Most renters are planning to buy a home at some point. If so, they are probably saving up for the down payment right about now. Besides that obviously step, here are four more advanced steps towards moving out your rental and into a dream home of your own.
Understanding the full cost of homeownership
As a renter, you are used to writing a check to your landlord and that covering your monthly housing payment. As a future homeowner, make sure you are familiar with the four components of a mortgage payment that are listed below, otherwise known as P.I.T.I:
Principal: Money that is going towards the remaining amount of your loan.
Interest: This is the amount of the payment that is going towards the interest on your loan. For a while at the beginning of owning your home, a large majority of your mortgage payment with be going towards the interest on the loan.
Taxes: Refers to property taxes, which are assessed by the county that you live in. They average 1.2% of your home’s value each year.
Insurance: This will be paid to a homeowner’s insurance company of your choice; this is required when you have a mortgage. Lenders require that your insurance cover the cost of rebuilding the home if it is ruined by fire or other disaster. This “replacement cost” is determined by your insurer, and must be agreed to by your lender. Insurance will typically cost $700 to $1,200 per year for a single family home.
Know your homeowner tax benefits
Mortgage interest and property taxes are deductible when you file your annual tax returns, and reduce taxable income. These deductions significantly lower your cost of homeownership. For example, for a $300,000 home with 20 percent down and a 30-year fixed mortgage […]