How can you protect your first home investment? Despite the relief of finally being there after all the work of looking for and buying the property, the work of financial planning and budgeting does not stop once you receive the keys to your new home.
Of course, all the work you’ve already done should be helpful. You had to determine how much home you could afford, gather home for a down payment, and apply an application for a loan. This process might be painful and demanding. 75% of home buyers compared getting a mortgage to going to the dentist or getting a physical, according to a FREEandCLEAR survey.
Continue reading to find out what you should do to keep the momentum, secure this crucial stage in your financial life, and lay a solid foundation for the future.
Contents
POINTS TO NOTE
- New financial planning and budgeting tasks become necessary once you buy a home.
- Set up a spending plan that accounts for all of your ongoing home expenses.
- It’s smart to set aside sufficient extra cash for maintenance and improvement.
- Think about getting life and disability insurance in addition to homeowner’s insurance.
- Do not, however, forget to save for other long-term objectives, such as retirement.
Examine Your Budget
It can be intimidating to consider creating a homeowner-oriented financial plan after you’ve just gone through the buying process, but it’s a necessary step you can’t afford to skip, according to agent Elizabeth H. O’Neill of Warburg Realty in New York City.
O’Neill asserted that creating a budget will be beneficial. Your budget should completely account for all expenses related to home ownership. Your mortgage payment falls under this category, along with any increases in costs brought on by rising utility prices, homeowner’s association or condo dues, and maintenance or repair costs. If you recently made the switch from renting to owning, the latter two are important factors to take into account. If you’ve never owned a home before, having to pay out of pocket to fix a leaky toilet or replace a broken window can be a wake-up call.
If you include landscaping, housekeeping, and minor repairs in the cost of maintenance and upkeep, it could cost you anywhere from 1 to 4 percent of the sale price.
However, that sum doesn’t cover bigger costs you might incur as a homeowner, like having to replace your HVAC system or a roof, which could cost tens of thousands of dollars.
According to Tad Hill, founder and president of Freedom Financial Group in Birmingham, Alabama, first-time buyers should set a separate homeownership savings account to cover for more expensive repairs. The price range for these services is wide, so he advised budgeting for at least $5,000 to $10,000 in cash to have on hand in case of emergencies.
Budget for Improvements
If you intend to renovate your kitchen or update the bathrooms, you’ll also need to leave space in your budget for money to be set aside for upgrades. According to the most recent U.S. Houzz & Home Annual Renovation Trends survey, homeowners invested a median of $15,000 in renovations in 2020. About one in three of the homeowners who participated in the survey said they would use credit to pay for the projects. Although more than 80% of those surveyed did so, paying in cash might be a better financial decision.
You should put paying off any existing debt you have in front of avoiding taking on any new debt. You may be able to put more money toward your home savings fund and have more breathing room in your budget if you stop making payments on credit cards, student loans, or car loans.
In order to help you cover any unforeseen costs for repairs or renovations, it may be helpful if you are a first-time buyer to set aside money in a savings account and add to it on a regular basis.
Update Your Insurance
As a first-time buyer, you obviously need homeowner’s insurance, but you might also require other insurances, starting with life insurance. Kyle Whipple, a financial advisor at C. Curtis Financial Group in Livonia, Michigan, compared life insurance to a self-executing plan. The purpose of insurance is to lower risk, and if you pass away, “it’s nice to know that proceeds, which are tax-free, can help pay off a mortgage,” If you’re married and don’t want to leave your spouse in debt, that is essential. If you have a family, life insurance may also be able to assist in providing cash flow to cover regular expenses or cover your children’s college costs.
According to O’Neill, when purchasing or revising a life insurance policy, you should make sure that you have at least enough coverage to pay off your mortgage and cover living expenses for your family for the first few years after your passing. A policy you might have is deciding between term and permanent life insurance.
Consider a 0% APR credit card balance transfer offer or refinancing student loans if you’re finding it difficult to pay down debt due to high interest rates.
Term Life
Since you are only covered for a certain term of time, term life insurance is the least expensive choice. If you’re a first-time buyer and require coverage only while you have a mortgage, this kind of policy may make sense.
Life Forever
Whole or universal life insurance is permanent and can provide cash value accumulation, but it can be significantly more expensive. Whipple advises speaking with a licensed insurance agent or broker about your options if you’re unsure of which to buy.
Disability
An additional factor to think about is disability insurance. In the United States, 26% of adults have a physical or mental impairment, according to the Centers for Disease Control (CDC).
It might be difficult for you to make your mortgage payments if an injury prevents you from working temporarily or if a serious illness necessitates a lengthy leave of absence. In those situations, short- and long-term disability insurance can aid in your financial security.
To help with repair costs, particularly if you have an older home, Whipple advised that you might also want to look into insurance policies or home warranties. O’Neill advised investigating the possibility of receiving a discount by combining your homeowner’s insurance and other insurance policies.
Discrimination in mortgage lending is prohibited.
There are legal remedies available to you if you believe you have been subjected to discrimination on the basis of your race, religion, sex, gender, marital status, use of public assistance, national origin, disability, or age. Making a report to the U.S. Department of Housing and Urban Development or the Consumer Financial Protection Bureau is one such action (HUD).
Review Your Retirement Plan
It’s crucial to keep in mind your other financial objectives if your budget changes and expands after purchasing a home. That also applies to retirement planning. 64 percent of Americans are on track to retire broke, according to a report by GOBankingRates, and you don’t want to be one of them.
If you have a 401(k) or similar retirement account at work, you should check your contribution rate to the plan. Compare that to your recently revised budget to make sure the amount is manageable and see if there is room to raise it. Consider using a traditional or Roth IRA instead of a 401(k) if you don’t have access to one.
Your list of objectives may also include setting aside money for your children’s college accounts and saving an emergency fund for non-housing-related expenses.
What Do I Do Next After Buying a House?
Make sure to keep replacing to your retirement accounts after you buy your first home and set aside money for any unforeseen household expenses, such as replacing a broken dishwasher or a window.
How Will My Budget Change Once I Buy a House?
The majority of people borrow money to purchase a home, and these payments are typically made on a monthly basis along with homeowners insurance, other costs, and any additional fees for condo purchases or homeowners associations (HOA). Your new homeowner budget should take all of these costs into account.
How Much Should I Save as a New Homeowner?
Many financial experts advise first-time homebuyers to aim to put at least six to twelve months’ worth of expenses in a liquid savings account for emergency situations.
The Bottom Line
Although buying a home brings with it new financial obligations, with the right preparation, you can keep becoming overburdened. Even if you’re getting a late start, it’s crucial to make planning a priority. Ideally, financial preparation should start before you ever buy a home. “Creating a budget is a good idea, but sometimes that starts with tracking where your money is going so you know how much to budget,” said Whipple.
When saving money after purchasing a home, you should pay closer attention to your spending if you’re having trouble doing so.
