Tuesday, 25 July 2017

It'd be exciting to have a place you can actually call your own.

You can paint the walls whatever color you'd like, create that dream kitchen to appease your inner chef, and if you're in one of those escalating rent markets, you can take advantage of the financial savings that come with buying over renting.

  • If you think you're ready to make the leap from renter to homeowner, there are a few major changes to consider before you jump in. We sat down with Gusty Gulas, owner/broker of Brik Realty in Birmingham, and he has some wise words of advice to help you prepare for a smooth and relatively surprise-free transition. 

A shift in responsibility 

When you're a renter and your air conditioner suddenly gives out, you call your landlord. When you're the owner, you are the landlord. "Calling a rental management company to fix a backed-up toilet will no longer get a response," reminds Gulas. "You're lucky if your buddy is close by, but more than likely it is now you who will do the work, or pay someone else to get that work done."

And you won't be able to call the management company about those noisy upstairs neighbors, either. When you become an owner, you may be having more neighbor-to-neighbor discussions. Go ahead and introduce yourself to your neighbors. Remember that communication can help reduce potential issues. 

Get ready to fix it 

Becoming a homeowner means that repairing the broken air conditioner and backed-up toilet is now your responsibility. And so are other repairs—including kitchen appliances and leaky faucets—as well as additional expenses like installing a new garbage disposal.

Gulas suggests working with your real estate agent during the home-buying process to assess potential repairs that will be needed in both the short and long term. A thorough inspection should be a part of every buying process, and can spot flaws that your "I-love-this-house" eye won't see.

It's also suggested to reach out to your new neighbors and other home-owning friends for referrals to reputable handymen. This is a good way to find someone reliable to make repairs that your do-it-yourself nature needs help with.

Expenses you can't forget

If you're on a budget, you may be considering a condominium or another kind of planned unit development or cooperative. That homeownership situation has its own set of expenses, which Gulas advises keeping in mind.

First, don't forget to budget for HOA (homeowner's association) fees in your monthly housing allowance. For example, you may find a condo you love that is within your budget. However, if the association fees for that unit are an extra $200 - $800 per month (not uncommon in major cities), that condo that was within your budget could easily become unaffordable. Tell your real estate professional exactly how much you're pre-qualified for before you start looking so you can be guided to buildings that are a better value for your budget.

Second, know what those HOA fees are paying for. It's typical that your monthly HOA will help contribute to things like landscaping, water, sewer, cable, and trash services. However, if you buy in a smaller, self-managed building, Gulas has some additional wisdom.

"Get involved with your association and have your voice heard about important Twitter Promo decisions that affect all tenants," he says. "If you budget well and spend association money wisely, you can avoid costly assessments that will increase your monthly homeownership expenses." 

Savings you shouldn't overlook

Finally, you shouldn't overlook the potential savings of making the shift from renter to homeowner. Gulas advises speaking with your CPA or tax professional, but lists some of the following benefits that can help your bottom line come tax time: 

  • Deducting closing costs. In many cases it's possible to deduct your closing costs on your taxes if you file an itemized return.
  • Deducting your mortgage interest. At the end of the year, you'll be sent a 1098 form by your mortgage lender. This cites how much you paid in interest on your mortgage and in many cases, that amount is tax-deductible on your personal income tax return.
  • Deducting property taxes. While these are commonly paid with your mortgage payment each month (in what's called an escrow payment), your mortgage lender will report how much you've paid in property tax each year as well. It's also tax-deductible in many cases. 

And for the long term, Gulas makes one major distinction between the transition from renter to homeowner. "While property taxes, maintenance costs, and/or condo association fees might increase over time, owning has one distinct benefit. If you lock into a 30-year mortgage, guess what never goes up? Your principal and interest payment."

This means in addition to never having to worry about your lease being renewed or your rent being raised, you can have long-term, predictable expenses for your home. In many markets, owning can save you hundreds of dollars per month over market rate rents.

If you're still considering homeownership, it may be time for a conversation with a mortgage lender and a real estate professional to make your shift from renter to owner as smooth and sensible as possible.

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