24 Jan Homeowner’s Savings Guide: A Guide to Savings Opportunities, Rebates and Tax Credits for Renters and Homeowners
Owning and maintaining a home is a substantial expense for many homeowners, but it’s a worthy investment when you consider that the value of real estate tends to rise over the long-term. As you pay down your mortgage, you’ll build equity in your property, and maintaining your home well means that it will hold its value for years to come.
That said, there is much more to home ownership than just a mortgage payment. Owning a home comes with utility costs, such as heating, cooling, garbage disposal, telephone, electricity, and more. Plus, you should consider the costs and time involved with maintaining your landscaping, keeping your home and its fixtures up-to-date, and making occasional improvements to suit your family’s needs or to increase the value of your property. Homeowner’s insurance is also a must, and in some areas, you’ll be required to carry flood insurance or other types of insurance coverage as well.
These costs all add up, comprising the majority of income for some families. In fact, the total cost of home ownership is prohibitive for some families. Even those who are able to afford a home may encounter unforeseen circumstances that impact their financial health, making it difficult to continue to keep up with the ongoing costs of home ownership.
Whether you’re considering becoming a homeowner for the first time, upgrading or downgrading your existing home, or renting a property for which you’re responsible for many of the ongoing costs and utilities such as heating and energy costs, there are ways you can cut down on your ongoing expenses to make home ownership a more affordable feat. We’ve created this guide to provide details on ways to save on home maintenance, how to cut down on insurance costs, lowering your home energy costs, and other savings opportunities that many homeowners miss out on.
What You’ll Find in This Guide:
- Tips for Renters: Bargaining with Your Landlord and Other Smart Ways to Save
- Saving Money to Purchase a Home
- Upgrading or Downsizing? How to Get the Most Bang for Your Buck
- Tips for New Homeowners: Getting the Most from Your Investment
- How to Reduce Your Home Energy Costs
- Homeowner’s Insurance: How to Lower Your Premium Costs
Tips for Renters: Bargaining with Your Landlord and Other Smart Ways to Save
Renting is an alternative to home ownership that’s better for some families either in terms of affordability or convenience. But renting isn’t always cheaper, particularly in areas with a high cost of living and for families who are responsible for paying most or all utilities in addition to rent.
First, figure out your total expenses. This includes costs in addition to your monthly rent payments, including commuting costs to work, utilities you’re responsible for paying, travel to grocery stores and other places you frequent, renter’s insurance (a must for anyone renting a home) and so forth. This gives you a bottom-line estimate that you can use to compare with the cost of owning your own home or with other properties if you’re considering making a move. For instance, it may be cheaper to pay more in rent for an apartment that includes heat and is closer to your office, allowing you to cut back on costs that aren’t necessarily clear when you’re relying solely on rent comparisons.
Then, you can check out Craigslist and other local rental ads to see what the typical rent is for apartments or homes similar to yours. If you find that you’re paying more than the average for similar properties, you can use this information as a bargaining chip if you decide to negotiate rent with your current or a prospective landlord. Additionally, if you can secure a lease agreement, you can get a locked-in rental rate for the duration of the lease.
As a renter, you might be less-focused on your home energy costs if you’re not responsible for paying for heating and cooling, but that doesn’t mean you can’t save on your monthly expenses. Even if you’re paying for electricity but not heat, you can save money by making some smarter choices.
While you can’t replace the installation in a rental (at least without your landlord’s permission), you can use energy-efficient light bulbs such as LEDs or CFLs and use fans in the summer to cut down on your use of window air conditioning units. If you do use window AC units, purchase energy-efficient models. Both of these steps will cut down on your electricity costs. You can also open your curtains on cooler days to let the warmth of the sun in, and close them on hot days to keep it cooler inside.
Develop some savvy energy-saving habits, such as turning off the lights as you leave a room. Watch out for vampire appliances, too. Vampire appliances make use of something called standby power, meaning they continue to consume energy even when powered down. Computers and related equipment, most modern televisions, stereo systems, video game consoles, cable and satellite television boxes, and any appliances that have a built-in clock are a few of the main culprits. In total, standby energy consumption accounts for about 10 percent of a typical electric bill.
How can you stop vampire appliances from driving up your electricity costs? Unplug them when they’re not in use, or use power strips that will turn off any appliances plugged into them. You can also turn off things like routers and modems when they’re not being used.
If you do pay for heating costs, there are some ways to save here as well. Ask your landlord if you can install a programmable thermostat if you don’t already have one, which will allow you to set your heat to a lower temperature during the day when you won’t be home and keep a warmer ambient temperature in the evenings. Setting a cooler temperature at night is often more comfortable for many people, but you always have the option of using extra blankets if you like to be warmer while you sleep.
Saving Money to Purchase a Home
If home ownership is your ultimate goal, saving money will be a top priority. The costs associated with renting a home can make saving money for a down payment challenging, but that’s not to say it can’t be done.
First and foremost, make sure that home ownership is right for you. Sometimes, renting just makes more sense, and in some cases, it’s a more financially sound decision. For instance, if you travel often for work or may not be living in the city you plan to call home for the next several years, it doesn’t always make sense to buy a property. If you do purchase a home and then sell it in less than two years, you might end up paying capital gains tax if you sell for a profit.
If home ownership is the right choice for you and you need to start saving for a down payment, take a look at your monthly utilities and eliminate or cut back where possible. For instance, if you’re rarely home to watch television, cancel your cable service. You can watch many shows and stream movies on your computer these days anyway. Write down all your monthly expenses and analyze where you’re spending the most money and identify ways to cut down. If you’re dining at fancy restaurants four nights per week, consider cooking at home and saving that extra money for your down payment. Set a budget with funds allocated for bills and other purposes, including entertainment, and stick to it.
Consider getting a roommate, which can be an ideal choice if you’re locked into a lease agreement but need to move out before your lease is up. If you get permission from your landlord to have a roommate move in before you move, you can sometimes work out an arrangement allowing another person (your roommate, in this case) to simply take over your lease. Plus, a roommate will cover some of your monthly expenses, resulting in extra cash that you can stash away for your down payment.
Include an amount that you’ll dedicate to savings each month, and have it automatically withdrawn from your account and set aside in a savings account that’s not convenient for you to access. This strategy will make you less likely to borrow some cash from your home savings fund for other, less-important purposes.
Upgrading or Downsizing? How to Maximize the Resale Value of Your Home
If you already own a home and are looking to upgrade or downsize, there are some money-saving (and money-making) opportunities you’ll want to take advantage of. For instance, you’ll want to maximize your profits from the sale of your existing property and get the best deal possible on your new home. Plus, if you’re upgrading to a larger or more-expensive property, you’ll want to ensure that you’re not taking on more than you can realistically afford.
For many homeowners, making a few improvements before putting your home on the market can substantially increase your home’s value. Not all home improvements are created equal, however. You’ll recoup the entire cost of some improvements when you sell your home, while you’ll likely lose some money on others. That’s why making smart decisions about what to tackle and what to let go is key.
If your hardwood floors are in rough shape, a refinishing job will be money well-spent, increasing the visual appeal of your home to make it more attractive to prospective buyers, particularly those looking for a move-in ready property. Refinishing hardwood floors is also a viable option if you have old, stained carpeting that needs to be torn out but has good quality hardwood underneath.
Another worthy improvement is replacing the roof. In fact, you’ll get even more of a return on a new roof than you put into it (as much as 105% of the cost), according to research conducted by National Association of the Remodeling Industry and the National Association of Realtors. This same study also identified several home renovations and repairs that offer the worst return for the cost, including adding an extra bathroom, renovating closets, adding a master suite, and bathroom renovations.
One thing that does make sense before listing your home for sale is a home energy audit. A home energy audit is conducted by a qualified technician who inspects your home for problem areas that could be contributing to energy inefficiency. If you can prove with a verified report that your home is airtight and free of problematic air leaks, has adequate insulation, and other energy-sapping issues, you can instill confidence in prospective buyers and possibly get a higher offer, or at least a bargaining chip for negotiations.
Of course, an energy audit could very well identify problems, in which case you have the perfect opportunity to make the necessary adjustments to improve the home’s efficiency. All of these improvements can be documented in the seller’s disclosure and used to negotiate a higher selling price. Plus, when you make certain improvements or purchase ENERGY STAR appliances, you may qualify for a tax credit. Check out EnergyStar.gov for a full list of current tax credits available for qualified improvements and purchases.
The same improvements that you make to your existing home before putting it on the market are also things you’ll want to look for in your next home. If a property has a recent energy audit or has made a number of energy-efficient improvements, comes furnished with ENERGY STAR appliances such as a stove, refrigerator, washer/dryer, dishwasher, and even the water heater and furnace, your cost of ownership over time will actually be lower than a comparable property without these energy-saving options.
Tips for New Homeowners: Getting the Most from Your Investment
If you’re a first-time homeowner, you’ll want to take steps from day one of homeownership to get the most out of your investment. Whether you live in your home for the next five years or 50, your home is one of your most valuable long-term assets. Taking good care of it and maximizing your savings potential to reduce the cost of ownership will benefit you today and for years to come.
First things first: If you’ve purchased a home in the current tax year, you can take advantage of some tax benefits. If you paid points to lower your mortgage interest, these costs are deductible on your income taxes. You can also deduct mortgage interest throughout the life of your mortgage loan as well as interest on home equity lines of credit and home equity loans, on amounts up to the value of your property.
For the 2016 tax year, you can also take a deduction for mortgage insurance premiums, an insurance you’re required to purchase if your mortgage loan exceeds 80 percent of the value of your property. Tax laws change all the time, though, so you’ll need to double-check that this and other tax breaks are still available in subsequent years.
If you itemize deductions, you can also deduct real estate taxes on your income taxes, and if you work from home, you can take a home office deduction. There are several important rules and restrictions related to the home office deduction, such as the requirement that the space is used solely and exclusively for managing your business or conducting work, so be sure to read the full requirements to be sure that you meet them.
Avoid wasteful spending such as splurging on furnishings that you really don’t need or have room for. For instance, if you have the time to maintain your lawn and landscaping, do it yourself rather than hiring a landscaping service. However, if your time is better spent elsewhere and it’s in your budget, by all means, outsource.
New homeowners should also plan for saving a certain amount of money each month for unforeseen circumstances. Even if you have adequate insurance coverage, you’ll be responsible for paying a deductible if you file a homeowner’s insurance claim. You may also encounter issues that aren’t covered by your homeowner’s insurance, so it’s a good idea to have an emergency fund you can tap into if needed.
How to Reduce Your Home Energy Costs
If you’ve purchased a property that has not had a home energy audit, having a professional perform an energy checkup is one of the most effective ways to reduce your home energy costs. An energy audit will include inspection of many areas of your home to identify potential energy-sapping problems such as:
- Air leaks
- Inadequate insulation
- Problems with ventilation
- Moisture buildup
- Leaking or contaminated air ducts
- Inefficient lighting and appliances
- Efficiency problems with heating and cooling systems
Once you’ve gotten the results of an energy audit, you can start prioritizing repairs and renovations to start cutting back on your home energy costs as soon as possible. After all, the more money you save on energy costs, the more money you have to put back into your property to make it exactly what you need and want while also maximizing the long-term resale value of your home.
Inspections and audits shouldn’t be a once-and-done thing, either. It’s a good idea to plan for inspections of your roof, basement and attic, insulation, foundation, and other structural components of your home annually. Doing so will allow professionals to identify problems in the early stages when they may be far less costly to repair and prevent further damage.
Fixtures such as low-flow shower heads and toilets can cut down on your energy consumption as well. In fact, according to Reader’s Digest, “Showerheads are the second-heaviest water users—and also major energy eaters, since 70 percent of the water used is heated.” A traditional shower head is so wasteful that purchasing a low-flow alternative can pay for itself in a single month.
Ceiling fans are another useful way to reduce both heating and cooling costs. In the warmer months, ceiling fans promote air circulation, which makes the room feel cooler. They have no impact on the temperature of a room itself, however, so turn them off when the room is empty. In the winter, if your ceiling fans have reverse mode (a clockwise rotation), you can use this feature to circulate the warm air that tends to rise back down into the room, giving you more benefit from your heating system.
A programmable thermostat is a helpful tool for homeowners as well as renters. These thermostats can be set to adjust the temperature of your home at different times of the day, with cooler temperatures during the day or other times when no one is home to benefit from the heat or AC and warmer temperatures when the family will be home and active. Many families opt for slightly cooler temperatures overnight as well, using extra blankets to stay warm if you prefer to slumber in a warmer ambient temperature.
Homeowner’s Insurance: How to Lower Your Premium Costs
Shop around for homeowner’s insurance and other insurance needs, such as flood insurance, to get the most benefits for your money. As much as you may like your real estate agent, simply going with the company your agent recommends may not be the best option. They may be making a referral based on a personal relationship rather than any actual benefits or cost savings offered by the company. It’s worth comparing the rates and benefits of companies recommended to you to comparable options that you find on your own.
Determine the amount you can afford to pay each month in premiums and how much you can afford to pay for a deductible, then compare plans with these figures in mind. That said, as Investopedia points out, “Your mortgage lender requires you not only to purchase homeowners insurance, but also to purchase enough to fully replace the property in the event of a total loss.” In other words, you can’t sacrifice certain things, such as the replacement value, in order to save money on your homeowner’s insurance. If you can afford a higher deductible, you can lower your monthly premium costs by choosing a higher-deductible plan.
Escrowing your insurance premiums with your mortgage payment is a helpful way to ensure that you always have the funds to cover your premiums. If you’re not the most dedicated saver or budgeter, you won’t want to skip this option. “Lenders prefer this option because it lets them know your insurance premiums are being paid, and their investment is well protected,” notes Abby Hayes in an article for U.S. News. “Most likely, you’ll need to pay for one year of insurance at closing. Bring information about the insurance policy you have chosen and the money to cover the first year’s premium.” There are ways to set this up and make changes after you’ve purchased the home, but the process may vary depending on your mortgage lender.
Bundling your homeowner’s insurance with other insurance coverage, such as auto insurance and life insurance, may qualify you for a discount from some insurance carriers. Likewise, certain home safety measures can earn you a discount on your premium costs.
Discounts for installing home security systems are a common offer. “Some companies may cut your premiums by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations,” according to the Insurance Information Institute. “However, these systems aren’t cheap and not every system qualifies for a discount. Before you buy one, find out what kind your insurer recommends, how much the device would cost and how much you’d save on premiums.”
Smoke and carbon monoxide detectors and deadbolt locks are other safety options that not only keep your family safer but also might earn you a discount on your premiums. If your home has newer wiring or plumbing, this can be helpful for lowering your costs too. Old or faulty wiring can increase the risk of fires, and older plumbing is more likely to fail, resulting in costly water damage. The less risk your insurance carrier takes on by insuring your home, the more you’ll save. If in doubt, have a professional inspect your plumbing and wiring systems to ensure their integrity.
If you stick with your insurance carrier for several years, your loyalty can save you a few bucks, too, particularly if you haven’t filed any claims for a few years. Some companies, such as Esurance, offer increasing discounts for each year you remain claim-free.
Home ownership was the American Dream for decades, and for many families, it remains so. If renting is the right choice for you, you’re not stuck with the associated costs of your rental property. There are many options that are within your control that can help to lower your monthly costs.
If you have your sights set on owning your own home, evaluate the full cost of ownership to ensure affordability and take steps to reduce your ongoing costs of ownership. Doing what’s necessary to minimize your costs while taking top-notch care of your home will make it a valuable, appreciating asset for many years to come.
For more information on home savings opportunities, check out the following resources:
- 19 Things a New Homeowner Should Do Immediately to Save Money
- 16 Money-Saving Tips Every Homeowner Needs to Know
- 7 Smart Steps Every New Homeowner Should Take
- How to Save Money on Your Homeowners Insurance
- 5 Ways Homeowners Can Save Money and Energy
- Frugal Living Tips for Homeowners
- 10 Expensive Budget Mistakes New Homeowners Make
- Calculating Ways Homeowners Can Save Money
- 5 Ways to Save Money on Home Insurance
- Top 10 Homeowner Money Saving Tips and Ideas