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Home Finance 101

Mortgage Payments

Mortgages undoubtedly constitute the biggest component of the total cost of owning a home. A mortgage is nothing more than a loan you take out to buy a home. This section covers the basics of how a mortgage works.

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Accumulating a Down Payment

Before setting out to purchase a home, you should determine how much you will plan to put down. This covers the advantages of down payments of at least 20% of the purchase price as well as PMI (Private Mortgage Insurance).

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Closing Costs

On the day when a home becomes officially yours, you will have to pay fees for the services of several parties. In a typical real estate deal, closing costs total 2 to 5 percent of the purchase price of the property. This section outlines them in detail.

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Homeowner's Insurance

Homeowner's insurance is mandatory. When you purchase a home, your mortgage lender won't allow you to close the purchase until you've demonstrated that you have proper homeowner's insurance.

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PMI/Mortgage Insurance

Almost all lenders today require you to purchase private mortgage insurance (PMI) if you put down less than 20 percent of the purchase price when you buy. PMI typically adds several hundred dollars annually to the cost of your loan.

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Property Taxes

When you buy and own a home, your local government sends you an annual, lump-sum bill for property taxes. Property taxes are typically based on the value of a property.

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Tax Benefits of Ownership

One of the treasures of homeownership is that the IRS and most state governments allow you to deduct, within certain limits, mortgage interest and property taxes when you file your annual income tax return.

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Tax Benefits of Selling

When you go to sell your home someday, the IRS allows you to deduct home improvement costs from your profits before paying taxes on them. To take advantage of this, it is in your interest to track the amount that you spend on improvements.

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Maintenance and Other Costs

Maintenance is difficult to budget for. You never know precisely when you may need to fix an electrical problem, patch a leaking roof, or replace the washer and dryer - until the problem rears its ugly head.

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