You’re a first time homebuyer – congratulations are in order. While you’ve just completed quite a bit of heavy lifting in terms of pulling together your finances, your work isn’t finished. Now, it’s time to think about what to do after buying a house. As you start checking off the items on your move-in to-do list and turning your house into a home, here are seven key financial steps you should take.
1. Set aside money to make repairs
When you were a renter, repairs were your landlord’s responsibility. Now, those costs fall on your plate.
“Consider increasing [your] savings held in a high-yield or other low-risk account to account for the reality that homeownership includes additional and sometimes large personal expenses that a renter does not have,” advises Elliot Pepper, CPA, CFP, MST, financial planner and co-founder of Maryland-based Northbrook Financial.
How much extra cash should you put away? “One percent per year of a home’s value if new or 2 percent or more if older [than 10 years] is a reasonable amount to budget for repairs and maintenance,” according to Eric McClain, CFP, co-founder of Alabama-based McClain Lovejoy Financial Planning.
“You may not actually spend that amount each year, but when the A/C needs replacing, you’ll blow through that line item pretty quickly,” McClain says.
2. Be prepared for bigger emergencies
When your air conditioner breaks, it’s a hassle. If you lose your job, it’s a much bigger deal and can create a terrifying level of concern over how you’ll pay your expenses, including your mortgage. Since owning a home means some of your expenses have changed, make sure to determine how much money you should now have in your emergency savings fund to weather a worst-case storm.
3. Consider a biweekly payment routine
When you signed on to your mortgage, you found out what your monthly payment would be. That doesn’t mean you have to think in a 12-times-per-year payment schedule, though. Pepper recommends asking your lender if you can make your payments on a biweekly schedule, which divides your monthly payment into lower payments paid every two weeks.
“From a cash-flow standpoint, this might not be too impactful to your budget, but under the biweekly schedule, you will end up making one additional payment per year,” explains Pepper. “On a 30-year mortgage, this can literally cut years from the mortgage and save thousands in interest.”
The key to saving is to ensure your lender or servicer applies the extra payment to the principal of the loan. You could also be charged a prepayment penalty if you make biweekly payments (uncommon, but it can happen), so check what your limitations are there, as well.
4. Find the right insurance coverage
As you enjoy your new home, you need to make sure it’s protected from any potential disasters with enough homeowners insurance coverage to rebuild it if necessary.“First-time homeowners should have as large a deductible as they are comfortable paying, as that will lower the premiums,” notes Ariadne Horstman, CFP, Registered Life Planner and founder of California-based Appreciate Finance
5. Invest in security and save
A large deductible isn’t the only way to lower your insurance premiums. You can also install a home security system. While setup and monthly fees will cost you, some insurance companies offer discounts up to 20 percent for having a security system, according to the Insurance Information Institute.
6. Plan ahead if you’re thinking about children
If you’re buying a house with your partner, you might be thinking about filling the rooms with some little ones. If that’s the case, you should start considering long-term strategies for your money and worst-case scenarios.
“When kids are on the horizon, estate planning and life insurance become crucial,” McClain says.
7. Avoid instantly chasing refinancing opportunities
Today’s record-low interest rates have created a surge in refinancing, and it makes sense for many homeowners: If they locked in a rate a few years ago, they could be in line to shrink their monthly payments now.
However, interest rates constantly move. If you just bought your home, there’s no need to think about adjusting your loan terms.
“Don’t get in a hurry to refinance every time rates move,” McClain says. “How long you’ll stay in a home should drive that decision. Remember that you’ll pay fees each time you refinance.”
Moving into your first home is an exciting time, but it also brings a new set of responsibilities. Make sure you’re paying extra attention to your money so you can spend less time stressing and more time celebrating your big purchase.