Do you think that buying a house will help you with financial security? The answer to that is yes – as long as you know what to do after becoming a homeowner.
The truth is, there are several ways that you can secure your financial standing. Buying a house is only one of them. However, having your own home does not just secure your finances. It also helps you grow your money as the value of your house increases. This is the reason why the American Dream always includes owning your own real estate property.
While that is still true for most Americans, there is a decline when it comes to homeownership rates in the country. According to the Census.gov, the rate of homeownership is currently at 63.4% – a 1.3% decline from the same period last year (2nd quarter of 2015 vs 2014).
Now there are various reasons why the homeownership rate seems to be less appealing. Some people are probably burdened with debt. Others are simply not earning enough to qualify for a home loan. There may even be others who simply have other expenses that they need to attend to.
The bottom line is, most of the people who have yet to pursue homeownership are obviously hindered by their finances. They probably do not feel like they are secure enough to be able to afford and more importantly, maintain a home.
What non-homeowners need to realize is that financial security is not only a factor before you buy a house. Preparing your finances before you buy a property is not an easy thing to accomplish. This is the reason why some people are so relieved once the closing is done. But it is important for you to remember that it does not end there. While owning your house gives you a certain level of security, it does need a bit more work before you can really say that you are financially secured.
Important financial moves after homeownership
After you have purchased your own property, there are a couple more financial moves that you need to do in order to strengthen your finances to make it really secure. If you borrowed money to pay for your house, this is all the more necessary. After all, home loans take a very long time to finish paying off. If you cannot make your finances secure, you might lose the ability to complete the term because your finances are not enough to sustain your payments.
So how can you strengthen your personal finances so you can find financial security after your home purchase? Here are a couple of tips.
Set up a new budget.
After buying your house, it is important for you to take a good look at your budget. For sure, something is bound to change in that plan. First of all, you need to factor in your mortgage payments. Although this payment is replacing your rent, you have to consider the new amount. Not only that, your utilities would change as well. This is especially true if your new home is bigger or smaller than the home that you previously lived in.
Beyond your monthly recurring bills, you also have to think about the one-time payments that you need to spend. For example, if you have to change some of the furniture and fixtures in the house your bought, then you should put that down as a one-time payment. You need to plan these expenses because it could ruin your finances or you might settle to not paying them at all and in effect, have a less than satisfactory experience in your new house. According to an article published on SeattleTimes.com, sometimes people think they have to do everything all in one go. Since it is usually not possible for them to meet this financial need, people usually end up not doing anything about it. If the change that they had to spend on involves a system that is necessary during the cold winter months, then you might have a problem if that suddenly breaks down. You could end up spending more than what you should have if you spent on that expense when you first moved.
Build a bigger emergency fund.
Another important task that you need to do to achieve financial security is to get a build up your emergency fund. Now that you have your mortgage, you need to think about your monthly amortization. You do not want to miss out on your payments in case something happens to your main source of income. An emergency fund can help tide you over the days, weeks, and even months that you do not have money coming in. It can help you pay for whatever you need. Not only that, in case there is a sudden increase in your expenses, this fund can help you as well. For instance, if you are suddenly faced with a health-related expense, you obviously need to prioritize spending for it. You do not have to sacrifice your mortgage payments just to finance that if you have an emergency fund. So after you move into your new house, make sure you increase your reserve fund for all the unexpected situations that may come your way.
Keep your other debts low.
A home loan is one of the biggest debts that consumers owe today. This is why you may want to keep the transactions in your other credit accounts low. If you have a credit card, you should try to keep your balance low. That way, when a financial crunch comes, you do not have to worry about too many payments. You can continue to use your card but make sure that you will limit what you will spend. If you have to use it for purchases, make sure that the amount will be something that you can pay in full when the statement comes in. This is how you can help establish financial security – or at least make it stronger.
Include your home purchase in your tax deductibles.
According to Realtor.com, you need to keep your documents after closing because that is “extremely valuable” in both short-term and long-term. For the former, you can use it as part of your tax deductions – at least, for the year that you purchased your house. For the latter, you can use the documents for tax purposes too – like for estate taxes when you sell the property.
Insure your house.
The last thing that you need to do in order to establish financial security is to insure your house. This is important because you need to understand that your home needs protection. After all, it is an asset. In case your house is destroyed by fire, flood or other natural disasters, the insurance coverage can help you pay for the repairs or even the furniture and fixtures that you need to replace. The same Realtor article encourages homeowners to take a photo of your house after you have bought it. That way, you have proof of the before and after state of the house after a natural disaster destroyed it. Make sure that the coverage on your house will grow as the value of your property increases too.
Tips to make your house improve your finances
The truth is, your house will help strengthen your financial security. That is why you really need to take good care of it. There are a couple of things that you can do so you can utilize your home to improve your finances.
- Pay your mortgage diligently. You have the obligation to pay off your loan. While your main reason to pay it off is to avoid going into default, you should know that it also helps secure your finances. As you pay your mortgage, the equity in your home increases. That means your ownership in the home increases too. Your assets grow with that. This is why you have to be careful not to fall behind in your mortgage payments.
- Rent out an extra space. Another way that you can use your house to improve your finances is to rent it out. Of course, if you live there, you simply have to rent out a part of it. You can get a roommate or you can convert your garage or basement into a separate unit. Lease it out so you can earn extra. This is a great way to earn money using your house. If your rental price is big enough, you might be able to use it to pay your mortgage in full. Even if you do not earn anything extra, that savings alone is enough.
- Use the equity in your house smartly. There is a big emphasis on the word “smartly” here. Use it only when you are sure that it will earn you profit. For instance, you can use it to invest in something that is guaranteed will grow your money. You can choose to buy another property that will earn you more rental income. Just make sure to use that income wisely. When you use the equity in your home, you will end up putting your house on the line. But if it will be used for something that will guarantee you more money, then go ahead and risk it. Here is a video that will give you tips on how you can use the equity in your house for your benefit.
