Yahoo Finance How To Survive Financially in Your First Year of Homeownership
The road to homeownership has been quite arduous lately. Soaring mortgage rates, high prices and low inventory — partly due to the “lock-in” effect of owners not wanting to sell and let go of lower rates they secured a few years back — have left many Americans on the sidelines.
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While demand is increasing, the 30-year fixed-rate mortgage surpassed 7% on April 18 and many would-be buyers continue to be priced out of the market, according to Freddie Mac.
Americans who have purchased their first homes in this environment have reason to celebrate. But experts warn that several steps must be taken to survive the first year of homeownership and not be crushed by unexpected financial costs.
“Navigating the first year of homeownership can be both exhilarating and daunting, with financial management being key to maintaining stability,” said Michael Hills, CFS, and financial advisor at Apex Wealth.
Hills said first-time homeowners need to create and adhere to comprehensive budgets that account for property taxes, home insurance and utilities, which tend to be higher than most renters anticipate.
“Additionally, setting aside funds for maintenance and repairs is crucial,” Hills said, “as unexpected issues can arise and need immediate attention.”
Many First-Time Homeowners Are Not Prepared
Austin Kilgore, an analyst with Achieve, said many new owners are not prepared for the full amount of monthly payments, with many of them surprised to see just how much home insurance and property taxes can be.
“Ideally, prospective buyers would have checked and compared prices on insurance and researched expected property taxes by checking similar homes at the county assessor’s website,” he said. “But many people do not do this and are not prepared for the monthly payments they must make.”
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Private mortgage insurance is also required by lenders if the down payment you made was less than 20% of the purchase price.
“This is added to the monthly payment,” Kilgore said. “Again, many new homeowners do not realize the amount this can be. PMI typically is 0.5% to 1.5% of the amount of the mortgage, but [it] can also be more.
“So if you had 1% PMI on a mortgage loan of $250,000, that’s $2,500 a year, or an additional $208 every month.”
Upkeep can also become another big cost.
When you are renting, if there is a leaky faucet or a broken toilet or the heat is not working, you simply contact your landlord, who is responsible for fixing the problem within a reasonable time period.
But, Christa Tessier, owner of The Mortgage Advisors, said, “When you own your home, this responsibility now falls on you, which means you are also responsible for the associated costs. Many times, first-time homeowners will forget to allocate a portion of their budget to these emergency costs, which can leave them in a stressful pinch.”
What You Can Do To Stay Afloat in the First Year
Loud Budgeting
Loud budgeting involves taking control of your money and prioritizing your needs, Kilgore said.
“It’s really just about what budgeting is at its core: deciding what’s really important to you, what you want to do and have in your life, and allocating your resources (money as well as time) to those priorities.”
In the case of becoming a new homeowner, he said, it means understanding that you will have new expenses and time requirements for caring for your home and then being OK saying “no” to yourself or others when something does not align with this new priority.
Set Up an Emergency Fund
While an emergency fund is important for everyone, it’s perhaps even more so for new homeowners.
For instance, Kilgore said, an appliance could go out, a repair could be needed or someone could lose a job or income, which then threatens the ability to make the mortgage payment.
“It’s best to build the fund to what could cover six to nine months of basic living expenses,” he added. “Remember that the fund should be included as an expense item in your budget.”
Prioritize Your Expenses
When it comes to managing your finances as a new homeowner, it’s essential to prioritize your expenses in order to not get caught off guard and end up racking up debt.
“Make sure your mortgage, utilities and insurance payments are paid on time to avoid any late fees or penalties,” said Michael Collins, CFA and CEO of WinCap Financial. “You can cut back on other expenses like eating out or entertainment if needed.”
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This article originally appeared on GOBankingRates.com: How To Survive Financially in Your First Year of Homeownership
