Home Buying Kit For Dummies. Eric Tyson

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cost of replacing your personal property, if it’s ever damaged or stolen). In short order, your clothing, furniture, kitchen appliances, and beer-can collection can tally up to a lot of dollars to replace.

When you purchase homeowners insurance, you should buy the most comprehensive coverage that you can and take the highest deductible that you can afford to help minimize the cost. In Chapter 13, we explain how to do all that. To estimate what homeowners insurance may cost you, we suggest you contact some of the insurers we recommend in Chapter 13. Explain to them what type and price range of properties you’re considering buying in which communities (zip codes), and they should be able to give you a ballpark monthly cost estimate for insurance. Calling insurance agents now also enables you to begin to evaluate which insurers offer the service and coverage you desire when the time comes to actually buy your dream home.

      Just as you should do when you shop for a car, get quotes on insuring properties as you evaluate them, or ask current owners what they pay for their coverage. (Just remember that some homeowners overpay or don’t buy the right kind of protection, so don’t take what they pay as gospel.) If you overlook insurance costs until after you agree to buy a property, you can be in for a rude awakening.

Item	Estimated Monthly Expense
Mortgage payment	$
Property taxes	+ $
Insurance	+ $
Improvements, maintenance, and other	+ $
Homeownership expenses (pretax)	= $
Tax savings	– $
Homeownership expenses (after tax benefits)	= $

      Maintenance and other costs

      As a homeowner, you must make your mortgage and property tax payments. If you don’t, you’ll eventually lose your home. Homes also require maintenance over the years. You must do some kinds of maintenance (repairs, for example) at a certain time. You never know precisely when you may need to fix an electrical problem, patch a leaking roof, or replace the washer and dryer — until the problem rears its ugly head, which is why maintenance is difficult to budget for. (Painting and other elective improvements can take place at your discretion.)

      

As a rule of thumb, expect to spend about 1 percent of your home’s purchase price each year on maintenance. So, for example, if you spend $150,000 on a home, you should budget about $1,500 per year (or about $125 per month) for maintenance. Although some years you may spend less, other years you may spend more. When your home’s roof goes, for example, replacing it may cost you several years’ worth of your budgeted maintenance expenses. With some types of housing, such as condominiums, you actually pay monthly dues into a homeowners association, which takes care of the maintenance for the complex. In that case, you’re responsible for maintaining only the interior of your unit. Before you buy such a unit, check with the association to see what the dues are and whether any new assessments are planned for future repairs. (See Chapter 8 for more information.)

In addition to necessary maintenance, you should be aware (and beware) of what you may spend on nonessential home improvements. This Other category can really get you into trouble. Advertisements, your neighbors, and your co-workers can all entice you into blowing big bucks on new furniture, endless remodeling projects, landscaping, and you name it.

      

Budget for these nonessentials; otherwise, your home can become a money pit by causing you to spend too much, not save enough, and (possibly) go into debt via credit cards and the like. (We cover the other dangers of over-improvement in Chapter 8.) Unless you’re a terrific saver, can easily accomplish your savings goal, and have lots of slack in your budget, be sure not to overlook this part of your home-expense budget.

      The amount you expect to spend on improvements is just a guess. It depends on how finished the home is that you buy and on your personal tastes and desires. Consider your previous spending behavior and the types of projects you expect to do as you examine potential homes for purchase.

Item	Estimated Monthly Expense
Mortgage payment	$
Property taxes	+ $
Insurance	+ $
Improvements, maintenance, and other	+ $
Homeownership expenses (pretax)	= $
Tax savings	– $
Homeownership expenses (after tax benefits)	= $

      The tax benefits of homeownership

One of the benefits of homeownership is that the IRS and most state governments allow you to deduct, within certain limits, mortgage interest and property taxes when you file your annual income tax return. When you file your Federal IRS Form 1040, the mortgage interest and property taxes on your home are itemized deductions on Schedule A (see Figure 3-2, which is available online at www.dummies.com/go/homebuyingkit7e).

      Up through 2017, mortgage interest and property tax payments for your home were generally tax-deductible on Schedule A of IRS Form 1040 except for the limitation on the mortgage interest deduction being “limited” to $1,000,000 of debt. There was no limit on property tax deductions.

      Source: U.S. Internal Revenue Service

      FIGURE 3-2: Itemize mortgage interest and property tax deductions on Schedule A of your 1040.

Effective 2018, due to the Tax Cuts and Jobs Act, the tax benefits of home ownership were further limited, especially for those buying more expensive properties subject to higher property tax bills. The biggest change is that property taxes combined with your state income tax are now limited to a $10,000 annual deduction. And, the mortgage interest deduction now may be claimed on up to $750,000 of mortgage debt

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