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Tag: homeownership costs and benefits

  • 8 Financial Benefits of Homeownership: A Beginner’s Guide for First-Time Buyers

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    For many first-time home buyers, purchasing a home is one of the biggest financial decisions they will ever make. But beyond having a place to call your own, homeownership can offer financial benefits that renting often can’t, including equity growth and greater stability in monthly housing costs.

    In this Redfin guide, we highlight key benefits of homeownership that matter for new buyers. You will learn how owning a home can build equity, support long-term wealth, and create more predictable housing costs. With the right knowledge, you can move into the home buying process with confidence.

    In this article:
    1. Building equity with every mortgage payment
    2. Long-term wealth growth through appreciation
    3. Stable monthly housing costs
    4. Valuable tax advantages
    5. Protection against inflation
    6. Potential rental or passive income
    7. Improved credit and financial profile
    8. Greater net worth compared to renters
    Why the financial benefits of homeownership matter for first-time buyers

    1. Building equity with every mortgage payment

    One of the biggest financial advantages of homeownership is the opportunity to build equity over time. 

    Equity is the portion of your home that you own outright, and it grows in two key ways:

    • Your mortgage payments reduce your loan balance. Each month, part of your payment goes toward the principal, which increases your ownership stake.
    • Your home can increase in value over time. As the market strengthens or your property appreciates, your equity grows without any additional effort.

    As your equity builds, it becomes a valuable financial resource that strengthens your net worth. For many homeowners, this gradual and steady growth acts like a long-term savings plan that supports future goals such as funding renovations, purchasing another home, or building a stronger financial foundation.

    “From a financial planning perspective, home equity gives homeowners flexibility they don’t have as renters,” says Todd Christensen at Money Fit. “It can be used as a tool during unexpected financial situations, like major car repairs or family emergencies — though it shouldn’t replace a traditional emergency fund.”

    2. Long-term wealth growth through appreciation

    Another major financial benefit of homeownership is the potential for your property to gain value over time. This increase in value, known as appreciation, can significantly boost your overall wealth. Although market conditions vary, homes generally trend upward in value over the long term, especially in desirable neighborhoods or growing regions.

    Here are the key ways appreciation supports long-term wealth:

    • Your home becomes an asset that grows in value. Even modest annual increases can add up over several years.
    • Appreciation builds on top of the equity you gain through mortgage payments. This creates a powerful combination for long-term financial growth.
    • Higher home value means greater net worth. When it comes time to sell or refinance, appreciation can provide you with substantial financial flexibility.

    According to Christensen, housing prices have historically increased faster than inflation, driven by long-term supply and demand. “The supply of available land stays the same, while demand continues to grow,” he explains, making homeownership a powerful long-term wealth-building tool.

    3. Stable monthly housing costs

    Homeownership can provide stability that renting often cannot match. With a fixed-rate mortgage, your monthly principal and interest payments remain the same for the life of the loan. This consistency makes it easier to plan your budget and avoid the unexpected price increases that renters often face.

    “With a fixed-rate mortgage, your housing payment becomes a smaller percentage of your income over time,” says Christensen. “Most renters pay 30% to 50% of their income toward rent, and that percentage often stays the same or increases as rent rises.”

    Here are the main ways stable housing costs benefit homeowners:

    • Predictable monthly payments help with long-term financial planning. You know exactly what to expect each month.
    • You are protected from rising rental rates. While rent can increase annually, your mortgage payment stays steady.
    • Stability supports a stronger financial foundation. Consistent housing costs give you more control over your overall budget.

    Christensen notes that while many first-time buyers start with housing costs in the 30% to 40% range, that burden typically drops by nearly 4% after five years — and by more than 10% over the life of the loan — as incomes rise and mortgage payments stay steady.

    4. Valuable tax advantages

    Homeownership can offer several tax benefits that help reduce your overall costs. While the specific savings depend on your location and financial situation, many first-time buyers are eligible for deductions that renters do not receive. These tax advantages can make owning a home more affordable than it may seem at first.

    Here are some common tax benefits to consider:

    • Mortgage interest deduction. Homeowners can often deduct the interest paid on their mortgage, which can lead to meaningful annual savings.
    • Property tax deduction. Many homeowners can deduct some or all of their property taxes, depending on local and federal rules.
    • Capital gains exclusion when selling. If you sell your primary residence after meeting certain requirements, you may be able to exclude a portion of your profit from taxes.

    5. Protection against inflation

    Homeownership can help shield you from the rising costs that come with inflation. When prices increase over time, everything from groceries to rent becomes more expensive. A fixed-rate mortgage offers a level of protection because your monthly principal and interest payments stay the same no matter how the economy changes.

    Here are the main ways a home can help guard against inflation:

    • Your mortgage payment remains steady. Rent often rises each year, but a fixed mortgage gives you long-term predictability.
    • Home values tend to rise with inflation. As the cost of living increases, property values often follow, which can grow your investment.
    • Your buying power is protected. Instead of paying more for housing in the future, you lock in today’s cost.

    “Renting is like running on a treadmill,” Christensen says. “You’re putting in effort, but you’re not moving forward. Homeownership is more like a slow uphill hike — tough at first, but eventually you look back and realize how far you’ve climbed. And unlike renting, you own what you’re building.”

    6. Potential rental or passive income

    Owning a home can open the door to earning extra income, which can strengthen your financial position over time. Depending on your property and local regulations, you may be able to rent out part of your home or use the space for short-term stays. Even small amounts of rental income can help offset monthly expenses and support your long-term financial goals.

    Here are a few common ways homeowners generate passive income:

    • Renting out a spare room. This can provide consistent monthly income without major changes to your living space.
    • Creating a separate unit such as a basement apartment or ADU rental. These spaces can become reliable rental opportunities.
    • Offering short-term rentals. In some areas, hosting guests for short stays is a flexible way to earn extra money.

    7. Improved credit and financial profile

    Consistently making on-time mortgage payments can strengthen your credit and help you build a more solid financial profile. A mortgage is one of the largest and most important credit accounts you can have, and managing it responsibly shows lenders that you are a reliable borrower. Over time, this positive payment history can open doors to better financial opportunities.

    Here are the key ways homeownership can improve your credit:

    • Regular, on-time payments help boost your credit score. Payment history is one of the most important factors in credit scoring.
    • A mortgage adds healthy credit mix to your report. Having different types of credit can improve your overall profile.
    • Growing home equity can strengthen your financial standing. A higher net worth and stronger credit can lead to lower interest rates on future loans.

    8. Greater net worth compared to renters

    Homeowners typically build more wealth over time than renters, largely because they are investing in an asset that can grow in value. Each mortgage payment increases your ownership stake, while renters do not gain any long-term financial benefit from their monthly housing costs. As your home appreciates and your equity grows, your net worth naturally increases.

    Here are the main reasons homeowners tend to have higher net worth:

    • Equity builds with every payment. This creates a valuable asset that renters do not accumulate.
    • Homes often appreciate over the long term. Rising property values contribute directly to wealth growth.
    • Owning a home supports long-term financial planning. A higher net worth can improve borrowing power and overall financial stability.

    Why the financial benefits of homeownership matter for first-time buyers

    Understanding the financial benefits of homeownership can help first-time buyers feel more confident as they move forward with their goals. From building equity to creating long-term stability, owning a home can strengthen your financial foundation in ways that renting cannot match. With the right approach, homeownership can become a powerful step toward lasting financial security.

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    Allie Drinkward

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  • How Much Home Insurance Do I Need: 5 Steps to the Right Coverage

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    Key takeaways

    • Most homeowners should have enough homeowners’ insurance to cover the full replacement cost of their home.
    • Policies should include dwelling, personal property, liability, and additional living expenses coverage.
    • Tools like insurance calculators and professional appraisals help estimate how much homeowner’s insurance you really need.
    • Review your coverage limits each year, especially after home improvements or major purchases.
    • Comparing multiple insurers helps balance the cost of homeowners’ insurance with the right level of protection.

    Understanding why home insurance matters

    According to the Insurance Information Institute, around 85% of U.S. homeowners have insurance to protect against losses from fire, theft, or natural disasters. However, many policies don’t provide enough protection, leaving families underinsured when disaster strikes.

    If you’ve ever wondered, “How much homeowners insurance do I need?” the answer depends on your home’s replacement cost, your personal belongings, and your financial goals. The right policy ensures you can rebuild, recover, and maintain your financial stability, without paying more than you should for coverage.

    This guide will help you understand how much homeowner’s insurance is appropriate for your situation, how to estimate your coverage needs, and how to balance the cost of homeowners’ insurance with the right level of protection.

    Step 1: Calculate your home’s replacement cost

    To know how much homeowners’ insurance you need, start by calculating your home’s replacement cost, the amount it would take to rebuild your house from the ground up at today’s prices. This figure is different from your home’s market value and forms the foundation of your coverage.

    Your home’s replacement cost typically includes:

    • Construction and labor costs in your area
    • Building materials, such as roofing, flooring, and fixtures
    • Unique features, like fireplaces, built-in cabinetry, or specialty finishes

    Pro tip: Ask your insurance company for a replacement cost estimator or hire a professional appraiser to get an accurate value. This ensures your coverage matches your home’s true rebuild cost and helps you avoid being underinsured.

    Coverage type What it means Pros Cons
    Replacement cost Pays the amount needed to rebuild your home at today’s construction costs. Ensures full rebuilding; avoids depreciation losses. Premiums are usually higher.
    Market value Reflects what your home would sell for, including the land. Easy to understand; tied to real estate values. Often lower than rebuild cost; not a true measure of insurance need.
    Actual cash value Pays the replacement cost minus depreciation. Cheaper premiums; some coverage is better than none. Leaves you paying out-of-pocket for depreciation costs.

    Best practice: Choose replacement cost coverage for the most complete protection; it provides the best balance between cost and coverage.

    Example: How much home insurance you may need by home value

    Home value Estimated replacement cost coverage Personal property coverage (50–70%) Recommended liability coverage
    $250,000 $250,000 $125,000 – $175,000 $300,000
    $500,000 $500,000 $250,000 – $350,000 $300,000 – $500,000
    $1,000,000 $1,000,000 $500,000 – $700,000 $500,000+

    Note: These are general estimates. Your exact coverage needs depend on construction costs, local housing prices, and personal assets.


    Step 2: Estimate personal property coverage

    When deciding how much homeowners’ insurance you need, don’t overlook your personal property coverage, the part of your policy that protects your belongings inside the home. Most homeowners’ insurance policies cover 50% to 70% of your dwelling coverage for personal items, including:

    • Furniture, electronics, and appliances
    • Clothing, décor, and home goods
    • High-value possessions like jewelry, collectibles, or artwork, which often require additional riders

    Tip: Create a detailed home inventory with photos, receipts, and serial numbers. This helps you estimate coverage needs accurately and can also speed up claims in case of a loss.

    The cost of homeowners’ insurance may increase slightly when you add more personal property coverage, but it ensures you won’t have to pay out of pocket to replace essential items after a covered event. For many homeowners, that peace of mind is well worth the extra premium.

    Step 3: Review liability protection

    Liability coverage is one of the most important parts of your homeowners’ insurance policy because it protects you if someone is injured on your property or if you accidentally damage someone else’s belongings. When asking yourself how much homeowners’ insurance do I need, make sure your liability protection aligns with your total assets and lifestyle.

    Experts typically recommend at least $300,000 in liability coverage, but many homeowners choose $500,000 or more, especially if they own significant assets or have high-income occupations. This extra coverage helps protect your savings, home equity, and future earnings in the event of a lawsuit.

    Tip: If you want added peace of mind, consider an umbrella policy, which extends your liability coverage beyond standard homeowners insurance limits. While this can increase the cost of homeowners’ insurance, it offers stronger financial protection in case of serious claims or accidents.

    Step 4: Don’t forget additional living expenses

    If your home becomes uninhabitable after a covered loss, your policy’s Additional Living Expenses (ALE) coverage pays for temporary housing, meals, and other essential costs. This part of your plan is easy to overlook, but it is crucial when calculating how much homeowners’ insurance you need.

    Your ALE coverage should be high enough to support your household for several months. Consider the cost of living in your area, the number of family members, and any pets or special needs that may increase expenses.

    Tip: Review your policy to make sure it covers expenses like rent, utilities, transportation, and meals. Some insurers cap ALE coverage at a percentage of your dwelling limit, so confirm those details in writing to avoid unexpected costs.

    The cost of homeowners’ insurance may increase slightly with higher ALE limits, but the protection it provides during a crisis is well worth the investment.

    Step 5: Reassess your coverage regularly

    Your insurance needs change over time, so it is important to review your policy at least once a year or after any major home updates. Regular reviews ensure that your coverage reflects your property’s true value and your current financial situation.

    Consider updating your policy after:

    • Home renovations or additions
    • Purchasing expensive electronics or furniture
    • Significant lifestyle changes, such as working from home or adding a family member

    Tip: Schedule an annual insurance checkup with your agent to discuss how much homeowner insurance you currently carry and whether your limits still meet your needs. Adjusting coverage proactively helps prevent being underinsured and keeps the cost of homeowners’ insurance aligned with your budget.

    Frequently asked questions about home insurance coverage

    1. How much homeowners’ insurance do I need?
      You should have enough homeowners’ insurance to cover the full replacement cost of your home, including labor, materials, and special features. This ensures you can rebuild after a total loss without paying out of pocket. Most homeowners also include personal property coverage for belongings and liability coverage for financial protection.
    2. How do I know if I have enough coverage?
      Compare your current coverage limits to the estimated replacement cost of your home. If your dwelling limit is lower than today’s construction costs, you may be underinsured. Using an online insurance calculator or hiring an appraiser can help determine how much homeowner’s insurance you truly need.
    3. Is market value the same as replacement cost?
      No, they are different. Market value includes the price of your home and the land, while replacement cost only covers the expense to rebuild the structure. Homeowners’ insurance is based on replacement cost, not market value, because land does not need to be rebuilt.
    4. How much does homeowners’ insurance cost?
      The cost of homeowners’ insurance varies based on factors such as location, home value, coverage limits, and deductible amount. According to the Insurance Information Institute, the average annual premium in the United States is roughly $1,400, but this can be higher or lower depending on your state and risk profile.
    5. How often should I update my homeowners’ insurance policy?
      Review your policy at least once a year or after any major home upgrades, such as renovations or large purchases. This ensures your coverage accurately reflects your property’s current value and prevents gaps in protection.

    Conclusion: Protect your home with the right coverage

    The right amount of homeowners’ insurance should fully cover your home’s replacement cost, your personal belongings, liability, and additional living expenses. By understanding how much homeowners’ insurance you need, you can make confident coverage decisions that protect your home and your financial stability.

    Take time to compare quotes, review your policy annually, and adjust coverage after home improvements or major purchases. These simple steps ensure you’re never underinsured and that the cost of homeowners insurance you pay matches the value of the protection you receive.

    When you find the right balance between coverage and cost, you’re not just insuring your house, you’re securing peace of mind.

     

     

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    Jasica Usman

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  • Tax Benefits of Owning a Home: Tax Breaks, Incentives, and More

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    Key takeaways:

    • Homeowners may be eligible for valuable tax breaks, including deductions for mortgage interest, property taxes, and certain home improvements.
    • Some benefits require itemizing your deductions, while others—like energy credits—can apply even if you take the standard deduction.
    • Tax laws change often, so confirm current IRS rules or talk with a certified tax professional before filing.

    Buying a home is a major life milestone and can provide numerous benefits. However, along with lifestyle changes, there are important tax implications to be aware of. 

    Whether it’s your first time filing taxes after buying a house in Buffalo, NY or you just bought your second home in Phoenix, AZ, there is a lot to keep in mind. In this Redfin article, we’ll provide a brief overview, then review the tax benefits of owning a home, the forms you’ll need for each benefit, and more.

    What are the tax benefits of owning a home?

    One of the most exciting aspects of buying a house are the tax breaks. These range from deductions to credits and are a major plus of buying instead of renting a home.

    Here’s a quick breakdown:

    • Mortgage interest deduction: Homeowners who itemize can deduct interest paid on their mortgage, up to IRS loan limits 
    • Property tax deduction: Deducts state and local property taxes paid on a primary residence, up to $10,000 ($5,000 if married filing separately).
    • Home equity loan deduction: Interest on home equity loans or HELOCs is deductible if the loan is used for home improvements.
    • Home office deduction: Allows self-employed homeowners to deduct expenses for a dedicated home office space.
    • Mortgage credit certificate: A tax credit for qualifying homebuyers that reduces the cost of taxes.
    • Capital gains exclusions: Homeowners can exclude up to $250,000 ($500,000 for married couples) in profit from capital gains tax when selling a primary residence, if they meet ownership and residency requirements.

    Let’s dive into all of the tax benefits homeowners can take advantage of when filing taxes after buying a house.

    1. Mortgage interest deduction

    Mortgage interest deductions are probably the most common tax benefit for homeowners. If you have a mortgage, you can deduct the interest you paid throughout the year, which can offset some of the costs of owning a home while adding up to thousands in savings. You can only take advantage of the mortgage interest benefit if you itemize your deductions. 

    The maximum mortgage principal eligible for deductible interest is $750,000, or $375,000 if you’re married and filing separately. But if your mortgage started before the Tax Cuts and Jobs Act (TCJA) was passed in 2017, the limit is higher – $1 million, or $500,000 if filing separately.

    Note: If you had a binding written contract in place before December 15, 2017 to close by January 1, 2018, and you closed on the home before April 1, 2018, the IRS will treat your mortgage as if it were obtained before December 16, 2017. 

    As of 2022, you can no longer deduct mortgage insurance premiums.

    Required tax forms: 

    • Schedule A (Form 1040): Section A is used to itemize your deductions. You don’t need this if you take the standard deduction.
    • Form 1098: Your mortgage lender typically sends this form every January. It details how much mortgage interest you paid over the previous year, which you’ll use when filling out Schedule A.

    2. Property tax deduction

    Another key tax break for homeowners is the State and Local Tax (SALT) deduction, which helps offset property taxes. In short, you can deduct two out of three types of taxes you paid during the year, up to $10,000 ($5,000 if filing separately). 

    This $10,000 cap applies to the total of all state and local taxes combined – including property, income, and sales taxes – regardless of the number of properties you own.

    The three types of taxes you can deduct are property tax, income tax, and sales tax. You can only deduct two of the three tax types, though, one of which can always be property tax. Here are two examples of how you can choose to deduct:

    • Property taxes + state and local income taxes
    • Property taxes + state and local sales taxes

    If you live in a co-op, you have special rules. Instead of you paying taxes directly, the co-op itself will usually pay the property tax and pass the cost on to you in your monthly fees. 

    Required tax forms: 

    • Schedule A (Form 1040): Only necessary if you’re itemizing your deductions. 
    • Required co-op documentation (when applicable)

    3. Home equity loan interest deduction

    A home equity loan is a second mortgage that allows you to borrow a large sum of money against your home’s equity. Home equity is the difference between your home’s current value and the amount you owe on your mortgage. If you take out a home equity loan, you may be able to deduct the interest on it. 

    The limits are the same as the mortgage interest deduction: $750,000 of total mortgage debt if filing jointly and $375,000 if filing separately. Keep in mind you can only deduct interest if you use the money to buy, build, or improve your home. If you took out your home equity loan before December 16, 2017, and the debt was grandfathered under prior law, you may still deduct the interest even if the funds weren’t used for home improvements.

    The same deductions apply to home equity lines of credit (HELOCs), too. And, since HELOCs often have lower interest rates than home equity loans, it may be the cheapest way to borrow large sums of money. 

    Tax form: 

    • Schedule A (Form 1040): For itemizing your deductions. 

    4. Mortgage credit certificate

    The Mortgage Tax Credit Certificate (MCC) is a program offered through state or local housing finance agencies. Its primary goal is to increase access to homeownership for low to moderately low-income first-time homebuyers. The MCC is not available in every state. 

    The MCC allows qualifying homebuyers to convert up to $2,000 of their mortgage interest into a dollar-for-dollar tax credit. Unlike a deduction, which reduces taxable income, a credit directly lowers your tax bill. 

    An MCC will typically only cover a percentage of your annual mortgage interest, but you can usually claim the credit every year. You may still be able to claim the remaining interest on Schedule A. You can carry over unused MCC credit to future years, too. 

    Note: You need to apply for an MCC at the time you bought your home; it’s not something you can claim after the fact.

    Tax Forms:

    • Schedule A (Form 1040): For itemizing your deductions.
    • Form 8396: Available on the IRS website, this form is where you claim the mortgage credit certificate.

    5. Capital gains exclusions

    When it comes time to sell your home, you can generally exclude up to $250,000 of capital gains ($500,000 if filing jointly) from your taxable income – provided you’ve owned and lived in the home for at least two out of the last five years. You can generally claim this exclusion once every two years.

    You may be able to lower your taxed gains by increasing your home’s “cost basis” – the original price you paid for the property. Certain closing costs and qualified home improvements can be added to this amount. Since a higher cost basis means a lower taxable profit, this can help you stay under the capital gains exclusion limit or reduce the tax you owe. Be sure to check IRS guidelines or consult a tax professional to confirm which costs qualify.

    If you don’t qualify for the capital gains exclusion – perhaps you didn’t live in your home for at least two out of five years – you can still qualify for a partial exclusion. 

    Tax forms: 

    • Schedule D (Form 1040): If you sell your home, this is where you report any capital gains (or losses).
    • Form 8949: You may need this form to report additional information related to investments or renovations. 

    6. Home office deduction

    If you use part of your home exclusively and regularly for business, you may qualify for the home office deduction. The home office deduction is only available to self-employed taxpayers or independent contractors. Employees who receive a W-2 cannot claim it, even if they work from home.

    To claim the deduction, your home office must meet two criteria: 

    • Exclusive and regular use: The workspace must be used regularly and exclusively for conducting business and not for personal use. 
    • Principal place of business: The home office should be your primary place of work, or a place where you regularly meet with clients or patients.

    There are two ways to calculate the deduction: 

    1. Regular method (aka “standard” or “actual expense” method): Deduct a portion of mortgage interest, utilities, home insurance, and other costs based on the percentage of your home’s square footage used for business.
    2. Simplified method: Deduct $5 per square foot of your office space, up to 300 square feet (a maximum of $1,500).

    The regular method can yield a larger deduction but requires detailed recordkeeping. With both methods, the deduction cannot exceed your business’s net income after expenses.

    Tax forms: 

    • Form 8829 + Schedule C (Form 1040): For the regular method, Schedule C is where you report the deduction from Form 8829 if you’re self-employed. It also covers business income and other business-related expenses. The simplified method only requires Schedule C.

    3 homeownership tax benefits that require an investment

    There are ways to invest in your home to get even more benefits. Many involve upfront costs, but could pay off over time through tax credits and deductions.

    1. Renewable energy credits

    Solar energy is booming and accounted for over half of all new electricity on the grid last year. Part of the reason for its success is the tax credit or exemption people can claim when installing them, which provides a major incentive. Plus, it’s a clean, green energy source. 

    The primary solar benefit is called the Investment Tax Credit (ITC), often referred to as the Residential Clean Energy Tax Credit, provides a 30% federal tax credit for the cost of installing solar panels on a home. The full credit lasts until 2032, before it decreases to 26% in 2033 and 22% in 2034. It is nonrefundable and has no limit, except for fuel cell property.

    Other renewables like geothermal heat pumps, small wind turbines, and biomass stoves also qualify for federal tax credits, typically at the same 30% rate through 2032. Specific limits may apply.

    Some states offer additional credits and exemptions, but these vary widely and can change with new legislation. For example, Washington State offers a sales tax exemption on the purchase of new solar energy systems through 2029. Renewable energy tax credits can change based on future legislation, so always check the latest IRS guidance before claiming. 

    The Energy Efficient Home Improvement Credit is also available to homeowners. This credit allows you to credit 30% of certain expenses, including qualified energy efficiency improvements and home energy audits. This credit is capped annually per improvement category (for example, up to $1,200 per year for most improvements and $2,000 for heat pumps, per IRS Form 5695 guidelines).

    Tax forms: 

    • Form 1040: The standard individual income tax form 
    • Form 5695: If you install renewable energy systems, use this form to claim federal energy credits.
    • Additional state-specific forms

    2. Home improvement credits

    Home improvements can be expensive and time-consuming, but they’re often worth it in the long run: they add value to your home and may help reduce capital gains taxes when you sell. In order for a home improvement to count towards a tax benefit, it must be a “capital improvement”. The IRS defines capital improvements as:

    • Tangible: It must be a physical, long-lasting change rather than routine maintenance, usually involving structural alterations or major renovations.
    • Value-adding: It increases your home’s market value and/or substantially enhances its functionality, like installing solar panels or adding a home office. 
    • Life-extending: It prolongs the useful life of your property or adapts it to new or different uses, such as making it earthquake-resistant or adding medical upgrades.

    Routine maintenance like painting or fixing leaks doesn’t count as a capital improvement and cannot be added to your home’s cost basis.

    Tax forms:

    • Schedule D (Form 1040): Schedule D is where you summarize these gains (or losses) on your annual tax return. If you’ve increased your cost basis by documenting eligible home improvements, you’ll account for that higher basis here, reducing your taxable gain.
    • Form 8949: If you need to provide more detailed information about your home sale, like cost basis adjustments, you’ll first fill out Form 8949
    • Others for self-employed individuals, medical upgrades, and rental improvements

    3. Rental deductions

    Renting out a spare room, garage apartment, or basement can be a great way to generate income, but it also comes with tax considerations. If you rent your home for fewer than 15 days a year, you generally don’t need to report the income under the “minimal rental use” rule.

    When you rent out part of your primary residence, you typically need to allocate expenses – like mortgage interest, utilities, and property taxes – between personal and rental use based on the portion of the home you’re renting. You can deduct most of these expenses – what the IRS calls ordinary and necessary – along with expenses paid by the tenant.

    You can also deduct expenses for managing, conserving, and maintaining your rental property, including maintenance and repairs. However, you can’t deduct the cost of improvements unless they are a qualifying capital improvement.

    Tax form: 

    • Schedule E (Form 1040): If you rent out part (or all) of your home, you’ll use this schedule to report rental income, expenses, and depreciation.

    FAQs about the tax benefits of owning a home

    Should I choose the standard deduction or itemize?

    For most taxpayers, the standard deduction provides the biggest tax benefit with minimal paperwork. If your itemized deductions don’t exceed the standard deduction for your filing status, taking the standard deduction generally results in a larger overall write-off. 

    However, itemizing may be beneficial if you own a home and pay mortgage interest and property taxes, have high medical expenses, pay significant state and local taxes, or make substantial charitable contributions. If you’re unsure which option provides the greatest tax benefit, consider running the numbers or consulting a tax professional.

    What are the tax benefits of owning a second home?

    Many tax benefits extend to a second home but are usually lumped together with the primary residence. Investment properties (aka rental properties) have separate rules. 

    You can still deduct mortgage interest on a second home, but the overall limit ($750,000 if after 2017, $1 million before 2017) applies to the combined total of both your first and second home loans. For state and local taxes (SALT), you can deduct up to $10,000 between both homes (there is a $10,000 cap per return).

    For capital gains, a second home does not qualify for the $250,000/$500,000 exclusion unless you have lived there as your primary residence for at least two of the last five years. If you don’t meet this requirement, you may still be eligible for a partial exclusion in certain cases, such as selling due to unforeseen circumstances.

    Which homeowning expenses aren’t tax deductible?

    While many costs associated with owning a home can be deducted from your taxable income, not everything qualifies. Here are some common expenses that don’t offer tax benefits:

    • Closing costs
    • Down payments
    • Homeowners insurance
    • HOA fees
    • Routine maintenance costs (that don’t add value)

    The bottom line of homeownership tax benefits

    When it comes time to file taxes after buying a house, there is a lot to know. Your tax process immediately changes, with more benefits available than if you were a renter. From mortgage interest deductions to home improvement credits, you can now save thousands per year. 

    To make sure you can claim all the tax breaks you’re eligible for, consider setting up a system to track and itemize every possible deduction throughout the year. You can always choose the standard deduction if you discover that itemizing doesn’t pay off. 

    It may be a good idea to hire a certified tax advisor or preparer, especially if you’re unsure. Tax laws and deductions can be complex, often vary by state, and are always changing. Having the guidance of a professional can help you make sense of the process.

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    Chibuzo Ezeokeke

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  • How Can Buying a House Help You Build Wealth?

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    Buying a home isn’t just about having a place to live; it’s one of the most reliable ways to build long-term wealth. While renting can offer flexibility, owning a home lets you build equity, benefit from potential appreciation, and access valuable tax advantages. Over the years, increasing equity and financial stability can turn your home into a valuable long-term asset.

    In this Redfin article, we’ll cover how buying a house can help you build wealth and how to make the most of your investment. Whether you’re buying a home in Detroit, MI, or a townhouse in Denver, CO, here’s what to know about building home equity through homeownership.

    Key takeaways 

    • Buying a home can build wealth through home equity, tax benefits, and more.
    • Your home may appreciate over time, helping you build wealth when you sell.
    • Buying a home you can afford, maintaining it, and making improvements can help protect your investment.

    4 ways owning a home helps build wealth 

    There are several ways that buying a home can help build wealth over time. Here are four of the main ways homeownership can achieve those benefits.

    1. Home equity

    One of the most well-known ways that homeownership helps build wealth is through home equity. Home equity is the percentage of the home you have paid off. For example, if you put 20% down, you’d own 20% of the home. As you pay off more of your mortgage, you’ll build more home equity.

    That growing equity can serve as a powerful financial tool. You can access it later by selling your home, refinancing, or borrowing against it for major expenses. For example:

    • A home equity loan uses your equity as collateral, allowing you to borrow from yourself. You borrow a lump sum of cash, which you can use for various expenses like home improvements, investing, or paying off debt. These loans typically have lower interest rates than personal loans. 
    • HELOC is a line of credit that lets you borrow as needed from your home equity. The line of credit is open for a set number of years, and you can borrow money as needed. You will need to repay what you borrowed, and interest rates are typically variable.

    2. Tax benefits

    Owning a home means there are tax benefits available each year, some of which you may qualify for. Four of those deductions include:

    • Mortgage interest tax deduction: This is the biggest ongoing tax benefit for homeowners. For those who itemize their taxes, you can deduct interest paid on your mortgage up to the IRS limits.
    • Property tax deduction: You may be able to deduct state and local property taxes paid on your primary residence (up to $10,000, $5,000 if married filing separately).
    • Home equity loan deduction: If you have a home equity loan, you may be able to deduct interest on the loan if you’re using it for home improvements.
    • Capital gains exclusion: If you decide to sell your home, you can exclude up to $250,000 ($500,000 if married filing jointly) in profit from capital gains tax. 

    These benefits vary by individual, so consult a tax professional to understand which apply to you.

    3. Potential for home appreciation

    Home appreciation is another way that owning a home can help you build wealth. Homes are typically considered an appreciating asset, meaning their value likely increases over time. This makes it a more reliable way to build generational wealth, especially if you plan to pass on your home to heirs. 

    For example, if your home’s value rises a little bit each year, that growth compounds over time. Combined with paying down your mortgage, you could have a significant profit when you sell. Regular maintenance and home improvements can also help your property appreciate faster.

    4. Passing down your home

    As mentioned above, owning a home allows you to build generational wealth by passing the home down to heirs. When someone inherits a home, they benefit from a stepped-up tax basis. This means the home’s cost basis is adjusted to the current market value. When selling an inherited home, heirs will likely pay capital gains on any additional profits that exceed the home’s current market value. 

    For example, you buy a home for $400,000 and it increases in value to $500,000 by the time it’s inherited. The inheritors sell the home for $525,000. With the stepped-up tax basis, they would only pay capital gains tax on $25,000. 

    How to make your home purchase worth it

    Building wealth through real estate doesn’t happen automatically. It takes smart choices and consistent maintenance. Here are key steps to make the most of your investment.

    Buy a home you can truly afford

    The first step to making homeownership worth it is buying a house you can truly afford. If you’re stretching your budget each month to pay for your mortgage, it may not leave you with enough for additional expenses, investing, and an emergency fund. You can use a home affordability calculator to estimate how much you can afford or a mortgage calculator to get an idea of your mortgage payments.

    When buying a home, it’s likely you’ll get a pre-approval. A mortgage pre-approval is an official letter from a lender certifying what loans you’re qualified for and how much you can borrow. A good tip is to buy a home that’s less expensive than what you’re pre-approved for. This can help keep you below budget and have room to increase your offer price if needed.

    While high-interest rates shouldn’t deter you from buying a home if you’re financially ready, a lower interest rate can help save you money in the long run. The lower the interest rate, the lower your mortgage payments are over time, leaving you with additional income to invest.

    As an example, you’re planning to buy a home that costs $500,000 with a 20% down payment.

    Interest rate Mortgage payment Loan term
    6.375% interest $3,216 per month 30-year fixed
    5.8% interest $3,068 per month 30-year fixed

    In this example, you’d save $148 per month or $1,776 per year. Over the lifetime of the loan, you may save up to $53,280. 

    Choose the right location

    Your home’s location is one factor that you can’t change. It can influence how much your home appreciates over time and whether you decide to stay in the area for years to come. Think about the neighborhood or city you’re planning to live in. See whether it meets your lifestyle and needs.  

    Consider some of the following factors when choosing a location:

    • Amenities, like shopping centers and restaurants
    • Proximity to public transit 
    • Access to major roads and highways
    • Nearby parks, trails, or outdoor spaces
    • School districts

    Talk to your real estate agent about neighborhood trends, including where home values have increased most over time.

    Maintain your home

    Keeping your home in great condition can help you protect your investment. Regular maintenance prevents costly issues and preserves your property’s value. Examples of seasonal maintenance include:

    • Servicing your HVAC
    • Clearing your roof and gutters of debris
    • Checking your smoke and carbon monoxide detectors
    • Pruning trees and clearing dead limbs
    • Inspecting your plumbing for leaks or drips

    Invest in high-ROI home improvements

    Choosing the right home improvement project not only improves your day-to-day life but may also increase your home’s value over time. There are many home improvement projects to consider, and some have a higher return on investment (ROI) than others. 

    According to a 2025 report by Angi, the projects with the highest ROIs include garage door replacements (194% ROI), entry door replacements (188% ROI), new siding (153% ROI), and interior painting (107% ROI). Choosing the right home improvement projects for your home will vary depending on your wants, needs, and budget. 

    >>Read: 8 Home Improvement Projects That Add Value to a Home

    Protect your investment

    Maintaining your home is one way to protect it, but there are other things you can do. Home insurance, which lenders require, helps protect you and your home in case of damage, including some natural disasters. Depending on where you live, you may also want to consider specialized insurance plans such as fire or flood insurance.

    Home warranty isn’t required, but it can help save you money if you have appliances that need repair. For example, a home warranty can cover electrical systems, major appliances like a refrigerator, and central heating. 

    Is owning a home the right way to build wealth for you?

    Homeownership can be a great way to build wealth over the long term, through home equity, tax benefits, and more. Buying a home you can truly afford, maintaining it, and making worthwhile investments can protect your investment over time. Speaking with a real estate agent or financial advisor can help you understand the benefits of building wealth through homeownership.

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    Alison Bentley

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  • Are You Ready to Buy A Vacation Home? 8 Things to Consider Before Buying A Vacation House

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    Key takeaways:

    • A vacation home costs more than the purchase price—budget for taxes, insurance, upkeep, and travel.
    • Pick a location you’ll actually enjoy that also has long-term resale potential.
    • While rental income and tax perks are possible, vacation homes also bring added risks and responsibilities.

    Looking to buy a vacation home in Dewey Beach, DE, a ski chalet in Colorado, or a family house in Frisco, CO? A second home can give you a reliable getaway and a place to make lasting memories. But as exciting as it sounds, buying a vacation house comes with extra costs, upkeep, and planning. This guide will help you decide if you’re ready to take that step.

    What does buying a vacation house really mean?

    A vacation house is different from your primary residence, it’s a second property used for leisure rather than everyday living. Unlike an investment property, which is purchased mainly to generate income, a vacation home is often bought for personal enjoyment first, with rental income as a possible bonus.

    People buy these homes for different reasons: some want a personal retreat to escape to on weekends, others see it as a way to host family gatherings or rent it out when not in use. For many, it’s also a long-term plan, eventually becoming a retirement home in a favorite location.

    >> Read: Top 10 U.S. Towns Where Vacation Homes Dominate The Market

    1. Financial considerations before buying a vacation house

    Before buying a vacation house, it’s important to look beyond the listing price and understand the true costs of ownership. Here are the main expenses to keep in mind:

    • Down payment and financing: Lenders often see vacation homes as riskier than primary residences, so they often require a larger down payment, commonly 10-20% or more. Interest rates can also be slightly higher, which affects your monthly payment.
    • Ongoing costs: Property taxes, homeowners insurance, utilities, and HOA fees can be steeper in popular vacation spots. Some areas also require special coverage, like flood or hurricane insurance, which adds to the expense.
    • Maintenance and repairs: Even when you’re not there, the property still needs attention. Think cleaning, landscaping, routine upkeep, and the occasional unexpected repair. Hiring a property manager can help but increases the cost.
    • Travel expenses: Getting to and from your vacation home isn’t free. Whether you’re driving or flying, transportation costs add up over time and should be part of your budget.

    2. Location considerations 

    Where you buy matters just as much as what you buy. The right location can make your vacation home enjoyable now and a smart investment later. Key factors to think about include:

    • Accessibility and amenities: Choose a spot that’s easy to reach and has the features you’ll actually use: beaches, ski slopes, restaurants, or shopping. A home that feels too remote may be harder to enjoy regularly.
    • Travel convenience: If you plan to visit often, look at proximity to airports, highways, or major transit options. Long or complicated travel routes can make your getaway less appealing over time.
    • Resale and market trends: A vacation house is still real estate, so check local property values and market demand. Buying in a stable or growing area may help improve the likelihood your home will hold value if you decide to sell.

    3. Lifestyle considerations 

    A vacation house should fit your lifestyle, not complicate it. Before committing, think about how it will realistically be used.

    • Frequency of visits: Be honest about how often you’ll go. A property that only gets used a few weekends a year may not justify the cost.
    • Spontaneity vs. planning: Vacation homes can make getaways easier, but they also tie you to one location. Ask yourself if you’d prefer flexibility to explore new places instead.
    • Ownership vs. renting: Renting vacation homes might be cheaper and more versatile. Weigh whether long-term ownership offers enough value compared to booking rentals as you go.

    4. Rental considerations 

    Many buyers offset costs by Airbnbing or renting out their vacation home, but it comes with trade-offs.

    • Pros: Rental income can help cover the mortgage, taxes, and upkeep. In busy markets, it may even generate profit.
    • Cons: Frequent tenants mean more wear and tear, and some cities limit or regulate short-term rentals.
    • Management options: You can self-manage bookings and maintenance or hire a property manager. Outsourcing saves time but cuts into earnings.

    5. Risks involved with buying vacation homes

    Owning a second home brings unique risks, especially when it sits empty.

    • Vacancy concerns: Homes left unoccupied for long periods are more vulnerable to storms, theft, or unnoticed damage.
    • Insurance requirements: Second homes often need additional coverage, like flood or hurricane insurance, which increases costs.
    • Seasonal upkeep: Snow removal, landscaping, or storm prep may be needed even when you’re not around, requiring extra coordination and expense.

    6. Potential tax implications while owning a vacation house

    Taxes on vacation homes depend on how you use the property. If you rent it out for more than 14 days a year and personally use it for less than either 14 days or 10% of the total rental days, the IRS considers it a rental property. In that case, the rent you collect counts as taxable income.

    The upside is that you you may be eligible to deduct many of the costs of owning and operating the home – such as property taxes, insurance, mortgage interest, maintenance, and management fees – depending on your situation and current IRS rules. These deductions can help offset what you owe on the rental income.

    Because the rules can get complicated, it’s best to talk with a tax professional before you buy. They can help you understand what to expect and how to structure your use of the property so you don’t run into surprises later.

    7. Potential tax breaks owning a vacation house

    Owning a vacation house may come with some tax benefits, depending on how you use the property.

    • Property taxes: You can deduct property taxes on a second home, though the deduction is capped at $10,000 per tax return (or $5,000 if married and filing separately).
    • Mortgage interest (personal use): If the vacation house is treated as a second residence, you may be able to deduct mortgage interest on loans up to $750,000 in total qualified residence loans ($375,000 if married filing separately).
    • Mortgage interest (rental use): If the home is rented out for more than 14 days per year and meets IRS rental property rules, you may be able to deduct mortgage interest, insurance, and property taxes against rental income.

    You can’t claim both personal and rental deductions at the same time, so it’s important to be clear on how you’re using the property. Tax laws are complex and frequently change. Always check the latest IRS guidance or speak with a qualified tax professional for advice specific to your situation.

    8. Are you ready to buy a vacation home?

    Not everyone is prepared for the responsibilities of a vacation home. Here’s how to know if you are.

    • Financial stability: You should have strong savings, a solid emergency fund, and the ability to cover both homes comfortably.
    • Purpose of use: Decide if the property is mainly for personal getaways, rental income, or long-term retirement plans.
    • Responsibility level: Consider whether you’re willing to handle maintenance and management, or if you’ll need to hire help.
    • Future vision: Think long-term. A vacation house can be a family retreat, a retirement plan, or a legacy property, but it requires commitment.

    Alternatives to buying a vacation house

    If you’re not sure full ownership is right for you, there are other ways to enjoy a getaway home without the same level of commitment.

    • Vacation rentals or timeshares: Renting short-term or buying a timeshare lets you enjoy a property without long-term costs, upkeep, or risk.
    • Fractional ownership or co-buying: Sharing ownership with family or friends reduces expenses but requires clear agreements on scheduling and responsibilities.
    • Test-driving locations: Before buying, spend extended time in your preferred area. Renting for a season can help confirm whether it’s the right fit.

    Exploring these options first may save money and help you make a more confident decision when or if you’re ready to buy.

    The bottom line: Is a vacation house right for you?

    Buying a vacation house means balancing costs, upkeep, and lifestyle. If you’re financially ready and clear on your plans, it can be a rewarding investment in memories and future value. If not, renting or fractional ownership may be the smarter choice.

     

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    Holly Hooper

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  • What Does Homeowners Insurance Cover? Understanding Your Coverage, Costs, and More

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    Buying a home is one of life’s biggest investments, and protecting it should be a top priority. That’s where homeowners insurance comes in. Homeowners insurance helps protect your investment by covering unexpected damage, loss, or liability.

    If something happens – like a fire, burst pipe, or break-in – your homeowners insurance helps pay for repairs, replaces lost belongings, and can even cover temporary housing while your home is being fixed. It’s one of the smartest financial protections a homeowner can have.

    Whether you’re a first-time homebuyer or simply reviewing your current coverage, this guide will help you better understand what homeowners insurance is, what it covers, and what isn’t typically covered in standard policies.

    What is homeowners insurance?

    Homeowners insurance is a policy that helps cover the cost of repairing or replacing your home and belongings. It typically covers damage to your property, liability for injuries or damage you cause to others, and sometimes additional living expenses if your home becomes uninhabitable after a covered event.

    If something happens, your homeowners insurance can help you recover from the unexpected without wiping out your savings. You pay a monthly or annual premium, and in return, your insurance company agrees to cover certain types of losses, up to the limits outlined in your policy.

    How homeowners insurance works

    When you purchase a homeowners insurance policy, you agree to pay a set premium in exchange for financial protection against specific types of losses. If a covered event happens, you file a claim with your insurer. They’ll review the details, possibly send an adjuster to assess the damage, and then pay for repairs or replacements minus your deductible (the amount you pay out of pocket).

    What does homeowners insurance cover?

    Homeowners insurance covers the cost to repair, rebuild, or replace your home and belongings after certain unexpected events, called covered perils. It also helps protect you financially if someone is injured on your property or if you can’t live in your home temporarily after a covered loss.

    A standard homeowners insurance policy provides a combination of property protection (for your house and belongings) and financial protection (for liability and living expenses). Below is a breakdown of the main types of coverage included in most policies and how each one works.

    1. Dwelling (structure) coverage

    This is the core of your policy as it protects the physical structure of your home. Dwelling coverage pays to repair or rebuild your house if it’s damaged or destroyed by a covered event, such as fire, lightning, wind, hail, or vandalism.

    It includes major parts of your home like the roof, walls, floors, foundation, and built-in systems such as plumbing, heating, cooling, and electrical wiring.

    When choosing your dwelling coverage limit, aim for the amount it would cost to rebuild your home from the ground up at current construction prices, not its market or assessed value. Rebuilding costs often exceed what your home could sell for, especially when you factor in materials, labor, and local building codes.

    2. Other structures coverage

    This portion of your policy covers detached structures on your property, so think structures that aren’t physically connected to your main home. That includes things like:

    • Fences and gates
    • Detached garages
    • Garden sheds or workshops
    • Guesthouses or gazebos

    Other structures coverage usually equals about 10% of your dwelling coverage, but you can increase that amount if you have significant detached buildings or outdoor features that would be expensive to replace.

    For example, if your home’s dwelling limit is $400,000, you might automatically have $40,000 to cover other structures. If a windstorm knocks down your fence or a fallen tree crushes your shed, this coverage helps pay to repair or replace it.

    3. Personal property coverage

    Your home isn’t just the structure – it’s everything inside it. Personal property coverage protects your belongings if they’re damaged, destroyed, or stolen. That includes furniture, clothing, electronics, appliances, décor, and more.

    Most policies automatically set personal property coverage at 50% to 70% of your dwelling coverage, but you can adjust it to match your lifestyle and possessions.

    It’s also important to know that your belongings are typically covered even when they’re not at home. For example, if your suitcase is stolen while you’re traveling or a bike is taken from your car, personal property coverage can likely help replace it.

    However, there are limits. Most policies cap payouts for certain valuables like jewelry, artwork, collectibles, and firearms. If you own high-value items, you can add a scheduled personal property endorsement to list them individually for their full worth.

    4. Loss of use coverage

    If your home becomes unlivable due to a covered loss, loss of use coverage – also called additional living expenses (ALE) – helps cover the cost of temporary housing and day-to-day expenses while repairs are made.

    This can include:

    • Hotel or short-term rental costs
    • Meals and restaurant expenses
    • Laundry, pet boarding, or storage fees
    • Increased transportation costs

    For example, if a burst pipe causes damage and forces you out of your home for a month, ALE can cover your hotel stay and extra costs that go beyond your normal living expenses. This coverage typically continues until your home is rebuilt or you permanently relocate, up to your policy limit.

    5. Personal liability coverage

    Homeowners insurance typically includes personal liability coverage, which protects you financially if someone is injured on your property or if you accidentally cause damage to someone else’s property.

    Personal liability coverage helps pay for things like:

    • Medical expenses for injuries
    • Repair or replacement of damaged property
    • Legal defense costs if you’re sued

    6. Medical payments to others

    This coverage is designed for minor injuries that happen on your property, regardless of who’s at fault. If a guest twists their ankle on your stairs or a neighbor’s child gets scratched by your pet, medical payments coverage helps pay for their immediate care.

    It typically covers smaller bills like doctor visits, X-rays, or ambulance fees, and usually comes with limits between $1,000 and $5,000.

    These core coverages form the backbone of most homeowners insurance policies. But what they cover depends heavily on what events the policy includes and what it excludes.

    Events that are typically covered

    Homeowners insurance protects you against many unexpected events, often called “covered perils.” These are the specific causes of damage or loss your policy will pay for. Anything outside that list (or specifically excluded) won’t be covered.

    Most standard homeowners insurance policies cover sudden and accidental damage caused by events that are out of your control. While every policy varies, the most common covered perils include:

    • Fire and smoke damage
    • Windstorms and hail
    • Lightning strikes
    • Explosion
    • Falling objects (like tree branches)
    • Theft or vandalism
    • Weight of snow, ice, or sleet
    • Water damage from burst pipes or appliance leaks
    • Damage caused by vehicles or aircraft
    • Accidental discharge of water or steam from household systems
    • Freezing of plumbing or HVAC systems
    • Sudden electrical surges or short circuits

    If one of these events damages your home or belongings, your insurer typically helps pay for repairs or replacements, up to your policy limits.

    For example: If a kitchen fire spreads smoke through the house, your policy covers cleanup and repairs. Or let’s say a heavy windstorm tears shingles off your roof – your insurer pays for roof repairs.

    What’s not covered by standard homeowners insurance policies

    Standard homeowners insurance doesn’t protect against every type of loss, especially those caused by long-term issues, lack of maintenance, or major natural disasters that require separate coverage.

    Here are the most common exclusions:

    • Floods: Damage from rising water, overflowing rivers, or heavy rainfall is not covered. You’ll need separate flood insurance for that.
    • Earthquakes and land movement: Earthquakes, sinkholes, and landslides require an earthquake policy or endorsement.
    • Normal wear and tear: Aging roofs, leaky plumbing, and general deterioration aren’t covered because they’re part of regular home maintenance.
    • Pest infestations: Termites, rodents, and insects are considered preventable and not covered by insurance.
    • Sewer or drain backups: Water that backs up through drains or sump pumps isn’t included unless you add a sewer backup endorsement.
    • Mold or rot: Often excluded unless it results from a covered event, such as a sudden pipe burst.
    • Neglect or poor maintenance: If the insurer determines the damage was preventable, your claim could be denied.
    • War, nuclear hazards, or government action: Broad catastrophic risks like these are universally excluded.

    Because every home and location are different, it’s important to review your policy carefully and talk with your insurance agent about add-ons or separate policies that fill these gaps, especially if your home is in a flood zone or if you live in a high-risk area.

    This is also where the amount of coverage you carry becomes crucial. Even with the right types of protection, being underinsured can leave you paying thousands out of pocket after a major loss. Your policy should include enough dwelling coverage to fully rebuild your home, not just cover its market value, plus sufficient personal property and liability protection to safeguard your finances.

    >> Read more: How Much Homeowners Insurance Do I Need?

    Cost of homeowners insurance

    The average cost of homeowners insurance in the U.S. ranges from $1,500 to $2,500 per year, but your rate depends on your home, location, and coverage choices.

    Here’s what usually affects the price of homeowners insurance:

    • Location: Homes in areas prone to storms, wildfires, or high crime cost more to insure.
    • Home details: Size, age, and construction materials impact risk and price.
    • Coverage and deductible: More coverage or a lower deductible increases your premium.
    • Claims and credit history: Frequent claims or a lower credit score can raise rates.
    • Safety features: Alarm systems, smoke detectors, and newer roofs often earn discounts.

    Your premium reflects the risk your insurer takes on, and small adjustments to coverage, deductibles, or home safety can make a big difference in what you pay. A few ways you can lower your premium include:

    • Bundling home and auto policies with the same insurer
    • Raising your deductible if you can afford a higher out-of-pocket cost
    • Maintaining good credit and a clean claims record
    • Upgrading your home’s safety features, like storm shutters or security systems

    Is homeowners insurance required when buying a home?

    Legally, homeowners insurance is not required by federal or state law. However, most mortgage lenders require it before finalizing a home loan. Lenders want to protect their financial interest in your property – if your home is damaged or destroyed, they need assurance that it can be repaired or rebuilt.

    Even if your home is paid off, keeping an active homeowners policy is a wise decision. Without insurance, you’d be fully responsible for repair, replacement, or liability costs that can easily total tens or hundreds of thousands of dollars.

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    Mekaila Oaks

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  • What Does a $200K House Look Like In 2025? Listings Across the U.S.

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    Prices keep rising, but bargains haven’t disappeared

    Thirteen years ago, the U.S. median home sale price was $190,000, and a household needed $35,600 in annual income to afford it. Today, the picture looks very different.

    Housing affordability has since fallen to record lows after two years of price growth, with the typical home selling for $440,000 in August. Even with mortgage rates dropping, buyers still need to earn over $112,000 annually to afford a median-priced home – roughly $25,000 more than the typical household income and three times what they needed in 2012. The result? Slower sales, fewer listings, and hardly any buyer activity.

    Still, affordable options haven’t disappeared. In parts of the Midwest, South, and Northeast, many homes go for less than $200,000, with some dipping into the low-$100,000s. And across the country, there are affordable gems waiting to be discovered – even in the most expensive markets.

    Let’s explore what you can buy for less than $200,000 in ten cities across the U.S. We’ll highlight three listings per city to give an overview of what that price point looks like. 

    >> Read: The Most Affordable Cities in the U.S. in 2025 

    How much income do you need to afford a $200k house?

    As of September 2025, buyers need to earn about $50,000 to comfortably afford a $200,000 house. This assumes a 20% down payment on a median-priced home ($444,000), a 6.4% mortgage rate, and typical tax and insurance costs.

    You can calculate your specific monthly housing costs using Redfin’s Mortgage Calculator. 

    It’s worth noting that many buyers shopping in the $200,000 range may earn less than their city’s median income, so even if a market appears affordable on paper, it may not be affordable to populations who need it.

    What do 200K houses look like across America?

    1. Detroit, MI

    Median sale price: $220,000 | Median household income: $39,209

    Detroit is the most affordable major city in the nation, with almost half of homes sitting near the $200,000 mark. Prices are low in this Rust Belt mecca for a variety of factors, but the primary ones are population loss, economic disinvestment, and an aging housing stock. However, the city has seen a strong revitalization effort in recent years, attracting new businesses and residents.

    Here are a few examples of homes that go for $200,000 or less.

    2. Los Angeles, CA

    Median sale price: $909,000 | Median household income: $82,263

    As one of the most expensive cities in America, it might surprise you that Los Angeles still has housing options around $200,000. Generally, homes in Southern California go for well over $1 million, with people battling to live among the cultural icon’s sprawling, glitzy streets – especially in luxury enclaves like Beverly Hills and Hollywood. That said, prices are beginning to return to a more “normal” state, although they’re certainly not affordable. 

    For those looking to buy a home in LA on a $200K budget, you’ll have to settle for very small condos or living on the city’s edges. Here are some examples.

    3. Cleveland, OH

    Median sale price: $255,000 | Median household income: $43,383

    A former industrial icon quickly turning lively tech hub, Cleveland hits a sweet spot between old and new – keeping its affordability while investing in new infrastructure and amenities. Many homes remain affordable, though some areas still struggle with disinvestment and aging housing stock. Housing investors have also started buying up lower-priced options, which is putting a strain on supply and upward pressure on prices.

    Here is a sampling of what $200,000 can buy you in Cleveland.

    4. Seattle, WA

    Median sale price: $840,000 | Median household income: $118,745

    Greenery abounds in the Emerald City, but affordable housing is increasingly rare. Home prices in Seattle have surged 169% in the past 13 years – 37% more than the national rate – driven by a tech boom, investor activity, and acute housing shortage. In fact, they have increased so much that over one-third of all homes are now worth at least $1 million. 

    Despite slowing demand, prices remain high. Buyers can still find smaller condos and studios under $200,000, though.

    5. Pittsburgh, PA

    Median sale price: $267,000 | Median household income: $66,954

    A city built on steel and industry, Pittsburgh has started transitioning into a modern hub of technology and growth. House prices are rising but still low, and incomes have grown enough that the typical resident can afford a home. In fact, buying is cheaper than renting in Steel City – the only major metro in the nation where this is still true. 

    Plenty of listings go for $200,000 or less. Here is a sampling.

    6. New York, NY

    Median sale price: $800,000 | Median household income: $81,228

    New York is not an affordable city. Roughly three million households spend more than a third of their income on housing, with 20% spending more than half every month. Even rent-stabilized units, which make up half of the city’s rental stock, are out of reach for many residents. The situation doesn’t improve for buyers, either, as limited supply continues to drive up costs. 

    However, if you are willing to sacrifice size and amenities, there are still options under $200,000.

    7. Oklahoma City, OK

    Median sale price: $275,000 | Median household income: $70,040

    Oklahoma City is a basketball haven known for its Midwestern charm, climate, and prices. The typical house goes for nearly half the national average, with many falling into the $100K range. Even so, not all locals can afford a $200,000 home. According to a recent study, the city actually has the widest “middle-class” income range in the nation; the lowest earners fall well below the $50,000 needed to comfortably afford a $200,000 home. 

    Here’s what $200,000 and under can buy you in Oklahoma City.

    8. Miami, FL

    Median sale price: $557,000 | Median household income: $66,337

    Miami is among the most popular cities for high earners. In fact, nearby Fisher Island recently became the nation’s most expensive ZIP code – boosting property values as the city deals with declining housing supply. Locals struggle to make due; just 10% of homes are affordable for median earners, with rentals similarly out of reach. That’s not to say there aren’t deals, though. 

    Here is what $200,000 can buy in Miami:

    9. Houston, TX

    Median sale price: $337,000 | Median household income: $64,361

    Like many Sun Belt cities, Houston’s housing market has cooled in the past couple of years as climate risks and years of record gains pushed some buyers out. Now, prices are down, listings are up, and buyers are in charge. In addition, a Redfin analysis in July found that 7% of Houston listings could sell for a loss – the fifth-highest share in the nation.

    The typical Houston income can comfortably afford a $200,000 house. Here’s what they look like.

    10. Washington, D.C.

    Median sale price: $590,000 | Median household income: $106,287

    The nation’s capital has a lot to offer, including walkable streets, plenty of green space, and world-class landmarks. However, it remains among the least affordable cities in the country. Renters are especially cost-burdened, even though renting is now more affordable than buying, on average.

    For Washington, D.C. buyers on a $200,000 budget, here’s what you can expect to find.

    Methodology

    Listings were active on Redfin as of October 3, 2025 except for one sold listing (617 Cedar Ave #11) included in Los Angeles. Listings excluded income-restricted homes. Housing data is from Redfin as of August 2025. Median income data comes from the U.S. Census Bureau 2024 ACS 1-year estimates.

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    Jamie Forbes

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  • 8 Benefits of Owning a Home: What to Know Before Buying a House

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    As a renter, you’ve likely heard that owning a home has a variety of benefits. Whether you’re happy renting or thinking about buying, it’s helpful to know the benefits of homeownership and why it’s so appealing.

    In this Redfin article, we’ll highlight eight benefits of owning a home and tips to make homeownership worth it. Whether you’re looking for a home in Portland, OR, or considering buying a condo in San Jose, CA, find out the benefits of homeownership to decide if buying a home is right for you. 

    8 benefits of owning a home

    1. Building home equity
    2. Home value appreciation
    3. Tax benefits
    4. Predictable monthly payments
    5. Freedom to design your space
    6. Long-term stability
    7. Access to home equity funds
    8. Help improve your credit score

    1. Building home equity

    Home equity is the portion of your home that you own, calculated as your home’s market value minus what you owe on your mortgage. It grows over time as you make mortgage payments and if your home appreciates in value.

    For this reason, many people plan to live in their house for a few years in order to build equity and possibly sell for a profit. Some of the benefits of building home equity include:

    • Using the proceeds from your home sale as a down payment on your next home.
    • Ability to to afford a larger or more expensive home.
    • Paying off your home means you can live mortgage-free.
    • Using your equity to borrow money for home improvements or other big expenses.

    There are many ways to access your home equity, which we’ll cover in more detail later. 

    2. Your home’s value may appreciate over time

    Homes typically go up in value (appreciate) over time, making it one of the more reliable investments. For example, you buy a home for $400,000 and it increases in value by 2% each year. After five years, your home’s value may increase to $440,000. When the time comes to sell your house, you may make a profit on the sale. 

    There are plenty of ways to check your home’s value. You can use an online tool to estimate how much your home is worth or see what nearby properties have recently sold for (called real estate comps). Other ways to increase your home’s value include making valuable home improvements like kitchen upgrades or a new roof. 

    3. Tax benefits

    There are several tax benefits of owning a home. If you itemize your tax returns, here are some tax deductions you may qualify for:

    • Mortgage interest deduction: You may be able to deduct interest paid on your mortgage up to a certain amount.
    • Property taxes: You may be able to deduct state and local property taxes paid on your house, up to $10,000 ($5,000 if married filing separately).
    • Mortgage credit certificate: For qualifying homeowners, you may be able to reduce your taxes up to $2,000. 

    4. Predictable monthly payments

    Unlike renting, where landlords can raise rent, a fixed-rate mortgage offers stable monthly payments. While property taxes and insurance may change slightly, your principal and interest payments remain the same as a homeowner.

    If interest rates drop, you may also have the opportunity to refinance your loan. This may decrease your monthly payments, giving you an even better deal. 

    5. Freedom to design your space

    When you own a home, you can do whatever you like with the space. Whether that’s painting the walls, renovating the kitchen, installing built-ins, and more, you have the ability to make your space your own. In a rental, you have to follow the rules outlined in your lease. While you may be able to paint the walls in a rental, you’ll likely have to repaint them when you move out. In your own home, you won’t have to worry about that. 

    6. Long-term stability

    Owning a home provides stability that renting doesn’t always offer. You won’t have to worry about moving out because your landlord decides to sell the property or your rent increases. It’s likely you’ll live in the home for several years, which gives you the opportunity to build community in the area. 

    7. Access to home equity funds

    As mentioned above, there are many benefits to home equity. You can borrow from your home equity in order to fund other purchases or plans – like a wedding, a second home, home renovations, and paying down debt. There are several ways to tap into your home equity:

    • Home equity loan: A home equity loan allows you to take out a loan against your home. It’s a fixed amount loan that has a repayment schedule, but often has lower interest rates than personal loans or credit cards. 
    • Home equity line of credit (HELOC): HELOC allows you to open a line of credit for a set amount of time, so you’re able to withdraw funds as needed. You’ll also have a repayment schedule for a HELOC. 
    • Cash-out refinance: A cash-out refinance replaces your current mortgage with a new, larger mortgage loan. You receive a lump sum of the difference between the two loans.

    8. Help improve your credit score

    If you had a lower credit score when purchasing a home, owning can give you the opportunity to improve your credit score. Paying your monthly mortgage payments on time shows you’re a responsible borrower and reliable to repay your loan. There are lots of benefits to having a higher credit score in the long run, such as better loan terms and access to more loan types.

    Tips to make homeownership worth it

    While there are a lot of benefits to owning a home, there can also be cons. Here are some tips to keep in mind that can help you make homeownership worth it. 

    • Only buy a home you can truly afford: Don’t make the mistake of buying a home over your budget that you may struggle to make monthly payments on.
    • Fully understand your loan terms: Some loans let you buy with a small (or no) down payment, but can come with downsides like additional payments or high interest rates. 
    • Buy when you’re ready, not before: Take time to save the money you need, improve your credit score, or pay down debt if your lender recommends it.
    • Work with a real estate agent and lender you trust: A good agent can guide you on whether the home is a good investment, while a good lender will walk you through your loan options, so compare multiple lenders to find the best rates.

     

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    Alison Bentley

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  • Are Closing Costs Tax-Deductible?

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    When you buy a home, closing costs can feel like a significant expense, often with thousands of dollars due at the time of signing. Many buyers naturally wonder if any of these costs are tax-deductible. 

    The short answer is that most closing costs are not tax-deductible, though certain items, like mortgage interest, discount points, and prepaid property taxes, may be. Other costs, while not immediately deductible, can be added to your home’s cost basis, potentially reducing your tax liability when you sell.

    This Redfin real estate article explains which closing costs you can deduct, which you cannot, and how to make the most of your home’s cost basis for future tax benefits so you can plan accordingly.

    Which closing costs are tax-deductible?

    Closing costs are the fees and expenses you pay to finalize a real estate transaction. They usually range between 2% and 5% of the home’s purchase price and may include loan origination fees, title insurance, recording fees, prepaid taxes, and more.

    While most closing costs are not tax-deductible, mortgage interest, discount points, and property taxes can usually be deducted, but only if you itemize your deductions on your tax return. If you take the standard deduction, which is the most advantageous choice for many taxpayers, these deductions generally do not apply.

    1. Mortgage interest

    Prepaid mortgage interest, often collected at closing, is generally fully deductible in the year it is paid. This includes interest that accrues between the closing date and the end of the month. Your lender will report this amount on Form 1098, which should be retained for your tax records.

    Keep in mind that there are limits to how much mortgage interest you can deduct – typically on loans up to $750,000 for most new mortgages, or $1 million for older loans taken out before December 16, 2017. Interest on your primary residence is usually deductible, and sometimes a second home may qualify as well. Since tax rules can change, it’s a good idea to check with your tax professional to confirm what applies to your situation.

    2. Discount points

    Mortgage points, also called discount points, are fees paid to a lender to lower your interest rate. Each point usually costs 1% of your mortgage amount and can reduce the interest rate by roughly 0.25% per point. Points may be deductible in the year of purchase, as long as:

    • The points are paid on a loan secured by your primary residence.
    • The amount is clearly stated as points on your settlement statement.
    • The points are calculated as a percentage of the loan amount.

    Points paid on refinancing generally must be amortized over the life of the loan rather than deducted immediately.

    3. Property taxes

    Many lenders require buyers to pay some portion of property taxes upfront through an escrow account, which covers future tax and insurance payments. The IRS treats these payments as if you made them directly, allowing you to deduct them when you itemize.

    Typically, state and local tax deductions (SALT) are capped at $10,000. However, for the 2025-2028 tax years, this cap is temporarily increased to $40,000 for most filers, or $20,000 if married and filing separately. Be aware that this deduction may be reduced for high-income earners, so your ability to claim the full amount could vary depending on your income.

    Closing costs that are not considered tax-deductible

    As a general rule of thumb, fees or expenses you pay for services are not tax-deductible. This applies to many of the costs incurred during closing. While these fees are essential to completing the transaction, they typically cannot be claimed on your tax return.

    Common non-deductible closing costs include:

    • Title insurance premiums
    • Appraisal and inspection fees
    • Attorney or escrow fees not directly tied to deductible items
    • Recording and registration fees
    • Transfer taxes
    • Credit report fees
    • Loan origination or processing fees (unless specifically deductible, like certain points)

    Even though these expenses cannot reduce your taxes immediately, they can provide long-term tax benefits through your home’s cost basis.

    How cost basis works

    The cost basis of your home starts with the purchase price and can be increased by certain non-deductible expenses paid at closing. By adding these fees to your cost basis, you effectively reduce the capital gains tax owed when you sell your home. 

    For example:

    • If you pay $3,000 for title insurance and $500 for recording fees, you can add $3,500 to your home’s cost basis. 
    • Later, if you sell your home for a gain, the higher cost basis reduces the portion of the sale that is taxable, potentially saving thousands in taxes.

    Keeping thorough records of all closing costs is crucial. While these expenses aren’t deductible immediately, properly documenting them can significantly reduce your taxable gain when you sell your home.

    FAQs: More on closing costs and tax deductions

    Can I deduct closing costs on a second home?

    Closing costs on a second or vacation home generally cannot be deducted, except for certain mortgage interest and points, which may have limited rules.

    Can I deduct closing costs if I refinance my mortgage?

    Some closing costs on a refinance, like points, can be deducted over the life of the loan, but most fees (title, appraisal, recording) are not immediately deductible.

    Are HOA fees or home inspections deductible?

    No. HOA fees, home inspections, and similar service-related closing costs are not tax-deductible, though they may be added to your cost basis in some cases.

    What documentation do I need to claim these deductions?

    To claim deductible closing costs, it’s important to keep detailed records of your home purchase. Key documents include your settlement statement (HUD-1 or Closing Disclosure), Form 1098, and escrow statements. Your tax professional can review these documents and advise which costs are deductible or can be added to your basis, helping you maximize tax benefits and remain compliant with current tax rules.

    Can I deduct closing costs if I take the standard deduction?

    No. You must itemize your deductions to claim property taxes, points, or mortgage insurance. Many taxpayers benefit more from the standard deduction.

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    Mekaila Oaks

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  • What percentage of your income should go toward your mortgage

    What percentage of your income should go toward your mortgage

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    When it comes to finding the right balance between saving, spending, and investing, one of the biggest questions many people face is how much of their income should be allocated to their mortgage. It’s a decision that impacts your overall financial health and well-being. While there’s no one-size-fits-all answer, understanding general guidelines and how they apply to your personal situation can help you make the best decision. In this article, we’ll explore recommendations and practical tips to help you determine a mortgage budget that works for you.

    Interested in making a move? Check out spots in these markets: 

    Apartments for rent in Las Vegas, NV | Houses for rent in Jacksonville, FL | Homes for sale in Huntsville, AL

    How to calculate your monthly percentage?

    There are several recommendations on what percentage works best but it is necessary to make a decision based on your situation. Below are the most recommended percentages on which to base your mortgage payments.

    28% / 36% Rule

    A widely used guideline for budgeting your mortgage is the 28/36 rule. According to this rule, your mortgage payment should not exceed 28% of your gross monthly income. This percentage covers the principal, interest, property taxes, and homeowners insurance. 

    Additionally, the rule suggests that your total debt payments, including your mortgage, credit cards, and other loans, should not exceed 36% of your gross income. This approach helps ensure you have enough room in your budget for other expenses and savings. Using this example, if you make $7,000 monthly your max mortgage payment should be $1,960. 

    25% Rule

    Some financial advisors recommend a more conservative approach, suggesting that your mortgage payment should be no more than 25% of your gross monthly income. This lower percentage provides a larger cushion for unexpected expenses and can help you maintain a comfortable lifestyle without stretching your finances too thin. This rule is particularly useful for those who prefer to err on the side of caution or who have other significant financial commitments. Using this percentage, if you make $8,000 monthly your expected mortgage payments should be $2,000. 

    30% Rule

    In certain regions or housing markets, the 30% rule is commonly cited. This rule allows up to 30% of your gross income to be allocated toward your mortgage payment. A higher percentage might be more applicable in areas with high property values or higher living costs. However, it’s important to consider that spending more than 30% of your income on your mortgage can limit your flexibility in managing other financial goals and expenses.

    Which is best?

    Ultimately, the percentage of income that should go toward your mortgage varies based on your financial situation. Factors such as your overall debt levels, savings, and personal financial goals play a significant role. Regardless of which rule you follow, the key is to balance your mortgage payment with your other financial responsibilities and goals. Make sure to account for future expenses, potential income changes, and savings goals. By maintaining a well-rounded budget and regularly reviewing your financial situation, you can ensure that your mortgage remains a manageable part of your overall financial plan.

    How do lenders determine your home affordability?

    When lenders assess your home affordability, they evaluate a variety of factors to determine whether you can comfortably manage mortgage payments alongside your other financial obligations. Here’s a breakdown of what lenders typically consider:

    Credit score

    Your credit score is one of the most important factors lenders examine. It reflects your creditworthiness and financial responsibility based on your credit history. A higher credit score generally indicates that you’re a lower-risk borrower, which can improve your chances of securing a mortgage and potentially lead to better interest rates. Lenders typically look for a score of at least 620, but higher scores are preferable.

    Debt-to-income ratio (DTI)

    The debt-to-income ratio is a key metric lenders use to evaluate how much of your monthly income goes toward debt payments. It is calculated by dividing your total monthly debt payments by your gross monthly income. Lenders generally prefer a DTI ratio below 43%, although some may be flexible depending on your overall financial situation. This ratio helps lenders assess your ability to handle additional debt responsibly.

    Income and employment history

    A stable and sufficient income is crucial for mortgage approval. Lenders will review your employment history to ensure you have a reliable source of income to support mortgage payments. They typically look for a steady job history, ideally at least two years in the same job or industry. Documentation such as pay stubs, tax returns, and employment verification may be required to substantiate your income.

    Down payment

    The size of your down payment affects how much you need to borrow and can influence your mortgage terms. A larger down payment reduces the loan amount and can lower your monthly payments and interest rates. Most conventional loans require a down payment of at least 20% of the home’s purchase price, though there are options available with lower down payments, such as FHA or VA loans.

    Assets and savings

    Lenders also consider your assets and savings to gauge your financial stability. This includes checking and savings accounts, retirement accounts, and other investments. Adequate reserves demonstrate that you have financial cushioning for emergencies and can cover other expenses beyond the mortgage, such as closing costs and home maintenance.

    Loan type and terms

    Different types of loans have varying requirements and terms. Conventional loans, FHA loans, VA loans, and USDA loans each have their own criteria and benefits. The loan type you choose will influence your interest rate, down payment requirements, and other aspects of the mortgage. Lenders will evaluate how these terms align with your financial profile.

    By considering these factors, lenders aim to determine whether you are financially prepared for homeownership and capable of managing the responsibilities of a mortgage. It’s a comprehensive evaluation designed to ensure that you can comfortably afford your new home while maintaining overall financial health.

    Advice on how to lower your monthly mortgage payments

    These strategies can help you reduce your mortgage costs, save money, and achieve financial stability more quickly. Each option has its benefits, so consider your financial situation and long-term goals when deciding which strategies to pursue.

    • Refinance your mortgage:  Refinancing your mortgage can be a powerful way to reduce your monthly payments and overall interest costs. By securing a lower interest rate, you can decrease your monthly payment and potentially shorten the term of your loan. Be sure to compare refinancing offers, including any fees or closing costs, to determine if it’s the right move for you.
    • Make a larger down payment: If you’re in a position to do so, increasing your down payment when purchasing a home can reduce the size of your mortgage loan, thereby lowering your monthly payments and the total interest paid over time. A larger down payment also can help you avoid private mortgage insurance (PMI), which adds to your monthly costs.
    • Consider the loan terms: Opting for a shorter loan term, such as a 15-year mortgage instead of a 30-year mortgage, can save you a significant amount in interest over the life of the loan. While your monthly payments will be higher, the total interest paid will be lower, and you’ll own your home outright sooner. Or you can opt for extending the term of your mortgage reducing your monthly payments. By lengthening the loan term from, for example, a 15-year mortgage to a 30-year mortgage, you spread the repayment of your principal and interest over a longer period. This adjustment decreases the amount you pay each month.
    • Make Extra payments: If possible, paying extra towards your mortgage principal can significantly reduce the total amount of interest you pay over the life of the loan. You can make extra payments on a monthly, quarterly, or yearly basis, or even just add a little extra to each payment. Consider rounding up your payments or making occasional lump-sum payments whenever possible.

    What percentage of income should go to a mortgage: The key takeaway 

    Determining what percentage of your income should go toward your mortgage is a necessary aspect of managing your finances effectively. While guidelines such as the 28/36 rule, 25% rule, and 30% rule provide valuable starting points, the right percentage for you will depend on your unique financial situation. 

    By carefully considering factors such as your credit score, income, debt, down payment, and the overall balance of your budget, you can find a mortgage payment that fits comfortably within your financial plan. Regularly reviewing and adjusting your mortgage strategy — whether through refinancing, making extra payments, or lengthening the loan term — can help you stay on track and make informed decisions. Ultimately, the goal is to ensure that your mortgage payments are manageable and sustainable with your financial goals.

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    Pablo Alvarez

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  • Mortgage Rates Just Hit a 14-Month Low: Is Now a Good Time to Buy a House?

    Mortgage Rates Just Hit a 14-Month Low: Is Now a Good Time to Buy a House?

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    Key takeaways:

    • If you want to beat the competition, now is a great time to buy a house.
    • Daily average mortgage rates hit a 14-month low of 6.34% on Monday, giving buyers thousands of dollars in buying power.
    • Don’t wait to buy; buyers who were scared off by high rates are poised to enter the market, which may boost prices.
    • Total listings are also up 20% over last year, so there’s plenty of inventory to choose from.

    On Monday, August 5th, daily average 30-year fixed mortgage rates plunged to 6.34%, their lowest level since April 2023. Other loan products fell to the high-5% to mid-6% range. This came as a result of a surprisingly weak jobs report that bred fears of a looming recession and triggered a global market cooldown. 

    Following the flurry of events, rates ticked up to 6.52% on August 6th – above Monday’s lows but well below the 7.5% peak in April. In fact, homebuyers today have gained nearly $30,000 (around $200 per month) in purchasing power since just the beginning of July. Many experts now predict the Fed to start cutting interest rates more than anticipated in September, which may push down mortgage rates more. 

    Total listings are also up 20% compared to last year, as more sellers enter the field. The market seems poised to give buyers a break. So, if you’re considering buying, you might be wondering “should I buy a house now or wait?” 

    Is now a good time to buy a house? 

    The short answer: Yes, if you have the means, it’s a good time to buy a house before the market catches up. Waiting for rates to fall further leaves you at risk for increased competition among buyers and subsequent price hikes from sellers. 

    Buying a house now means you’re also maximizing your investment potential. Lower rates save you money over your loan term and mean more of your mortgage payments can go towards building equity. 

    It’s worth noting that the market has been topsy-turvy recently, though. For example, higher mortgage rates typically push house prices down, but they have had the opposite effect over the past two years. Also, declining inventory typically leads to more competition, but prices have been too high for many buyers to afford, causing some homes to sit unsold and others to sell in a few days.

    Additionally, economists aren’t entirely sure what will happen with mortgage rates in the coming months, and housing prices are still near a record high. This week started with good news, but it’s important to be prepared for any surprises that may come. 

    Will mortgage rates fall further in 2024?

    Today’s mortgage rates reflect what investors think the Fed will do. Investors believe the Fed is done limiting inflation and expect a gradual decline in mortgage rates through the end of the year. 

    In other words, economists don’t expect mortgage rates to drop significantly more than they already have, because today’s rates already price in expected interest rate cuts in September.

    How did we get here? 

    In the past decade, there has been a severe shortage of homes. This is part of what caused the housing boom in 2021-2022; too many buyers were fighting for a tight supply of homes, leading to skyrocketing prices. Record-low mortgage rates also fueled the frenzy. (Low supply was partly due to a chronic underbuilding of homes since the 1980s.) 

    However, in 2023 and 2024, as construction rebounded and inventory began slowly recovering, prices kept rising even as mortgage rates remained high. Higher rates typically cause a drop in demand and prices. However, this didn’t happen, because many homeowners had pandemic-era rates and were unwilling to give them up, creating a further shortage of homes for sale. 

    This was a unique trend that continues today – the national median sale price hit a record high in June and many people are still avoiding the market altogether. Those who are buying are often doing so in affordable places like Texas and Upstate New York. Even though inventory is rising and sales are low nationwide, house prices are at record highs and show little signs of falling. 

    However, the recent dip in mortgage rates has given homebuyers a burst of hope.

    Home sellers should get ready for competition 

    Recent drops in mortgage rates sets the stage for more buyers entering the market, meaning more competition for listings. 

    This is because house hunters scared off by high mortgage rates have been waiting on the sidelines for years, especially as inventory flagged due to sellers wanting to hold on to their pandemic-era rates (the lock-in effect). Now that rates are dropping, more buyers will decide that they have the budget to buy a house. 

    Should you lock in your mortgage rate today? 

    If you have the means, now is a great time to lock in a low mortgage rate. Rates haven’t been this low in more than a year. 

    Lower rates mean you can qualify for a larger loan amount or enjoy lower payments within your current budget. If rates still feel too high, you can buy down your mortgage rate, too. 

    All-cash buyers hoping to avoid mortgages altogether should also act now to avoid probable price hikes as rates continue to drop. 

    Final thoughts

    If you’re in the market for a house and have been scared off by high rates, now is a great time to connect with an agent and start your home search. Rates are expected to continue trending slowly downwards, and the market is gaining momentum. The longer you wait, the more competition you’ll see.

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    Jamie Forbes

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  • 10 Essentials for Your New Home, from Top Redfin Agents

    10 Essentials for Your New Home, from Top Redfin Agents

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    Congratulations on closing on your new home. Whether you just bought a condo in Miami, FL or a single family home in Seattle, it’s natural for it to take some time for your new space to truly feel like home. To help ease the transition, we reached out to some of our seasoned Redfin agents for their top recommendations on must-have items for new homeowners. From practical tools to personal touches, here are the essentials they swear by. 

    1. Quality tool set

    A well-equipped tool set is necessary for handling any minor repairs or DIY projects that may arise. From assembling furniture to fixing a leaky faucet, having the right tools on hand can save you time and money in the long run.

    2. First aid kit

    Safety first. A fully stocked first aid kit is a crucial item for any household. Be prepared for minor accidents or injuries with bandages, antiseptic wipes, and other essentials.

    3. Cleaning supplies

    Keep your new home clean with essential cleaning tools such as a vacuum, broom, dustpan, mop, and a surface cleaner. Sometimes sellers won’t clean the home before you move in, so having supplies on hand will save you time. Plus, a tidy living space not only looks great but also contributes to a healthier home.

    4. Clothing hangers and storage bins

    Stay organized in your new home by stocking up on clothing hangers and storage bins. These tools are great for maintaining order throughout your home, whether you are organizing seasonal clothing or keeping miscellaneous items neatly tucked away.

    Closet with clothes hangers, an home essential for new homeowners.

    5. Window treatments

    Upon moving in, installing window treatments like curtains or blinds is key for privacy, particularly in closely spaced neighborhoods. These also help control natural light, making your new space more comfortable. It’s also wise to consider window orientation and local climate to optimize light exposure and indoor temperature for immediate comfort in your new home.

    6. Flashlight and batteries

    Don’t get caught in the dark during a power outage or while navigating a dimly lit basement. A reliable flashlight, along with spare batteries, ensures that you’ll always have light when you need it most.

    7. Fire safety gear

    Be prepared for emergencies with essential fire safety equipment such as smoke detectors, fire extinguishers, and carbon monoxide alarms. The safety of your loved ones is paramount, so ensure these devices are installed and maintained properly.

    8. Kitchen staples

    Cookware such as pots, pans, plates, and cutlery are must-haves for your new kitchen. Be sure to stock up on basics like spices, baking supplies, condiments, and dry goods as well. Starting fresh in your new kitchen allows you to create delicious meals and make cherished memories. 

    Updated kitchen

    9. Houseplants

    Bring a touch of nature indoors with houseplants that help purify the air and add beauty to your home. Choose plants that suit your lifestyle and lighting conditions, and enjoy the benefits of a greener living space.

    10. Home comfort and decor

    When settling into a new home, creating a space that feels comfortable and reflects your personal style is essential. This process often involves selecting furniture and decor that serve functional purposes and make the space truly yours. Comfortable seating, cozy bedding, and personal touches like photographs or art can transform a house into a home. Redfin agents advise that you start with the rooms you’ll use most. This approach ensures your living spaces are not only stylish, but also inviting and functional from day one.

    Entryway for a home

    As you embark on this exciting chapter in your life, remember that it’s the little things that can make a big difference in turning your house into a home. By investing in these items, you’ll be well-equipped to create a space that you and your loved ones will enjoy for years to come. Happy homemaking.

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    Julia Weaver

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