Key Takeaways:

  • Owning a home comes with expenses beyond a monthly mortgage payment. Homebuyers benefit from creating a budget and saving in advance.
  • One of the larger home-buying expenses can be saving for a down payment. Homebuyers can use multiple ways to fund a down payment, including using savings, family gifts, or, if available, selling employee stock.
  • Homeownership comes with additional expenses such as property taxes, homeowners insurance, and maintenance costs that can add up quickly if not budgeted for.
  • There are financial benefits for homeowners, mainly in the form of tax breaks. These tax deductions and credits may change each year based on the IRS’s tax code, making a tax advisor a helpful resource for homeowners.

Table of Contents:

  1. Know Your Timeline: 1, 3, and 5-Year Plans to Buy a House
  2. Funding Your Down Payment
  3. Planning for Home Ownership Expenses
  4. The Tax Breaks of Owning a Home

Know Your Timeline: 1, 3, and 5-Year Plans to Buy a House

It’s common to set timeframes around our goals, and buying a house is no different. Having a one, three, or five-year plan to buy a home can help reduce the stress of home buying. And the more time you have, the more you can plan ahead. 

5 Years Away From Buying a House

On the long end of the planning timeline, with a five-year plan to buy a home, you can focus on setting yourself up for success. Focus on longer-term financial planning to help buy a home:

3 Years Away From Buying a House

Once you’re three years away from buying a home, your timeframe shortens, but you can still plan ahead. Focus on establishing the following:

1 Year Away From Buying a House

And when you are one year out from buying a house, it’s time to document every detail of the process so you can buy a home when the time is right. Document a plan with the following:

We know that buying a home is a complex process, from planning years in advance to the day you move into your new home.

In the following sections, we break down three big areas to focus on during your home-buying planning process: funding your down payment, planning for home ownership expenses, and understanding the tax breaks of buying a home.

Funding Your Down Payment

One of the first steps to purchasing a home is to start saving for a down payment. But how much? It’s common to hear that you need to have 20% of the home’s value as a down payment but that may not be the case. You’ll need to consider that if you have less than 20%, your lending will likely require private mortgage insurance (PMI) and your monthly mortgage payment will be higher.

There are several methods to fund your down payment, each with its own advantages and considerations.

Common methods used to fund the down payment on a home include:

Less common methods to consider using to fund the down payment on a home include:

Think of the options above as a menu to select the appropriate methods for you to fund a down payment on a home. Start with savings, gifts, and tax refunds if you can. From there, explore other ways that fit your unique situation. 

Planning for Home Ownership Expenses

Buying a home involves more than just the down payment and monthly mortgage payment. It’s important to be aware of the various expenses that come with homeownership and save for them ahead of time. Here are some of the key costs to plan for:

As you review the list of homeownership expenses above, consider starting a home expense budget and set aside savings for the amount you think you may need. In the next section, we’ll move on to the financial benefits of owning a home.

The Tax Breaks of Owning a Home

Owning a home can be expensive, but it also comes with various tax benefits that can help reduce your overall tax burden over the course of your life as a homeowner. Keep in mind that if you take the standard deduction, you likely won’t be able to take any itemized homeowners as well. Consider consulting with a tax advisor to determine if itemizing deductions makes sense for you.

Here are some of the key tax breaks you may be eligible for as a homeowner:

For official IRS updates on homeowners deductions and credits, visit the Internal Revenue Service’s publication on tax information for homeowners.

What about the first-time home buyer credit? 

From 2008 to 2010, the U.S. government offered a tax credit program to first-time homebuyers, including those who hadn’t owned a home in three years. That credit has since been phased out. However, the idea of a “mortgage relief credit” program has recently been considered. This type of program would offer first-time homebuyers an annual tax credit of $5,000 a year for two years. If you are considering buying a home, it’s worth tracking this piece of legislation to understand if you qualify in the future.

Harness Can Help Navigate Financial and Tax Planning

From buying a house to starting a family, Harness can connect you with the right advisors to help navigate your situation. Through our marketplace, we connect you with hand-picked financial planning and wealth management firms from around the United States.

Advisors on the Harness marketplace specialize in guiding clients through life events including how to handle employee equity, business taxes, retirement and estate planning, and comprehensive wealth management. Set up a Harness account today.

Tax-related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness” or “Harness Wealth”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This article should not be considered tax, legal or financial planning advice. Please consult a tax, legal and/or financial professional for advice specific to your individual circumstances.