For most Americans, real estate is the largest financial asset they own. But it’s not without risk.
Moreover, homeownership, subsidized by tax policy, can be an inefficient and regressive means of wealth-building for households.
As a result, homeowners have incentives that do not align with larger community needs. To address these challenges, the CFPB launched new tools and resources to support families’ housing stability and economic opportunity.
- Homeowners Insurance
Homeowner’s insurance protects a homeowner’s home and personal belongings from a variety of perils. It is often a requirement to get a mortgage, and it can provide the primary source of funds needed to rebuild in the event of a total loss. Just as important as home warranty coverage, homeowners need to be sure what kind of policy they need to protect their home.
However, many homeowners are finding it increasingly difficult to afford their coverage. Rising premiums are caused by a number of factors, including inflation, higher labor and materials costs to rebuild and severe weather.
Additionally, climate change is increasing the frequency of natural disasters, like wildfires and flooding. As such, insurers must factor this risk into policy pricing, and the result is higher rates for those in high-risk areas. Consumers can try to mitigate these increased prices by purchasing homes constructed from less flammable materials.
- Mortgage Interest Deduction
The mortgage interest deduction allows homeowners who itemize their taxes to deduct the interest paid on a primary or secondary home’s loan. This is a major benefit for many homeowners, but it’s important to understand the implications of this tax break and which mortgage costs are eligible.
Costing at least $70 billion a year, the existing mortgage interest deduction benefits high-income households to a much greater degree than low- and moderate-income ones. It also benefits white households, which are more likely to purchase homes.
To help remedy these issues, some proposals call for converting the MID into a credit that would benefit all homeowners whether or not they itemize. This approach, along with limiting other itemized deductions, would trim subsidies for higher-income households while modestly expanding them for those at lower income levels.
- Home Equity Line of Credit
A home equity line of credit, or HELOC, is a revolving loan that uses your home as collateral. It gives you access to a sum of money for expenses like a remodel, debt consolidation or emergency cash. It also offers a lower interest rate than credit cards
and may be tax deductible.
Many homeowners have built up substantial equity in their homes over the years, allowing them to tap into this asset for major expenses. But they shouldn’t overlook the potential pitfalls.
- Home Equity Loans
Home equity loans allow homeowners to tap into their equity, which is the difference between the market value of their home and their mortgage or liens. They can be used for a variety of purposes, including home improvement projects, debt consolidation, or making large purchases. They typically offer lower interest rates than other forms of financing, and the interest may be tax deductible if used for home improvements.
To qualify for a home equity loan, you need to have built up sufficient equity in your property and have a good credit score. Before you apply, make sure to shop around for the best home equity rates. Some lenders have different eligibility criteria, and your credit score is a big factor in determining which lender offers the lowest home equity rate.
- Homeowners Associations
A homeowners association is a group of property owners that maintains an urban, suburban or rural community and may have rules covering architecture, landscaping, exterior maintenance, parking and street use. HOAs are often incorporated as non-profit corporations. They are found in many condominiums, co-ops and neighborhood developments.
Residents pay monthly fees to fund the HOA, which often viewster has a cash reserve for maintenance. The association can also demand special one time assessments to cover major expenses.
Data show that people in communities viewster with HOAs see greater gains in home values than those without them. However, some homeowners feel that HOAs restrict their freedom and increase costs.