ll archives: Budgeting Tips for New Homeowners
Buying a house is an exhilarating but expensive milestone in your life. Saving up for that down payment took a lot of effort, and it can take a while to recover from the initial expense, leaving you feeling “house poor” for the first few months. To get back on track, review your budget and adjust for the new realities of homeownership. These tips will help you sort out your new financial responsibilities and get you off to a great start in your new role as homeowner extraordinaire.
Start a Rainy Day Fund for Unexpected Repairs
Now that you’re a homeowner, you don’t have a landlord to call every time something breaks. Home repairs and maintenance are now your responsibility.
Build a rainy day fund so you have something to fall back on when the roof leaks or a sewer pipe bursts. Home repairs can be costly, and not everything is covered by insurance. Start a savings account you automatically add at least $50 to $100 to every month, and you’ll sleep better knowing you’re ready for whatever comes your way.
Shop Around for Homeowner’s Insurance
While the principal and interest portions of your new monthly mortgage payment are set in stone, the amount you pay into escrow can vary based on your property taxes, private mortgage insurance (PMI) and homeowners insurance. While you don’t have control over the tax rate, you can shop around for the best price on homeowner’s insurance.
An insurance calculator can give you an idea of the amount of coverage you need so that you can get quotes to compare. You can switch insurance carriers any time, so don’t feel obligated to stick with what you chose when you bought the house if you can get a better deal.
Be Vigilant about Your PMI
PMI is insurance you pay if your down payment was less than 20 percent of the value of your home. It can add hundreds of dollars to your mortgage payment every month, so it’s a good idea to get rid of it as soon as possible. You can request to have your PMI canceled once the amount you owe on your home is less than 80 percent of its value, so keep a close eye on your account balance.
If you have a little extra money at the end of the month to add to your mortgage payment, this can really add up over time to build equity. As soon as you think you’re close to reaching the 80 percent mark, contact your lender to get the PMI payment off your back.
Keep an Eye on Mortgage Rates
Another way to get rid of your PMI payments early is to refinance your mortgage. Though this is rarely cost effective in the first years of your mortgage, it’s always a good idea to check out current mortgage rates. If interest rates fall below what you are paying, use a loan comparison calculator to see if refinancing makes sense for you, especially if you’re nearing that 80 percent benchmark.
Don’t Forget about Real Estate Taxes
It’s a sad fact of life that real estate taxes tend to go up over time. To plan ahead for this, it’s a good idea to talk to your realtor about the tax trends in your neighborhood. You can set aside money in your savings account to cover predicted tax increases based on historical data that your realtor can help you sift through. Your realtor can also work with you to calculate the taxes in your area.
Budget for Increased Utility Expenses
It takes more energy to run a house than a small apartment, and you may feel some sticker shock when you get your first electric bill. Collect all your utility bills for the first three months living in your new home and use them to calculate the average amount you spend on each utility, such as gas, water, electricity, etc. Once you have a good idea of how much these items cost, it’s time to make a complete household budget based on your new, accurate information.
Make Some Energy Saving Adjustments
If you’re blown away by your new utility costs, don’t panic. There’s a lot you can do to cut back on your electricity use without much work at all. Replace old incandescent light bulbs with CFLs or LEDs — you can do this as they burn out if you’re strapped for cash or replace them all at once. These use way less electricity.
You can also try a smart power strip to cut down on the extra power drawn by your screens and all the auxiliary devices attached to them. For a free solution, practice unplugging chargers and appliances when you’re not using them, and turn off lights when you leave the room.
Cut Your Water Bill
You can also make a few easy adjustments to cut down on your water usage to lower that bill, too. Replace your showerhead with a low-flow version, and install faucet aerators in your bathroom and kitchen skinks. You should also fix any leaks right away, since these can add big bucks to your water bill.
Hold Off on Home Improvements
Repairs are important, but cosmetic upgrades can wait while you settle into your home. A good rule of thumb is to live in your new pace for six months to a year before you tackle any major renovations.
This will allow you to figure out what upgrades you really need and how you want your home to function. Rushing into a big construction project can be a costly mistake if you act before understanding what you really want in your space, so go slow.
Save Your Receipts
Though April 15 may seem far away, homeownership has a major impact on your income taxes. You may be able to deduct your mortgage interest and even some repairs and home improvements, so get in the habit of saving all your receipts in a designated tax folder.
You should also hang on to mortgage payment records and property tax bills. Whether you do your taxes yourself or hire an accountant, having good records is important if you’re planning to maximize your itemized deductions.
With smart budgeting, you can rebuild your savings and be in control of both your new home and your finances. Little changes can make a big difference, so get started on your new budget today!