How to Recover Financially After Buying a House
Getting the keys to a new house is one of the best feelings in the world. With the paperwork finalized, you can now breathe a sigh of relief. But if you’re like many first-time buyers, you probably spent a good chunk of your savings on the purchase. Therefore, you might be starting your homeownership journey with a smaller bank account.
New expenses coupled with a decreased safety net can stir some fears, but getting your financial house in order after buying your first place is easier than you think. Here’s what you need to do to recover.
1. Develop a plan to rebuild your savings account
Priority number one after closing on a mortgage is coming up with a plan to replenish your savings account.
While preparing for the home purchase, perhaps you made a few adjustments to your budget and eliminated unnecessary expenses to save more of your income. If so, don’t revert to bad spending habits after getting the keys to your new house.
More so than ever, you need an emergency fund. So while it’s tempting to spend all your disposable income on decor and furniture, make sure you funnel some of your extra money into a savings account. Maybe allocate half of your extra cash to fixing up the home and put the other half in an emergency fund for repairs and other unexpected expenses.
2. Purchase a home warranty
A home warranty is a policy that can reduce your out-of-pocket costs for certain home repairs. If you have a problem with your appliances, electrical, plumbing, or HVAC system, give your warranty company a call and they’ll send a technician to your home for a flat service fee.
The technician fixes the broken item. And for items that can’t be repaired, the warranty company pays the replacement cost. The price of a home warranty varies, but ranges from $400-$600 a year.
3. Revisit your life insurance policy
Buying a home is an excellent time to revisit your life insurance policy. A term or whole life policy provides your family with a death benefit in the event that you die.
This benefit can be used to cover your final expenses, as well as provide your family with financial support. It can even pay off any remaining mortgage balance, depending on the size of the policy.
There are no hard or fast rules regarding how much life insurance to purchase. As a general guideline, however, get a policy that’s 8 to 10 times your salary if others rely on your income for support.
4. Ask your employer about disability insurance
If you haven’t already, see if you can get disability insurance through your employer. If not, you might be eligible to purchase a policy from an insurance agent.
These policies come in handy when you’re temporarily unable to work due to an injury or illness. The policy pays a percentage of your income, which you can use for living expenses like your mortgage payment.
Keep in mind that the amount you receive from a short-term disability policy might not be enough to cover all your monthly expenses, hence the importance of also having an emergency savings account.
5. Accelerate your mortgage payment
If possible, make one extra mortgage payment each year to reduce your mortgage term by seven to eight years. Paying down your mortgage balance early reduces your total interest charges and helps you build equity faster. It can also eliminate private mortgage insurance (PMI) sooner, resulting in a lower mortgage payment and more disposable income for growing your emergency reserve.
The Bottom Line
Even though your bank account might take a hit after buying a home, you can recoup what you’ve spent and strengthen your financial foundation.
Cherry Creek Mortgage is here to make homeownership happen for you. Give us a call to receive an honest assessment of your credit and finances. Our loan experts are highly knowledgeable and equipped to help you find the right mortgage product for your situation.