What homeowners should know about saving money
We recently sold our home and are in the process of buying another one. Now that I've been on both ends of the sale, I can say this is one of the most overwhelming, stressful and tiring processes. Yet, there's a measure of comfort in knowing I have freedom to decorate and design the house to my liking. And unlike renting, I don't have to worry about my mortgage payment increasing two to three percent every year.
I recommend buying over renting any day, but I've also had discussions with people who feel renting is the lesser of two evils. They know the risk of rent increases and they realize renting doesn't offer true stability, considering how landlords can choose "not" to renew their leases. With some people, the decision to rent or buy comes down to money. When they add up mortgage-related expenses and the cost of maintaining a property, homeownership is too rich for their blood.
I sympathize and understand their concerns. But I also know that there are ways to soften the blow and save money as a homeowner.
Get a Home Warranty
I didn't know anything about home warranties until we purchased our first property and the seller included a one-year home warranty with our full asking price. We purchased an older home. And to be perfectly honest, it wasn't for the warranty, we would have spent thousands out-of-pocket.
A warranty isn't home insurance, but more like a protection plan for your home. It covers the repair cost if issues arise with the plumbing, electrical, heating and air condition, and appliances. These plans cost less than $500 a year (spread out over the course of 12 months), and there's only a $50 to $75 fee per service call.
If a covered items breaks, simply call your home warranty company and schedule a service call. A technician comes within a couple of days to repair the item; and if a covered item can't be repaired, the warranty pays the replacement cost.
Over the course of nine years we've used our home warranty more than a dozen times for small and major repairs. We're received a new thermostat, a new garbage disposal and a new air condition compressor, and we didn't have to pay the replacement cost. The air condition compressor alone would've cost $1,200 upfront.
These warrantees don't cover every single repair, but you'll definitely get your money's worth. Having a warranty makes ownership less scary from a financial standpoint.
Use an Accountant to Maximize Your Tax Return
We didn't use an accountant when filing our taxes the first year after purchasing the home. We paid a tax preparation service, and unfortunately, the individual preparing our tax form had limited knowledge. Needless to say, we missed out on a few deductions that year, including mortgage-related deductions that could have saved us money.
Owning a home can be expensive, but one perk of homeownership is the ability to write-off mortgage interest. Additionally, you're able to write-off certain expenses incurred with getting the mortgage, such as the home loan origination fee and mortgage discount points.
The ability to write-off mortgage interest has been a lifesaver for us. This deduction alone saves us over $2,000 in taxes every year.
Shop Utility Rates
In my area there's only one service provider for gas and electricity, so I don't have the luxury of shopping different utility companies to find the lowest rate. You, however, may have your pick of service providers.
From time to time, compare rates offered by utility companies that service your city to see where you can save and lower your expenses.
If you can't rate shop for utilities, then maybe you can save by shopping around for cheaper homeowner's insurance, or by rethinking your cable and telephone packages. The savings may seem insignificant, but it adds up, especially when you're able to save in multiple areas.
Refinance Your Mortgage When Rate Drops
Refinancing a mortgage involves closing costs which can cost between 2 percent and 5 percent of the mortgage balance. So I don't recommend refinancing just for the sake of refinancing. But if mortgage rates are dropping and you don't have plans of selling the property anytime soon, refinancing can help you score a better mortgage rate and a lower mortgage payment.
Imagine what you could do with a cheaper payment. You can build a savings account for other financial goals, such as acquiring a three to six month emergency fund, or use the savings to pay off credit card debt or student loan.
For refinancing to make sense, you'll need to live in the home long enough to make up for what you pay in closing costs. If you paid $5,000 in closing cost and refinancing reduced your mortgage by $250 per month, you should keep the mortgage for at least 20 months.
Pay Less Interest With a Bi-weekly Mortgage
If your mortgage lender allows partial payments, consider making a mortgage payment every two weeks. Under a bi-weekly plan, you pay one half of your mortgage every two weeks. This schedule results in 26 half payments a year or 13 monthly payments—the equivalent of one extra mortgage payment a year.
This extra payment can significantly reduce the amount you owe in interest, and you'll probably pay off the home loan six or seven years earlier. Since you're paying down the principal faster, you'll also build equity faster.
Owning a home is an expensive investment, no doubt about it. But while there are costs, there are also ways to ease the financial burden and save money, which can put ownership within your reach.
What are some tips you have for home ownership?