Home 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. However, when considering real estate tends to rise over the long-term, owning a home is generally a worthwhile investment. As you pay down your mortgage, you’ll build equity in your property. Plus, maintaining your home 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, considering the costs and time involved with maintaining landscaping, keeping fixtures up-to-date and making occasional improvements increase the value of your property. Homeowner’s insurance is also a must (plus some areas require flood insurance or other types of insurance coverage). Therefore, learn about some home savings opportunities, rebates, credits and more.
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 homeownership that’s better for some families either in terms of affordability or convenience. However, renting isn’t always cheaper. In particular, areas with a high cost of living or landlords requiring renters to pay for utilities to create an expensive option.
First, figure out your total expenses, which includes costs in addition to your monthly rent payments. For example, total expenses incorporate:
- Commuting costs.
- Travel and transportation costs.
- Renter’s insurance.
This provides a conservative estimate for comparing the cost of homeownership with renting. For instance, it may be cheaper to pay higher rent for an apartment that includes heat and is closer to work. This allows you to cut back on costs that aren’t necessarily clear compared to relying solely on rent comparisons.
Next, check Craigslist or other local rental ads and gauge the typical rent vs 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.
Renters Should Consider Home Energy Costs
As a renter, you might be less focused on your home energy costs if you’re not responsible for paying for heating and cooling. However, you can still save on your monthly expenses.
While you can’t replace the installation in a rental (at least without your landlord’s permission), you can use energy-efficient light bulbs. For example, installing LEDs or CFLs or using fans in the summer help cut electrical costs. If you do use window AC units, purchase energy-efficient models. Also, open any curtains on cooler days, which lets the sunlight warm your home. Conversely, close the curtains on hot days to keep it cooler inside.
Develop Energy Saving Habits
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 continually consume energy even when powered down. These include:
- Computers and related equipment.
- Televisions and cable or satellite boxes
- Stereo systems.
- Video game consoles
- Any appliances with a built-in clock.
In total, standby energy consumption accounts for about 10 percent of a typical electric bill.
Stop Vampire Devices
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. 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 to install a programmable thermostat, which allows you to set your heat to a lower temperature during the day and keep a warmer ambient temperature in the evenings. Plus, for most people, setting a cooler temperature at night is often more comfortable.
Saving Money to Purchase a Home
If homeownership is your ultimate goal, saving money will be a top priority. The costs associated with renting a home make saving money for a down payment challenging. However, that’s not to say it is impossible.
First and foremost, make sure that homeownership 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 plan move cities soon, it doesn’t 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 homeownership 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.
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
For existing homeowners or those looking to upgrade or downsize, there are some money-saving (and money-making) opportunities. For instance, you’ll want to maximize your profits from the sale of your existing property. Conversely, you'll want to get the best deal possible on your new home. Plus, if you’re upgrading to a larger or more expensive property, ensure that you’re not spending more than you can afford.
Make Some Minor Home Improvements
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 of 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.
Consider a Roof Replacement
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.
Conduct an Energy Audit
One thing that does make sense before listing your home for sale is a home energy audit. A home energy audit conducted by a qualified technician who inspects your home for problem areas contributes towards 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. For example, properties that recently completed an energy audit or made a number of energy-efficient improvements improve the home value. Plus, homes furnished with ENERGY STAR appliances, such the following, reduce your costs over time.
- Water heater
Plus, these appliances improve your 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.
Check Tax Laws Annually
For the 2016 tax year, you can also take a deduction for mortgage insurance premiums, 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. However, please note important rules and restrictions regarding this home office deduction. For example, the rule requires that space remains solely used and exclusively for managing your business or conducting work. Therefore, read the full requirements and ensure you meet them.
Stop Wasteful Spending
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 saved on energy costs means more money for your property. The savings helps maximize 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. Routine maintenance allows professionals to identify problems in the early stages. Spotting problems before early help reduce repair costs and prevent further damage.
Fixtures such as low-flow showerheads 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.
Change Ceiling Fans
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. However, they have no impact on the temperature of a room itself. Therefore, turn them off when the room is empty. Plus, ceiling fans work in the winter. For example, fans with a reverse mode (a clockwise rotation) circulates warm air back into the room. As a result, you'll gain more benefits from your heating system.
Add a Programmable Thermostat
A programmable thermostat is a helpful tool for homeowners as well as renters. Adjustable thermostats automatically program your home at different times of the day. For example, when no one is home, maintain a higher or lower temperature (relative to temperatures outside). 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. For example, some areas require flood insurance. Although your real estate agent was helpful, shop around. For example, they may receive a referral bonus based on personal relationships. Therefore, it’s worth comparing the rates and benefits of multiple companies.
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.
Escrow Insurance Premiums
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.
Bundle Insurance Products
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.”
Add Safety Detectors
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. Some companies, such as Esurance, offer increasing discounts for each year you remain claim-free.
Homeownership 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. Plus, take steps to reduce your ongoing costs of ownership. Minimizing costs, plus taking top-notch care of your home ensures it becomes a valuable (and appreciating) asset.
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