Can A Homestead Exemption Lower Your Mortgage?

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Published on October 16, 2020

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Can a Homestead Exemption Lower Your Mortgage?

Buying a home is a milestone for most people, but even when you can pretty much afford it, wouldn’t it be great to be able to save money from your mortgage? One way to do that is through a homestead exemption. Many people are still not aware of this claim, so let us guide you with this article.

But let’s answer your question right away.  Can a Homestead Exemption lower your mortgage?  YES!  Please read on for more details.

First, What is a Homestead Exemption?

A homestead exemption is a legal provision that protects your property against creditors and reduces the taxes you have to pay for your primary residence. 

 For example, if your house is worth $200,000 and you qualify for a homestead exemption of up to $20,000, only $180,000 is subject to taxes. That translates to lower monthly mortgage payments.

 Most states provide a homestead exemption and how it works varies from state to state.

How Much Does Homestead Save You?

A homestead exemption can save you hundreds of dollars in taxes every year, depending on the rules of your state. Some states provide a fixed dollar amount while others calculate it as a percentage of the home value.

 You can compute your property taxes using this calculator. For example, if your house in Louisiana has an assessed value of $250,000, your annual tax is $1,925. You can apply for up to $75,000 in homestead exemption, which reduces the taxable home value to $175,000 with an annual tax of $1,348. You save $577 in taxes every year.

Who Qualifies for a Homestead Exemption?

You can apply for a homestead exemption for your principal residence, of which you have the primary responsibility for the mortgage. Some states restrict the claim for free-standing homes only, while in others, you can also claim for a condominium or a mobile home too. You don’t need to own the land of the condo or mobile home to qualify. A homestead exemption doesn’t apply to a rental property or vacation home.

 In some states, all homeowners can claim an exemption, but in others, it’s limited to the disabled, veterans, and senior citizens. Depending on which group you belong to, you may have lower or higher homestead exemption than what others get.

 Likewise, you should be living in the house since January 1 of the tax year you’re applying for. It should be your only primary residence—you can’t apply for another homestead exemption in other states.

How can I Apply for a Homestead Exemption?

The exact application process differs per state, but in general, you can file for a homestead exemption claim through the local tax authority, such as your county tax commissioner. Your state may also set a deadline for submission of the application. For example, you must apply by April 1 in Georgia to qualify for the exemption.

 Typically, you won’t pay anything for the application; you only have to submit all the paperwork.

What are the Requirements of a Homestead Exemption Application?

You need to provide documentation that proves your ownership of the property and that you still live there. They must indicate the permanent residence address. These include the following:

Property deed

Voter registration card

Passport

US military ID

Mortgage bill

Utility bills for the past six months

Tax bill

Federal or state tax return

Driver’s license

Government employee ID

Valid Social Security card

How Often Do I Need to File for a Homestead Exemption?

In general, you only have to file for a homestead exemption claim once, and it will roll over every year. However, the chief appraiser may require you to send a new application to update your details. You may also need to apply again when you move to a new home and change your primary residence. Likewise, you must inform your previous assessor that you no longer qualify for the exemption.

 How long does it take for homestead exemption to take effect? As mentioned, you need to own the house and live there since January 1 of the tax year you’re applying for. For instance, if you moved into the house in June 2019, you aren’t qualified for a homestead exemption until January 2020.

 You can file your application between January and April 30. Some states may allow you to file only from February until April 1. Once the application is approved, the reduction will reflect on your tax returns by fall.

How Homestead Exemptions Differ by State

Most states have homestead exemptions and some even provide protections for 100 percent of your home equity. States that don’t have homestead exemptions are New Jersey and Pennsylvania.

 Some states that provide the best homestead exemptions are Florida, Iowa, Kansas, Oklahoma, South Dakota, and Texas.

 Here’s how much homestead exemption you can benefit from the best states for property taxes:

1. Hawaii

It has a basic homestead exemption of $40,000. If you’re 60 years and above on or before December 31 preceding the tax year, you can qualify for higher exemptions:

  • 60 to 69 years old = $80,000
  • 70 years old and above = $100,000

 If you have a disability or Hansen’s disease, you may qualify for a $50,000 real property tax exemption. You can download the application forms here and follow the instructions carefully.

2. Alabama

If you own a single-family house and land that’s not more than 160 acres, you may be entitled to up to $4,000 homestead exemption. If you’re at least 65 years old, you have a permanent or total disability (regardless of age), or you’re blind (regardless of age), you may qualify for an unlimited homestead exemption. Fill out this form and send it to your county tax assessor’s office.

3. Louisiana

If you live here, you’re entitled to a maximum of $75,000 on the homestead exemption. You can find the form here.

4. South Carolina

You may be eligible for a $50,000 homestead exemption if you’re at least 65 years old, permanently or totally disabled, or legally blind. You are also entitled to such an exemption if you’re a surviving spouse of a qualified individual.

5. Utah

If you live here, you can benefit from an exemption of 45 percent of your house’s fair market value. Utah has a bit of different list of requirements, which includes the following:

  • You’ve lived in your house for at least 183 consecutive days
  • It applies to a maximum of one acre of land
  • You can also apply if you own an apartment, a mobile home, and a condo
  • A building under construction can also qualify even before completion provided that it’s intended to be used as a primary residence

Other Tips for Lowering Your Mortgage

Aside from homestead exemption, you can lower your mortgage dues through different strategies. Here are some tips:

Extend Your Loan Term

If you’re having problems with your cash flows, you can request an extension of your mortgage repayment, say from 15 years to 30 years. It will reduce your monthly amortization. However, you’ll end up paying more interest over time.

Refinance Your Mortgage

You can look for a new loan from another lender with lower interest rates and monthly repayments. If you have a good credit score, you’re likely to qualify and save money on your mortgage ultimately. Here’s a refinance calculator that can help you in computing how much you can save.

Pay a Large Down Payment

Try to pay at least a 20 percent down payment to keep your monthly dues low. You can also save money from paying private mortgage insurance.

Go for an Interest-only Mortgage

This means that you’ll pay for interests only during the first few years of your loan term. Then you’ll have to pay the principal over the remaining years. Again, in the long term, you will end up paying more interest on your mortgage but this is helpful if the initial payments are overly onerous especially if you are just starting out professionally.

Put a Portion of Your Home for Rent

 If you have an extra room or basement, you can put it up for rent. Then, you can use the rental fees you earn to pay the mortgage every month.

Eliminate Your PMI

If your down payment was less than 20 percent, you likely had to pay private mortgage insurance (PMI). To save hundreds to thousands of dollars added to your mortgage each year, you can drop your PMI. Once you’ve paid enough mortgage to gain 20 percent equity on your home, you can call your lender and request to drop your PMI.

Ask for a Tax Reassessment

Your county’s tax assessment of your home and land may be too high, especially during a housing crash. You can request for a reassessment to reflect any changes in your area, such as rezoning, that have resulted in declined property prices. When your taxes drop, your monthly mortgage repayments also decrease.

Conclusion

Many people aren’t aware of homestead exemptions and that they may be qualified, reducing their monthly mortgage repayments significantly. You can save hundreds of dollars from property taxes if you meet the requirements and submit your application by the deadline. Remember our guidelines above to get you started. Each state has different rules and processes, so it’s best to call your local tax authority for detailed information. Consult a tax professional as well for proper guidance.

 Are you thinking of ways to lower your mortgage? Or have you recently applied for a homestead exemption? How was your experience? Share it with us in the comments below!

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