7 Money Moves You Should Absolutely Make as a First-Year Homeowner
With all the time, money and work that goes into the process, buying your first home is a major achievement. As you get settled and enjoy your new property, it’s time to consider your expanded financial responsibilities, including your mortgage payment, maintenance and repairs and possibly some new utilities. You should also assess your other financial goals and take steps to protect your new investment.
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From saving for emergencies to minimizing interest charges, here are seven money moves you should absolutely make as a first-year homeowner.
1. Get Your Budget in Order
Having a mortgage payment makes budgeting properly even more crucial. You want to avoid falling behind and potentially getting a foreclosure notice from your lender. Plus, owning a home often comes with new expenses, such as lawn care and higher utility costs, which require tweaks to your budget.
Review your budget and update or add expenses to fit your new situation. Consider including an item for home maintenance costs, which Wells Fargo says can total at least 1% of your home’s purchase price annually. You should also compare your monthly income to your updated total monthly expenses to see if you need to make cuts or find new income sources.
2. Ensure a Healthy Emergency Fund
A broken appliance, damaged roof or plumbing emergency are just a few of the unexpected expenses you may face as a new homeowner. Plus, car repairs, illnesses and other problems could arise. Unless you have a warranty or insurance covering the issue, you’ll need sufficient cash to avoid turning to credit.
An emergency fund that covers a minimum of three to six months of monthly expenses is a must for homeowners. You can start with automatic transfers from your checking account each pay period or month. Consider using a money market or high-yield savings account for the funds since they’re flexible and usually earn competitive rates.
3. Save Toward Other Goals
You likely spent several thousands of dollars on upfront costs, including your down payment, closing costs and moving expenses. This can leave you with a drained savings account that you must replenish to prepare for other financial goals.
For example, you could upgrade your home, take a trip or get a new car. Plus, you must ensure you’re contributing enough toward your retirement. Consider creating separate savings accounts or savings buckets for each savings goal. You can then use automatic transfers to ensure you stay on track.
4. Consider Faster Mortgage Payoff Options
Especially with today’s high mortgage rates, paying your mortgage balance down early is beneficial so you can minimize your interest costs. You can start by making larger mortgage payments. Whenever you get a tax refund, inheritance or some other windfall, consider using that cash toward your mortgage payoff.
Whenever you pay extra, specify to your lender that the money should go toward the principal. If you’d like to see how much interest you could save in different scenarios, you can use an extra mortgage payments calculator, such as this one from Freddie Mac.
5. Manage Your Other Debts Wisely
Alongside paying down your mortgage, carefully manage your other debts to avoid hurting your credit, paying fees and losing money due to high interest rates. Make sure you pay everything on time, ideally by setting up automatic payments, and keep an eye on your account activity and balances.
Make paying extra toward your high-interest debts a priority. In a YouTube video, the financial expert Jaspreet Singh advised putting spare cash toward debts with a 12% or higher interest rate before even considering investing the money. At the same time, you should avoid accruing additional debts.
6. Seek Tax Deductions for Homeowners
Although you can’t currently get a first-time homebuyer tax credit, the IRS lists several federal tax deductions that can reduce your taxable income. Some examples include deductions for mortgage interest and discount points, property taxes and mortgage insurance. If you’re self-employed, the home office deduction is another option.
Note that most homeowner tax deductions require itemizing, so you might do better financially by just taking the standard deduction. You can meet with a tax professional to learn which deductions apply to you and how much you could save on taxes.
7. Think About Estate Planning
Now that you have a major asset, you should think about what would happen with it if you were to pass away. This requires considering your family’s financial needs and your desires about passing the property down.
One important decision is whether to get life insurance or update your policy. A sufficient benefit amount to cover your mortgage and other expenses would give your survivors peace of mind. Additionally, consider creating a will that specifies who should get your assets and how you’d like your estate to be handled. Meet with financial and legal professionals for advice.
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