Become a Savvy Homeowner Before You Buy

With housing prices flat or increasing modestly in many markets, and mortgage rates at record lows, many consumers are finding it a good time to think about buying a home. But home ownership is a big financial commitment that requires a stable budget and a clear understanding of the costs and responsibilities involved.

This fact may be one reason why in 2014 more than 73,000 people-the largest number in five years-signed up for housing counseling workshops given by member agencies of the National Foundation for Credit Counseling (NFCC).

Housing counseling provides consumers with advice, education, technical assistance, and resources related to the home-buying process. It covers a variety of topics such as prebuying, how to avoid default and foreclosure, credit issues, and reverse mortgages.

Savvy homeowners: HUD sponsors housing counseling through approved third parties, and many real estate agents are also encouraging clients to enroll in counseling workshops. These workshops not only help homebuyers navigate the home-buying process, but they also encourage them to become savvy mortgage shoppers. According to the NFCC, individuals and couples who participate in housing counseling sessions are inclined to review multiple mortgage offers, unlike those who have not been counseled.

Many first-time buyers, who have not worked with mortgage professionals before, might feel too intimidated to discuss loan rates and fees. Because these vary significantly from lender to lender, people who take the time to educate themselves and shop the mortgage market often save more.

The key, particularly for first-time home buyers, is to be realistic about their financial situations. Those who are realistic and know the questions to ask throughout the home-buying process will be less likely to run into debt problems as homeowners. Would you benefit from housing counseling? Many have, and the education is paying off; they’ve become realistic buyers before they buy and savvy homeowners after.

Preparing to Sell? Consider the Tax Implications

If you’re planning to sell your home, here are some things you should know about taxes and the impact they may have on your decision to sell:

Primary residence: When you sell your primary residence, you can exclude up to $250,000 of capital gains from your taxes. For married couples who file jointly, the exclusion is $500,000. Unmarried people who sell a jointly owned home can individually exclude up to $250,000, if each meets the criteria.

Criteria: You must have owned and lived in the home as your principal residence for at least two of the five years prior to the sale. And you cannot have sold a home in which you excluded capital gains for two years before selling your current home.

However, if you don’t meet these criteria, you still may be entitled to a whole or partial tax break in certain circumstances, such as divorce, change in employment status, change in health condition, or other unforeseen situations such as a death in the family.

What counts? When calculating the gain from sale of your home, you may deduct, among other things, closing costs (such as prepaid interest or points and your share of prorated property taxes) and selling costs (including real estate commissions; title insurance; legal, escrow and inspection fees; and advertising and administrative costs)

For more information, see IRS Publication 523 (IRS Publication 523, Selling Your Home). Also note: This information is not meant to replace advice from a professional real estate agent or a certified tax advisor or financial consultant.