5 Smart Financial Decisions for After You Buy a New Home
Buying a home is the biggest purchase most people will ever embark upon, and that is why it is especially important to take a number of post-sale steps to make sure you protect your largest financial investment.
Like most of us, the previous owners of your home probably had multiple copies made of their house keys, the ones you got at the close of escrow. And those copies are most likely still in the possession of friends, family members, handymen and even neighbors.
The first thing you're going to want to do is re-key or change all the locks on the doors and windows of your new home. You may also want to consider installing deadbolts where there are none. Though this might not seem like a financial issue at first glance, it will be if you have to replace a whole house worth of stolen or damaged items resulting from a burglary.
The purchase of a new home will likely change the dynamics of your finances, which necessitates a review of your insurance to make sure it stays up to date with your needs.
"Whether you are moving up in house or a first-time home buyer, it is important to purchase or readjust your life insurance coverage to cover any new mortgage debt," says Jeremy Hallett, the CEO of Quotacy, an online insurance broker. "As a general rule of thumb, life insurance should cover 10 years of income plus any large debts or upcoming expenses -- in this case the mortgage, but also could include residual debts or a child's college costs."
If you purchased your home with less than 20 percent down, chances are you will have to pay private mortgage insurance until your loan-to-value ratio gets below that threshold. PMI rates are generally 1 percent of your loan balance, which can translate into thousands of dollars a year, depending on the size of your mortgage. This is money that you never recoup, and even worse, represents real risk if the value of your home decreases.
Because of this, it might make sense to pause any 401(k) or retirement contributions and defer them towards paying down your loan. The faster you can get below that 20 percent loan-to-value ratio, the sooner you can drop the PMI.
What many people forget -- especially new homebuyers -- is that once you take possession of a home, you also take the financial responsibility for anything that goes wrong it. Despite the best intentions of the pre-sale home inspection process, there is really no way to definitively determine the health of your house's infrastructure, and you need to be ready in case of "surprises."
Bulking up your emergency savings to cover the costs of a major repair or replacement is a good way to make sure you don't end up in a financial bind should something unforeseen happen to your new home. Even better, if you didn't get a home warranty as part of the purchase process, you can still get one after the close as long as no issues have presented themselves yet.
Though purchasing a new home is a time of excitement and hope about the future, there are some pragmatic issues you need to consider, namely, what happens if you were to unexpectedly pass away? This is a good time to review your will or trust with a lawyer to make sure that your new home is a part of those documents and that your beneficiaries are updated and complete.
Finally, remember that even though your home isn't a living being, from a financial standpoint, how it impacts your life going forward will change and evolve in a manner similar to that of a family member. The best practice is to do a yearly review on the fiscal impact your house is having on your life and take any measures needed to make sure it's as positive and cost effective as possible.
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