes into your mortgage and put that amount into an escrow account. 

Although you are not allowed to claim the amount in that escrow account on your taxes, you can claim the amounts paid from it to cover the taxes. If you do not escrow for real estate taxes, you still can deduct any out-of-pocket expenses paid directly to the tax authority. 

Additionally, you can deduct any taxes you paid at settlement, as well as any taxes you paid to the seller for the year. 

You may be eligible for special loan programs.  

Some programs are geared towards first-time home buyers with the intent of helping them purchase a home more easily and affordably. Some of these options include: 

  • Lower down payment: Although some prefer a higher down payment, even as much as 20%, lenders also recognize the difficulty of first-time buyers to save this much. Therefore, your lender may offer a smaller down payment requirement, as low as 3%, to make that first purchase more accessible. 
  • Smaller lender fees: Government mortgage insurance, offered by the Department of Housing and Urban Development, may be available so that there is a limit to the fees that a first-time home buyer must pay to the lender. 
  • Subsidized interest programs: It is even harder for low-income earners to own their own home. However, subsidized interest programs are available, meaning that a third-party, such as the government, pays the interest on your loan so that you only have to focus on paying the principal. 

Note that there are eligibility requirements to access these programs. Contact your mortgage lender for details about those programs that you qualify for. 

Make the Leap  

If you are a first-time home buyer, you can take advantage of the various options out there to help you own your first home. Whether it is smaller down payments or interest deductions, it is now more possible than ever to own your first home. 

Take some time to investigate the possibilities and make home ownership an affordable reality today. 

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