You expect to see your bank account shrink when buying your first home, but did you know that as a first time homebuyer you will also enjoy some pretty great advantages? From incentive programs to tax deductions, below are some of the attractive perks you may qualify for.
1. Deduct Private Mortgage Insurance – Lenders try to work with buyers when it comes to down payment. They prefer to have 20 percent down, but often write loans with significantly less down. The disadvantage to this is that you have to purchase private mortgage insurance (PMI). Don’t get too disappointed over another expense though because as of 2015, PMI can be deducted from taxes.
2. Lower Payments with Subsidized Interest – It’s pretty common for folks to assume they can afford a house in a specific price range only to find out well into the process that their dream house is way out of their budget once interest is figured into the equation. Well, if you are a low income buyer, you may qualify for a subsidized interest program, in which a third party pays your interest. This allows you to buy a lot more home while keeping your payments substantially lower.
3. Interest Tax Can Be Deducted – As long as you don’t use a subsidized interest program, you can deduct your interest paid for the year. This amount will be on your 1098 sent from your lender. To qualify, your mortgage must be secured and under $1 million. It also needs to be your primary residence or vacation home. Investment properties don’t qualify.
4. Lower Fees – Many loan programs for first time buyers have a limit on the amount of fees that can be charged by a lender. Government mortgage insurance makes this possible. For example, if you qualify the Department of Housing and Urban Development (HUD) may insure your mortgage for an annual cost. This reduces the lender’s risk and allows you to enjoy lower payments thanks to a more attractive rate.
5. Deduct Real Estate Taxes – Depending on how far along you are in the buying process, you may finally understand why other homeowners you know complain about paying property taxes. This also includes taxes paid at the settlement.
6. Possible to Deduct Points – If you meet a long list of criteria, you may qualify to deduct money paid for points, which are essentially prepaid interest.
Buying a home is expensive, but if you are a first time homebuyer then you may qualify for some desirable programs. Once the transaction is complete, you will appreciate even more perks when tax season comes around and you see how much you can deduct.