A house is one of the biggest assets that many people will ever own, and this is reflected in the large degree to which homeowners have a bigger net worth than renters: homeowners’ median net worth is at $255,000 compared to renters’ at $6,300. In fact, the house itself can become a substantial portion of your net worth as your equity in the property grows due to regular monthly payments and any increases in the property’s value. Owning your own home in Texas is a powerful way to increase your assets and give you and your family a stronger financial foundation.
While it’s one thing to know that a home can be an incredibly valuable investment, it’s another thing to know specifically how it helps strengthen your financial situation and what you can do to make homeownership even more advantageous. Here, we’ll cover some key benefits you can experience from owning a home, how your mortgage payments and property tax bills work behind the scenes, and some steps you can take to save money and grow your net worth.
4 Benefits of Homeownership in Texas
A house is more than just a home; it’s a valuable long-term investment that can increase your financial stability, peace of mind, and net worth. Consider these four major advantages of owning your own home:
1. Build Equity and Financial Stability
When you pay your mortgage monthly, part of that payment goes toward your mortgage loan principal—the amount you borrowed from your lender. As you pay down that amount, you own that corresponding equity in your property until you own the property outright. Throughout the 15- or 30-year term of your mortgage, you build more and more property equity, which can be a powerful tool for overall financial stability. As you increase your equity in the house, you can:
- Remove private mortgage insurance (PMI), an obligatory type of insurance you must pay if you put less than 20% down on the property.
- Refinance your home and pull out some of that equity if you lose your job or face financial hardship.
- Have a home equity line of credit (HELOC) for repairs or other emergencies.
These options help provide a financial buffer to manage bills and monthly costs with greater flexibility and less stress.
2. Increase Financial and Emotional Security for Your Family
As a renter, there is always some stress about paying rent on time, especially in today’s rental market, which sees sudden upswings in rental prices. While homeowners also face a monthly mortgage payment, this amount is much more predictable and less likely to see sudden upswings.
Related: Beyond Homestead Exemption: Lesser-Known Tax Exemptions in Texas
Also, the relative permanence of homeownership can help provide emotional stability for your family. Your children will attend the same schools year after year, you’ll come home to the same neighborhood and often have the same neighbors for years at a time, and you have a familiar home to return to that is under your control, not a landlord’s.
3. See Your Home’s Value Increase Over Time
Property values don’t stay stagnant—far from it. In fact, the average Texas home has increased in value by 125.74% over the past ten years. This means that if you bought a $200,000 home in 2013, it’d be worth $451,480 today. If you buy that home today and that appreciation rate stays constant, it would be worth $1,019,170.95 in 2033. While there’s no way to predict the exact numbers and values of the future, homes across most of the state are on a strong upward trajectory.
4. Homeownership Costs Are Cheaper Than You Might Think
The median home price in Texas is currently $316,400. At today’s interest rates of approximately 7.38% and a standard 20% down payment, the monthly mortgage is $2,023. This is a relatively fixed cost, though that bill’s property tax and house insurance portions may fluctuate. However, along with being able to anticipate your housing costs for years into the future, you can also see significant cost savings through these opportunities for homeowners:
- Mortgage interest deductions: If you itemize your federal taxes, you can deduct your home mortgage interest payments. You may also be able to deduct the interest on your HELOC payments.
- Mortgage points: If you purchase ‘mortgage points’ while buying a home (which allows you to access lower interest rates), then you can deduct those point costs across the life of your loan because they’re characterized as mortgage interest.
- Property tax savings: There are three popular ways to save money on property taxes. The first is through exemptions. Most homeowners who use their home as a primary residence are eligible for a homestead exemption, which removes $40,000 of their home’s value from school district tax calculations. Recently passed legislation that will be voted on in November would raise that exemption to $100,000. The second method is by protesting their property taxes. This option helps you ensure your property value is fairly assessed and that you aren’t overpaying taxes. The third method is writing off property taxes on your income return.
All in all, owning a home offers several benefits, from financial stability and peace of mind to control over a long-term investment that’s likely to appreciate over time.
5 Things All Homeowners Should Know to Protect Their Investment
But getting your money’s worth out of your home isn’t as simple as buying your home and living in it until you’re ready to move. Instead, there are several different things you need to know and keep track of so you can both leverage your home and minimize the costs of homeownership. These are the top five questions all homeowners should have answers to:
1. How do mortgage payments work?
When you pay your mortgage, you most likely have an escrow account through your lender. This account will hold part of the funds you pay on your monthly mortgage bill to pay property taxes and home insurance in an annual sum. Your monthly mortgage payment is broken into four or five parts:
- The principal on your loan
- The interest on your loan
- Approximately 1/12 of your annual home insurance premium
- Approximately 1/12 of your lender’s estimate for your annual property tax bill
- Your monthly HOA payment (though it’s common for this to be paid separately instead of through your mortgage)
Your lender will hold the monthly portions of your home insurance and property taxes in your escrow account and then transfer the funds when the money is due.
2. How do property taxes work?
In the spring, your local appraisal district will assess the value of your home. They will send you a Notice of Appraised Value if your home’s value increases, and you can review the amount and file a protest form if you believe the amount is inaccurate.
Once the appraisal district hears all protests and finalizes the property values for all the taxable properties in their jurisdiction, the records are sent to the county tax authorities. There, officials calculate your effective tax rate based on the area’s budget, any exemptions that apply to your property, and your property’s value. In the fall, you receive a final property tax bill. Payment is due in January—but if you have an escrow account, your lender handles the actual money transfer.
3. When can you get your homestead exemption—and when does it take effect?
If you bought a home and it’s your primary residence, you can file for a form of tax relief called a homestead exemption. This shelters $40,000 of your home’s value from school district taxes; in Texas, the tax rate can hover above 1%, automatically saving you around $400 yearly.
A homestead exemption also caps your property’s value increase at 10% so that you won’t see steep, unpredictable increases in valuation and your tax bill each year. The recently passed Senate Bill 2, which will be voted on in November, will increase the homestead exemption to $100,000 and cap the value increase of non-homestead properties at 20%, along with other property tax relief measures.
Related: What Taxes Do Homeowners Pay in Texas?
It’s important to file this exemption as soon as possible. The benefits won’t kick in until after your first full year of homeownership, but having your exemption in place early on can simplify the process and give you peace of mind.
4. What can you do if you believe your property taxes are too high?
Many Texans faced a worrisome surge in property value in 2022. It’s important to note that while your home’s market value plays a role in determining its value for property tax calculations, the two numbers are different. Having a low property value for tax purposes can reduce your property tax bill without hurting your home’s value on the market. But when Texas saw a 20% increase in property values in 2022, many homeowners who had purchased recently faced incredibly high tax bills that were a struggle to pay.
If you think your property’s valuation is too high, you or a representative can file a protest form. During this process, you present a counter-valuation and extensive evidence to support your argument. This process occurs in the spring when property valuations are being decided, not in the fall when property tax bills come out.
5. How does your property value affect your property taxes?
Property taxes are calculated based on your region’s city and county tax rates and your home’s value. Your property tax bill will generally have four main levy categories: city taxes, county taxes, school district taxes, and junior/community college taxes.
These levies combine to form an average effective tax rate of 1.60%. If your home is valued at the median value of $316,400, your tax bill will be approximately $5,962.40. But if you protest your home’s valuation and reduce it to $290,000, it becomes $4,640. That’s a savings of $422.40 (on top of the approximate $400 savings for filing your homestead exemption. If the recent legislation passes through the November vote, those homestead exemption savings could reach $1,000.)
Enjoy the Perks of Homeownership With Help From Home Tax Shield
Buying a home can change your and your family’s financial trajectory. But being an informed homeowner can result in even more savings and financial stability. At Home Tax Shield, we help keep Texan homeowners informed about changes in property tax processes and opportunities to fight for fair property tax bills. Our team is also here to help manage the property tax protest process on your behalf. We can assess your home’s value, file the paperwork to protest your property value, and present evidence to the county appraiser and review board. Sign up today to use every opportunity to save money on your home.