Entering the housing market for the first time as a buyer can be a detailed and thorough process, but it can also be one with numerous personal benefits. The first of these, of course, is the ability to move you and your family into a wonderful new home and get out of the rental cycle to a place where you’re paying toward your own home investment, but there are many others also.
At Altius Mortgage and our partners at Mortgage Ogden, we have several great programs available for first-time homebuyers. We’re also happy to explain the numerous benefits of homeownership to you – did you realize that even apart from saving you money over a rental situation, being a first-time buyer has several distinct financial perks? A few of the big ones are tax-related, but there are also some others. Let’s look at both sets.
There are several different tax deductions often available to buyers:
- Interest: This is the most common tax deduction when it comes to mortgages. Each year, your lender will send you a 1098 form that shows the amount of interest you paid to your mortgage for that year – that full amount can usually be deducted come tax time. There are some exceptions or limits here, so ask your loan officer about these.
- Real estate taxes: You pay separate property taxes on your new home, and these taxes can be included as itemized tax deductions also.
- Points: Some buyers pay prepaid interest in the form of points, which can be deducted also in most cases.
- PMI: PMI stands for private mortgage insurance, which you’ll often be required to get if you don’t have 20 percent to put down on the home. Luckily, you can deduct PMI expenses, which will show up on the same 1098 form as your total yearly interest payments.
Non-Tax Financial Benefits
There are also a couple big financial areas where being a first-time homebuyer can be helpful:
- IRA money for down payments: If you have an IRA savings account for your retirement, you are generally allowed to take up to $10,000 out of your IRA to put toward your mortgage down payment – all with no 10 percent penalty that usually comes with these kinds of early deductions. Be aware that for traditional IRAs, you’ll still pay income tax on any funds withdrawn in this manner at the time they’re withdrawn.
- Capital gains: Just like any other investment, a home can appreciate in value over time. And if you decide to sell yours for a profit after at least two years of living in it primarily, you likely won’t have to pay capital gains taxes on up to $250,000 in profits from your sale.
For more on the financial perks that come with being a first-time buyer, or to learn about any of our mortgage loan solutions, speak to the pros at Altius Mortgage today.