First Time HomebuyerBuying and owning a home is expensive. You will need funds for a down payment (perhaps 20% of the purchase price) and closing costs before you buy. After you buy, you will have monthly mortgage payments, property taxes and insurance. Then, there are the other expenses like utilities and maintenance. Finally, if you are like most homeowners, you will want to furnish it. All of these items cost money.
Deciding how much to spend for a home can be complex. What you can afford depends on the size of your mortgage, mortgage rates, costs of home ownership, your other expenses and your income. One rule of thumb to consider is that the total of your monthly mortgage payment, property taxes and insurance should be no more than 28% of your monthly household income.
Coming Up with the Down Payment
One of the biggest problems facing potential home buyers today is coming up with enough money for the down payment and closing costs. The amount of money you have available can greatly limit or increase your purchasing power. Rather than saving all of the money yourself, there are options that may help. Here are some ways to accumulate the necessary funds that are acceptable to most lenders.
Many taxpayers find that the interest on their mortgage and the annual property taxes they pay are large enough to enable them to itemize their deductions instead of using what is commonly referred to as the "standard deduction." For many homeowners, their interest and property taxes exceed those amounts. Be sure to keep track of when you pay your property taxes. Some taxing districts have due dates close to the end of the year and you must have paid the tax before December 31st to get the deduction.
The IRS also allows you to exclude any gain on selling your house up to $500,000 if you file a joint income tax return and meet certain requirements. You may want to investigate these tax advantages further or talk to a tax accountant to completely understand the tax advantages.