Lesser-Known Real Estate Laws to Consider When Buying a Home
Buying a home is a huge financial decision. It’s often wrapped up and sold as part of the American Dream, but deciding whether to rent or buy really depends on your situation. The upfront expenses could be a wealth killer for you, or you might be financially ready to go for it and put some roots down. No judgment either way (you do you), but if you are buying a home, reading up on some lesser-known real estate details is probably a good idea.
When house hunting, the focus is usually on your down payment, getting preapproved for a mortgage, and finding a home you love. All of that stuff is definitely important, but so is understanding certain real estate laws, restrictions and tax breaks. It could save you some serious cash in the long run. Let’s dive into the details.
Buying a Historic Property? You Might be Eligible for Tax Breaks
Thanks to something called the Mills Act, buyers who purchase certain historical properties can snag significant property tax savings. The deal goes like this: local governments extend contracts to owners of qualified historic properties who agree to restore and maintain the residence. This includes the home’s historical and architectural character. In exchange, those homeowners may be eligible for property tax relief. Cities and counties do this to preserve historical neighborhoods.
Mills Act contracts initially last 10 years. Automatic yearly extensions kick in after that. If the homeowner sells the property, the contract will carry over to the new owner. It can be a nice perk if you qualify and plan on making improvements. If you buy a home that’s under a Mills Act contract, be sure to contact your local government and clarify your rights and obligations. Even if your town doesn’t participate in the program, there may be other benefits up for grabs. In Florida, for example, certain homeowners can get a tax exemption after rehabbing a qualified historic property.
What to Know About Buying on Native American-Owned Land
Some residential homes are built on lands that belong to Native American tribes. Folks looking to buy a home on this property need to figure out if it’s:
Fee simple land: You’re buying the home and the land it exists on.
Lease land: You’re leasing the land and making monthly payments to the Bureau of Indian Affairs.
Homes on lease land typically cost 15% to 30% less, which is no small thing. If you want to get technical, you’re basically buying just the home — not the land it sits on. Property taxes also tend to be on the lower side because the land itself isn’t included in the valuation. One downside is that mortgage lenders may be less eager to approve a home loan on lease land. According to real estate experts, a common requirement is to have a lease term that lasts at least five years longer than the mortgage term. So if you’re seeking a 30-year mortgage, your lease term would need to be at least 35 years.
See if a Homestead Exemption is on the Table
Most states offer a homestead exemption, which can help minimize your property tax bill. But every state is different and has its own requirements. Understanding what they are — and if you qualify — is key. Your real estate agent may be able to clue you in. You can also just Google how the homestead exemption works in your state.
Let’s look at Georgia as an example. If you’ve owned a home there as of January 1 of the taxable year, and it’s your primary residence and you occupy the home, you’ll be eligible for the exemption. (Homeowners who are away from their home due to health issues are eligible too.)
The standard deal is a $2,000 exemption from county and school taxes, with certain exclusions. Tennessee is even more generous, offering a $5,000 homestead exemption. The homestead exemption doesn’t just keep your property taxes in check. It can also protect some or all of your home equity if you file for bankruptcy.
Familiarize Yourself with Other Key Homebuying Concepts
Before you start going to open houses, you might want to give yourself a quick crash course on homebuying. Our handy roundup of important terms for newbies is a good place to start. It gets into nitty-gritty stuff like:
Getting preapproved for a mortgage
Different types of home loans
The importance of your credit score
Down payment into
How mortgage insurance, homeowners insurance, and title insurance work
What goes down during a home inspection
What escrow even means
Closing costs
Property taxes
If you decide that you’re financially ready, buying a home could be a great investment — but not always, so be sure to do your homework first. As always, we’re here to answer your questions and walk you through the details if you need a hand.