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Buying a Home in 2019? 3 Things You Need to Know

Maurie Backman, The Motley Fool

Homeownership is a goal many Americans strive for. If you're hoping to make the leap this year, you should know that there are many potential benefits to be reaped. There are also some serious financial considerations you'll need to account for. Here are three important points to be aware of.

1. It pays to put down 20% of your home's purchase price

One of the biggest barriers to buying a home is coming up with its down payment. While you might manage to get a mortgage without putting down 20% of your home's purchase price, doing so will subject you to the unwanted fate of paying private mortgage insurance, or PMI.

PMI generally equals 0.5% to 1% of the value of your home loan. This means that if you take out a $250,000 mortgage, your PMI could range from $1,250 to $2,500 a year. Now, that might not seem like a lot of money initially, but remember that it's in addition to your regular mortgage payment, which could make it harder for you to swing on a monthly basis. That's why it's generally best to save up a 20% down payment and hold off on buying until then.

House with for sale sign in front yard.

IMAGE SOURCE: GETTY IMAGES.

2. You might not get a tax break out of it

One of the most compelling reasons to buy a home rather than rent one is that owning comes with a host of tax breaks. Recent changes to the tax code, however, might result in a situation where you don't actually get to take advantage of them.

If you buy a home this year, you'll be able to deduct the interest you pay on up to a $750,000 mortgage. Therefore, if you're buying a pricey home, that deduction could be substantial. But if you're buying a starter home in Anytown, USA, chances are you'll be looking at a home loan in the $150,000 to $250,000 range, in which case you'll be looking at roughly $6,000 to $10,000 in mortgage interest during your first year (assuming you have great credit and qualify for a competitive rate), and less yearly interest going forward.

Here's why that's significant. This year, the standard deduction for married couples filing jointly is $24,400. This means that if you have a spouse with whom you file a joint return, you'll need to accrue more than $24,400 in eligible deductions for it to make sense to itemize. And if you don't itemize, you don't get to deduct homeowner expenses.

Now, if you buy a home, you can also write off your property taxes, but know that your total SALT (state and local tax) deduction, which includes real estate taxes, can't exceed $10,000. Therefore, unless you have other deductions to utilize, like charitable contributions and medical expenses, you might end up going with the standard deduction for the foreseeable future, thereby not capitalizing on the homeowner tax breaks you might have previously been looking forward to. This isn't to say that you should only buy a home if you can use it to lower your taxes -- rather, just be aware that it might not factor into your tax return at all.

3. You need emergency savings before you buy

When you rent your home, you only have to worry about paying your landlord the monthly amount specified in your lease agreement. When you own a home, on the other hand, you're responsible for every single thing that goes wrong, from minor repairs to major ones. That's why it's crucial to go into homeownership with a healthy level of emergency savings. This way, you won't be forced to resort to credit card debt the moment your roof springs a leak or your heating system breaks.

Buying a home means putting down roots and having a place to call your own. Just know what you're getting into before making that leap, and be sure you're financially prepared for what might lie ahead.

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