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- ‘Secret’ way to lower mortgage payments Read more…
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Cape Coral and SW Florida News:
History of the NW Spreader Barrier (Boatlift) Boatlift Barrier History
NW Spreader Electronic Petition Read more…
NW Spreader Boatlift and the Ecosystem Read more…
- file for your HOMESTEAD EXEMPTION before March 1st!!!! Read more…
- Stronger housing market seen in 2011 Read more…
- Cape housing market thriving Read more…
- Crime dipped 10% in 2010 Read more…
Real Estate Tips:
- Showing tips for Sellers Read more…
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- Six landscaping tips that Wow Buyers Read more…
- Cost vs. Value of remodeling projects Read more…
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This month’s feature…..
3 bedroom/2 Bath Pool Home with BIG pool deck
WATERFRONT, Fabulous Basin View, Access to the Gulf of Mexico, and much more!!!
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A Financial Plan for Your Home
By: Richard Koreto
Published: August 28, 2009
Your home is probably your biggest investment. To manage it, create a financial plan that takes into account repairs, upgrades, mortgages, insurance, and taxes.
- Home insurance, including liability
- Repairs and maintenance, such as new furnace, roof, painting
- Voluntary upgrades, such as a swimming pool, a premium range, a new powder room
What will you learn from this home financial plan weekend exercise?
- How much you have to spend
- How much you need to allot in the short- and long-term for necessary maintenance and voluntary improvements
With this newfound grip on your home’s expenses, you can create a home financial plan that’ll help you there for years with maximum enjoyment and minimum anxiety.
The mortgage: Pay it—and then some
Run the numbers yourself for your home financial plan.
Advantages of an early payoff, says Alan D. Kahn, a financial planner in Syosset, N.Y.:
- Less debt means more money to spend later.
- It feels darn good to own your house outright as soon as possible.
- Minimal tax loss. Toward the tail end of the life of a loan most of your payment goes to the principal, not the interest, so you’re getting only a small tax break anyway.
- A retirement plan
- An account for the inevitable home repairs
- An account for discretionary improvements, which can raise your home’s value
Insurance: Protect your property
Your vegetable garden is pointless without a fence to keep out rabbits; likewise, your home financial plan will come to nothing without an insurance “fence”:
Homeowner’s insurance. Basic coverage for your home and everything in it. The average cost is $636 per year but this varies widely by state. Liability coverage. Protects you from a lawsuit if someone gets hurt on your property, for example. Your best bet: An umbrella policy. For about $300 a year you can by a typical $1 million policy. Various disaster insurance policies. Optional policies cover flood, earthquake, and hurricane damage. As part of your home financial plan, you have to research to see what disaster coverage, if any, you need in your area, and what your standard policy already covers. For $540 a year you can buy flood insurance, for example.
Don’t under- or overbuy insurance
For your basic policy, get homeowners insurance with full replacement coverage in case your house burns to the ground.
That sounds simple, but heads up on calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this. This difference will vary widely by region.
Another heads up: Don’t make the common and potentially disastrous mistake of thinking that because your home has fallen in value you need less insurance. If you bought a $1.2 million townhouse in Florida during the boom, it’s true it now may only sell for $600,000. But the replacement cost of the townhouse hasn’t changed much, so you can’t improve your home financial plan by cutting insurance costs that way.
Other ways to cut your insurance budget:
- If you make structural improvements, such as adding storm shutters, your insurer may give you a break.
- If you belong to certain groups, such as AARP or veterans’ organizations, your premiums may be lower.
Repairs and renovations: By choice or necessity
To help you budget:
Start with the inspection report you received when you bought the house. Did the inspector indicate that you would need a new roof in five years? A new furnace in 10?
Keep a log of your major appliances’ age so you can estimate when they’ll need replacing. Some estimated life spans:
- Roof: 20-25 years
- Heating systems: 15-20 years
- Range/ovens: 11-15 years
- Water heaters: 8- 13 years
Then get estimates on what replacements will cost and start saving.
Consider ongoing non-emergency maintenance, too. Do you live in New England? Price a snow blower and get bids from plow services.
Resist the siren call of the home equity loan to take care of everything. That just defeats your efforts to pay off the mortgage early.
Separate out what you want from what you need. A $50,000 kitchen remodel is nice, but you’ll recoup only 76% of the project cost your home’s resale, according to Remodeling magazine.
If you can afford to redo, go for it. Just don’t confuse your necessary repairs (new oil furnace—about $4,000) with your discretionary upgrades (Viking range—$6,000 and up).
Taxes: (Almost) no way around them
Or if your lender handles escrow and you haven’t saved your bills, ask for an accounting. The median annual property tax payment is $2,198, but that hides the enormous range in medians from state to state:
- New Jersey: $6,320
- New York: $3,622
- California: $2,829
- Alabama: $383
- Louisiana: $188
You can generally deduct property taxes on your federal return. A tax pro can tell you how much of a tax break you’ll get, to help you fine tune your home financial plan.
You may be able to reduce your tax burden by getting a reassessment. Do your homework first: Are comparable houses taxed less than yours? Ask the local assessor what formula is used to set tax rates. You can challenge the assessed value and get yourself a rollback.
If you’re in a special group, you might get some help from state or local programs. Check around to see what’s available in your area. New York State, for example, has its Star Program for giving senior citizens some relief from school-related property taxes.
Richard J. Koreto is a managing editor of finance, taxes, and insurance at HouseLogic. He has been editor of several professional financial magazines and is the author of “Run It Like a Business,” a practice management book for financial planners. He and his wife own a pre-Civil War house in Rockland County, N.Y.
|Visit HouseLogic.com for more articles like this. © Copyright 2010 NATIONAL ASSOCIATION OF REALTORS®|
Deb Cullen, CRS, GRI, ABR, e-PRO, SRES, RSPS, SFR
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