Buying a new home will change your life in many ways, so it’s important to be prepared for the financial changes it will bring. While your new home is an investment in your future, the financial choices you make will determine how well you protect that investment. You can use the following guide to help you make better decisions from the beginning, allowing you to get the most benefits from home ownership.
Start With a New Budget
If you have never had a household budget, this is the ideal time to get started with one. If you do usually follow a budget, you should still create a new one. This is because owning a house involves different financial obligations than those involved in renting an apartment.
While your mortgage payment will probably be lower than the amount you paid for rent, you’ll have other financial obligations to consider. These hidden costs of home ownership include homeowner’s insurance premiums, property taxes, and utilities that were previously paid by your landlord. Be sure to factor in these payments in creating your new budget.
Be Prepared to Refinance
As soon as you take possession of your home, you should start planning to refinance your mortgage. While you may need to build some equity in the home first, you should still prepare for this eventuality by maintaining good credit, keeping up with mortgage payments, and watching the lending industry’s rates of interest.
Unless you were able to obtain favorable loan terms through a special program, such as CalVet loans, there’s always the chance to get a better deal. When you can save up to 2% on your interest rate, you’ll be significantly reducing the amount of your loan payments that go towards interest. This means you’ll build more equity in your home sooner.
Review Your Insurance Coverage
There are several different ways you can use insurance to your advantage once you begin the path to home ownership. You should review your homeowner’s policy yearly to adjust for any changes in your life that require changes in your coverage. For example, if you buy a speedboat that you store in your garage during the winter, you’ll want to ensure it’s covered in case of damages or theft.
Additionally, this is the time to start a life insurance policy. Once you pay into the policy long enough, you’ll build up a cash value that you can borrow against to cover household emergencies. Alternatively, you can surrender the policy for its cash value once it reaches maturity, which is what many homeowners do to pay off their mortgages early.
Part 1 of Saving For Your Future
As you reorganize your budget, you should dedicate a minimum of 10% of your income towards savings in each pay period. Half of this money should be stored in a high-interest savings account or a money market account. This fund is important because it will help you cover household emergencies, such as broken water heaters and roof replacements. You can also use this fund to finance family vacations and big ticket purchases, such as a new TV or computer. In doing so, you’ll reduce your need for credit cards.
Part 2 of Saving For Your Future
The second half of your savings should be dedicated to an IRA or Roth IRA account. Additionally, you should join the 401k program your employer offers as soon as your eligible. In joining a 401k plan, contribute up to the maximum that your employer will match to ensure you’re getting as much as you can for your retirement.
If you leave that employer, you can roll those funds over into your IRA. As you work with an investment advisor, you can create an aggressive investment plan that will help you grow the wealth you’ll need for your retirement.
The tips offered here will help you prepare for most household emergencies you’ll face throughout the years. Additionally, you can use these suggestions to help you develop a better strategy for protecting your future and your family. This means you’ll leave behind a home for your spouse or children, so they will have a foundation for building their own future.
