Tag: New Homeowners

Financial Tips After Buying Your First Home

How do you protect your investment in your first home? Despite the relief of finally being there after all the work of finding and buying the property, the financial planning and budgeting don’t stop once you collect the keys to your new home.

All the work you’ve already done should help the process. You had to determine how much home you can afford, pull together funds for a down payment and apply for a home loan. According to a survey by FREEandCLEAR, 75% of home buyers likened the mortgage-acquisition process to visiting the dentist or undergoing a physical exam.

Read our list of what you need to do next to keep the momentum going in securing this key stage in your financial life and building a firm foundation for your future.

Review Your Retirement Plan

Whipple says that, if your budget’s changing and increasing after buying a home, it’s important not to neglect your other financial goals. That includes saving for retirement. According to a report by GOBankingRates, 64% of Americans are on track to retire broke, and you don’t want to be one of them.

Check your contribution rate to your employer’s plan if you have a 401(k) or similar retirement account at work. Compare that with your newly updated budget to make sure that the amount is sustainable and determine if there’s room to increase it. If you don’t have access to a 401(k), consider substituting a traditional or Roth IRA.

Saving an emergency fund for non-housing related expenses and putting money into college accounts for your kids may also be on your list of goals. Hill says that new homeowners should be aiming to save at least six to 12 months’ worth of expenses in a liquid savings account for rainy days.

Whipple says that, if you’re struggling to make any progress toward saving after buying a home, you should take a closer look at your spending. “Making a budget is a great idea but sometimes that starts with tracking where your money is going so you know how much you actually need to budget.”

Revisit Your Budget

Agent Elizabeth H. O’Neill of Warburg Realty in New York City says it can be daunting to think about establishing a homeowner-oriented financial plan after you’ve just gone through the buying process, but it’s an essential step you can’t afford to skip.

“Sitting down and working out a budget will pay dividends,” O’Neill says, and your budget should thoroughly cover all the costs of owning a home. That includes your mortgage payment, as well as any increases in expenses associated with higher utility costs, homeowner’s association or condo fees, and maintenance or repairs.

The latter two are a significant consideration if you’ve recently made the transition from renting to owning. Having to fix a leaky toilet or replace a broken window out of pocket can come as a wake-up call if you’ve never owned before, O’Neill says.

According to a Bankrate survey, the average homeowner spends $2,000 per year on maintenance, including landscaping, housekeeping, and minor repairs. That amount, however, doesn’t cover larger expenses you may encounter as a homeowner, such as having to replace your HVAC system or roof, both of which can easily surpass $5,000.

Tad Hill, founder and president of Freedom Financial Group in Birmingham, Alabama, says that first-time buyers should set up a separate homeownership savings fund to cover bigger repairs. “The price range for these services is not small, so I’d suggest planning to keep at least $5,000 to $10,000 in cash so you have it available when something breaks.”

You’ll also need to leave room in your budget to set aside money for upgrades if you plan to overhaul your kitchen or update the bathrooms. Homeowners spent a median total of $15,000 on renovations in 2018, according to the latest U.S. Houzz & Home Annual Renovation Trends survey. Of the 142,259 respondents, 37% were likely to use credit cards to fund a renovation, but paying cash (as 83% did) can help you avoid high interest and finance charges.

In addition to avoiding new debt, you should also prioritize paying off any existing debt you have. Eliminating car loan, credit card or student loan payments can free up more cash that you can funnel into your home savings fund, and it can give you more breathing room in your budget. If you’re struggling to make progress with debt due to high interest rates, consider a 0% APR credit card balance transfer offer or refinancing student loans.

Update Your Insurance

As a first-time buyer, homeowner’s insurance is a must, but there may be other types of insurance you need as well, starting with life insurance.

“Life insurance is like a self-completing plan,” says Kyle Whipple, a financial advisor at C. Curtis Financial Group in Livonia, Mich. Insurance is used to reduce risk, and if you pass away, “it’s nice to know that proceeds, which are tax-free, can help pay off a mortgage.” That’s critical if you’re married and don’t want to leave your spouse burdened with debt. Life insurance can also be helpful in providing cash flow to cover monthly expenses or pay college costs for your children if you have a family.

O’Neill says that, when buying or updating a life insurance policy, you should ensure 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 you pass away. One question you may have is whether to choose a term or permanent life insurance policy.

Hill says that term life is the least expensive option since you’re only covered for a specific term. This type of policy can make sense if you’re a first-time buyer and you only need coverage while you still have a mortgage. Permanent life insurance, such as whole or universal life, lasts a lifetime and can offer cash value accumulation, but it can be much more costly. If you’re unsure of which to buy, Whipple suggests that you discuss your options with a licensed insurance broker or agent.

Disability insurance is something else to consider. According to the Centers for Disease Control (CDC) (CDC), 22% of adults in the U.S. have some type of physical or mental disability. If an injury keeps you out of work in the short-term or a serious illness requires an extended leave of absence, that could affect your ability to keep up with your mortgage payments. Short- and long-term disability insurance can help protect you financially in those types of scenarios.

Whipple says that you may also want to investigate insurance policies or home warranties to help with repair costs, especially if you have an older home. O’Neill recommends looking into whether you can get a discount by bundling homeowner’s insurance and other insurance policies together.

The Bottom Line

Buying a home creates new financial responsibilities, but with the right planning, you can keep from becoming overwhelmed. Ideally, preparing yourself financially begins before you ever buy a home, but even if you’re getting a late start, it’s important to make planning a priority.

 

Survival Guide for New Homeowners

If you’ve recently taken the home-buying plunge, our survival guide is a must-read that will help you avoid common pitfalls, budget your time and money, and glide smoothly into the joys of owning your own home.

We hope you’ll take away two essential things from this guide: an awareness of what you can expect in the first year of living in your new home, and some sound advice on being prepared for the most important aspects of being a new homeowner.

SET UP YOUR UTILITIES
You’ll need to get all utilities into your name, so make a list and work through it. Call the electric, phone, and gas companies. Contact the county for your sewer and water, if it supplies both. Does the town pick up garbage/recycling, or do you need to contract for that yourself? If you want Internet and broader TV service than an antenna will get you, research your options and start calling for the best bargain. With all the digital entertainment options available, you may decide to cut the cord on cable.

Get on Utility Provider Budget Plans
With so many new variables, the first year in a new house is usually challenging financially. Get on budget plans where you can. Many utility providers will estimate your use for the year, and then break your bills into 12 equal payments. This reduces fluctuations in your charges throughout the year, which can be helpful. Money can feel extra tight after the big move.

Triple-Check Your Billing Address
Make extra sure each service provider has your contact information recorded correctly—down to the last digit of your zip code. If you don’t receive bills due to some administrative error, you may come home to find your water turned off.

PREPPING THE HOUSE… OR NOT
Some work is more easily done before you get all your stuff in the house. If timing and budget allow, consider doing painting or floor refinishing before your move-in date. Do you need help with cleaning? If you want professional help with anything, bundle that into your move-in budget.

Don’t fret if there’s no money left for these things right away. Sometimes it’s better to live in a house awhile before deciding on paint colors, carpeting, or a new kitchen backsplash. A home is a work in progress, and it takes time to get the feel for a new place. Doing too much at once can be overwhelming and can kill the joy of the experience. Feel free to take a slow approach and live in your house as is for six months to a year or more. Who knows—you might just grow to love that vintage 1950s tile in the bathroom and use it as the inspiration for your interior design.

MORTGAGE AND INSURANCE LOGISTICS

Homeowner’s Insurance
If you have a mortgage, homeowner’s insurance was probably required for the loan. But it’s smart to reassess your insurance needs within the first six months of owning your home. You may discover you have too much (or too little) coverage. Once the dust has settled, take a critical look at your policy and solicit a second round of quotes from insurers.

Escrow
Most mortgage companies require your taxes and homeowner’s insurance to be escrowed, which means that the mortgage company totals those expenses, then charges you one-twelfth of the sum each month. (Some mortgage companies allow you to opt out of escrow, for a fee.) If you don’t have escrow, remember to budget for your tax and insurance expenses! If you do have escrow, take pains to make sure that the mortgage company is making all payments on your behalf in a timely manner; after all, it’s your house and your credit that are on the line. Also, double-check the accuracy of the estimate made by your lender’s escrow department. If there’s a shortfall, you can expect a bill for the difference at the end of the year. And if that estimate was way off, the bill you receive could be a real whopper.

GET ACQUAINTED WITH YOUR SYSTEMS

Equipment
If you have a lawn, you’ll need to purchase some lawn-care equipment or hire a landscaping service. Start researching lawn mowers and learn how to use a string trimmer. If you don’t have them already, acquire a rake, shovel, and some pruning tools, at the very least. If you decide to fertilize your lawn, you’ll want to purchase a spreader or hire someone for the job. Your new neighbors should have good references.

Service Checks
Plan to have a service check on your HVAC, hot water heater, fireplace, and/or chimney, and any major appliances that require it. Check any filters, and replace if necessary. In short, evaluate all of your home systems.

Labeling
Go through all the breakers in your electrical box and label them. Label the incoming and outgoing pipes, as well as the shut-off valves, for your water and sewer service. Taking a little bit of time now will make it much easier to diagnose and fix any problems that may arise in the future.

Utility Location
Before you start any new landscaping, call a utility location service to come mark where all your services are in the yard. You do NOT want to break a water main or cut off your electricity while you’re planting a tree or installing a fence. It’s worth making yourself a map to keep on file for reference in the future.

Yes, moving into your first home is a lot of work. But you’ll reap so many rewards—you’re building equity, lightening your tax load, and establishing roots in a community. With any luck, some of those new neighbors will become lifelong friends. Congrats, again, on your new home!

MOVING IN!

Pack
If you’re packing your own boxes, pack them room by room, and label them very clearly, so they can be taken immediately to the right place after being unloaded. Make some quick signs for each room that correspond to the box labels. If you organize your move effectively, with any luck, you’ll be able to park in the garage by the end of the week.

Unpack
Set manageable goals for yourself. You probably have several wonderful years, if not decades, to enjoy your new home, so you don’t need to finish unpacking in one day. Decide how many boxes you’ll unpack each day—one or two is completely acceptable—and stick to that number. If you’ve unpacked them and still have energy, turn your focus to another task, like hanging window treatments or shopping for drawer organizers.

Change the Locks
You can throw out the keys got at the closing—right after you change the locks! You have no idea who has copies of those keys, and it’s better to be safe than sorry. So, before you do anything else, call a locksmith or do it yourself—just do it.

Set Up the Move
Will you hire someone or do it yourself? If you’re hiring movers, get as many references as you can and at least three quotes. Make sure anyone you consider has insurance. If you’re doing it yourself, reserve your truck. Get one that’s slightly bigger—and reserve it for slightly longer—than you think you’ll need. That’s one place you can reduce stress.