We hear it all the time from renters; “Home Ownership is Expensive.” Many borrowers express concern about actually owning a home as opposed to the purchase process. What happens once you move in? How do you make sure you’re financially prepared? Here are some budgeting and finance tips to help you as you transition into home ownership.
Get a Home Warranty
Home insurance will cover many unforeseen issues with your home and can help a lot financially. However, there are limitations. Some incidents are not covered by home insurance. When you purchase a home insurance policy, you should ask your insurance agent to review your policy with you in depth and explain what is covered and what isn’t. The incidents that are not covered can vary from policy to policy but typically exclude issues with your appliances or plumbing, as well as issues that arise from normal wear and tear and home aging.
A home warranty can help you protect your budget by covering things that are not covered under your home insurance. Many home warranties cover your appliances, interior plumbing, and more. Warranties generally last for 3, 5, or 10 years and can be purchased for your home at closing or after closing. Some buyers request that the seller include a home warranty as an incentive. A home warranty requires research, but can be a great option for many that wish to avoid costly repair expenses.
Consider a Condo
Condos and townhomes can be a great alternative to single family homes for the budget conscious buyer. They generally have lower taxes and insurance, and many of them cost less than standalone homes. This can help you get a lower mortgage payment.
Additionally, because the outside is generally owned and maintained by the home owners association, your costs for certain things are greatly reduced.
However, many condos and townhomes come with HOA dues, which can range from $50 to several hundred each month. As you are shopping, you will want to be cognizant of dues and only look at units with an HOA within your budget.
Shop or Eliminate Your Other Expenses
One of the most important parts of home ownership is managing your other expenses. When you own a home, you will often need to hire a trash service, pay separate utilities, and pay for an internet and/or TV service. Once you are under contract, it is wise to inform yourself of these expenses and make sure you understand how much they will be.
You can manage your expenses by shopping your services or eliminating the things you don’t really need. For example, you may choose to reduce your internet and TV bill by eliminating TV and only keeping internet. Perhaps you have a gym membership you don’t use and can cancel. Perhaps changing your phone carrier would allow you to have a lower bill.
You may also choose to do a balance transfer from a high interest credit card to a low interest credit card, to reduce your monthly payment. NOTE: If you plan to consolidate debt or transfer balances, you should only initiate this after you have closed on your home loan.
Oftentimes, your car insurance cost will change if your new home is in a different zip code. Be sure to discuss this with your insurance agent. Many times, your premium will go down, but if it increases, this is a good chance to discuss with your agent and see what additional discounts or savings you are eligible for. If your cost is too high and there is nothing they can do, you may choose to shop for another insurance and see if you can get a lower price.
Pay Extra
When you can, it’s a good idea to pay a little extra on your mortgage. The additional payment reduces your principal little by little, which can take reduce your mortgage payment length by months or years, and saves you a lot of money in interest. Additionally, as you pay down the principal balance, your equity is increased which is helpful should you need to take out a HELOC or a cash out refinance later.
We know that home ownership can be intimidating, especially if you have never done it before. However, there are many things you can do to manage your budget and expenses.
Feeling more confident about your ability to purchase a home?