New Year, New Homestead Exemption
To some people a homestead exemption sounds like something used for farming, which likely doesn’t apply to you. In Texas, however, a Homestead Exemption means money in your pocket. With the new year finally upon us I want to break down the importance of this property tax exemption to Texas homeowners. And even if you don’t own a home, this might be great info to pass on to your friend, or family member.
What is a Homestead Exemption?
For starters, each state has varying degrees of homestead exemption. If you are located outside of Texas you will need to check with your states’ individual statutes.
In Texas, a homestead exemption protects your property from tax increases (by capping at a 10% increase per year), it protects against creditors (from filing 100% value liens on the property), and it reduces the property tax paid on the property (by reducing the taxable value by 20%).
Who qualifies for a Homestead Exemption?
All Texas homeowners whose primary residence is owned and occupied by the owner for that calendar year. For example, for a 2019 exemption you would need to occupy the home by January 1st, 2019.
In the other instance, if you purchased a home mid year 2018 and the home currently had a homestead exemption then the exemption will carry through the rest of 2018, independent of ownership change. But you will need to apply for a new homestead exemption starting the following year.
How am I saving money?
If you purchased a home for $100,000 and it is appraised at the value you paid, then your homestead exemption would decrease your taxes by the following:
(Appraised value – 20%) x tax rate in county = yearly taxes
20% of $100,000 value = $80,000 (taxable value) x 0.025 (tax rate in Harris county) = $2,000
In this example, the homestead exemption saves the homeowner $500 per year in taxes (taxes without the homestead exemption = $100,000 x 0.025 = $2500/year).
How can I apply?
In most Texas counties, the appraisal district in which the home is in will have a website with a homestead exemption form (usually under popular forms) available. You will need to submit the form along with a valid Driver’s License by April 30th of the tax year. Note, the address on the Driver’s License MUST match the home address.
As a bonus, Harris County Appraisal District in Houston, TX has an app to make the homestead application even easier! Talk with your local real estate professional to see what tools your local appraisal district has available!
And as always, if you have any questions or real estate needs reach out to me via my website or contact info. I am happy to help! Happy New Year!
Harris County Appraisal District Website: www.hcad.org
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The big debate: Renting vs. Buying
I feel like we (as realtors), always seem to encourage people to buy properties vs rent, and although that financial decision might be right for some, it is not a “one size fits all” theory. Here are some big topics of discussion regarding the debate of buying vs renting!
Property Taxes
Now this is some forbidden territory, how do you know your property tax rate? Well, the property tax rate will vary by area and by state. The best way to determine your tax rate is to look it up in the area that you are interested in purchasing a home. This will vary by state (Texas has property tax, Colorado has income tax, VERY different!) and by county. Once you have found the tax rate for an area, this might change the affordability of a home. Continue reading to better understand what I mean.
Monthly Payments
This is a very broad topic. Why? Because monthly mortgage payments have SO many variables. Besides the usual principal and interest, there are also property taxes, HOA dues (whoa, forgot about those!), home insurance, and private mortgage insurance. When you add those up, sometimes your little $1,800 apartment rent may seem cheap. Does that mean that you shouldn’t purchase a home? Absolutely not! It just means you need to run the numbers, make an educated decision on location/price/etc of the home, and then decide. Wondering how to calculate a monthly payment? Check out Zillow’s Mortgage calculator here.
One more thing, tax rules have changed and this affects all homeowners planning to write off their mortgage interest payments. Check out that article here.
Cash Down
Why is cash down in this category? Well, recently the stock market has been running crazy, like when your grand mother has had too much to drink at Thanksgiving. For the most part, educated investors can make a pretty penny on invested money in the stock market. How does that matter to real estate? Well, when you put 20% cash down on a house (probably like those around you recommended), you have tied up a large portion of cash in an “investment” aka your home. But is your money growing at the same rate as the stock market? Probably not with the type of year that we have had.
End point: To each his own.
I always encourage my clients to be educated on the home buying process BEFORE we start looking at homes. This includes, getting pre-approved, and calculating affordability. Zillow is a great tool for not only calculating monthly payments (once you know how much you want to spend on a home), but can also help you determine affordability. Find the tool here.
Lastly, contact a local experienced Realtor. He or she can help guide you through the process of potentially buying a home. Note: you should NOT feel obligated to buy a home if you feel you cannot currently afford one!
And as always, if you have questions, contact me! I am happy to help! Happy Friday all!!
