Money Saving Opportunities For First-Time Home Buyers

Buying a house for the first-time can be a daunting experience. Most likely, you will search for a lender to finance the home. You are looking at mortgage rates, available amount and ways to reduce the down payment. You have to consider the closing costs, moving expenses, application processing charges and your credit score. All of this can be a huge hassle especially if you do not have prior experience dealing with real estate matters.

Fortunately, being a first-time buyer, you are entitled to various benefits. According to Federal Government, you are a first-time buyer, if you did not own a primary residence in last three years. If you are the spouse of a first-time buyer, then you are also considered a new buyer.

The Connecticut Housing Finance Authority gives you access to low-interest rate mortgage programs. If you want to apply, your income must meet the criteria set by the authorities. Under this program, the price of your new house must be less than the price limit established for your city.

Other than affordable mortgage programs, there are tax benefits of owning your house.

Save Money by Deducting Interest Rates

Homeowners can save money by deducting their mortgage interest rates. You will have to itemize your deductions. Since the mortgage is usually the biggest loan you have, getting tax deductions on that money can save you a lot.

However, you must understand the difference between tax-credit and tax deductions. Many homeowners assume that a tax-deduction of $1,000 will credit your account with $1,000 or you will save the $1,000. It is not true.

You need to consider the tax bracket. Let’s do some calculations.

The median salary of a household in Connecticut is $73,433. The median value of a home in CT is $246,700 according to The mortgage rate is 3.80%-5.00%. We will use 4.30% for the calculation of tax savings. The tax bracket for this typical scenario is 22%.

That means, for every $100 tax deduction, your actual savings will be $22. If you are going to save $2,000 after deducting the mortgage interest rates, you should calculate the 22% of savings amount because that will be your actual tax-deduction. Please consult a tax attorney for more information.

Deduction of PMI and Mortgage Points

Similar to interest rate deduction, you can also subtract the mortgage points. Each point is an upfront interest rate payment which you can deduct from tax payments.

You might be allowed to deduct the PMI on your loan.

Property Tax Deductions

You often prepay property taxes and insurance costs at the time of closing. The amount is present in an escrow account. In your first tax-year as a homeowner, you might see that your mortgage company has already paid your taxes.

Capital Gains Taxes

You are not yet thinking of selling the house, but resale value is something we all consider. After owning a house, you can benefit from the ‘Capital Gains Taxes.’ Unlike other investments, you will only pay tax if the resale value of the home exceeds $250,000 ($500,000 for married couples). You will pay tax only on the amount exceeding the threshold. For instance, if the sales price of your house is $275,000, you will pay Capital Gains Tax on the $25,000.

Tap into Your IRA

As the first-time homeowner, you can borrow funds from your IRA without having to pay for the early withdrawal penalty. You might pay income tax on the amount you borrow from regular retirement accounts. You do not pay any income tax if you are getting money from a Roth IRA.

A single person can obtain $10k while a married couple may withdraw $20,000.


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