In the homeownership journey, few things are more thrilling than transitioning from a renter to a homeowner.
While it’s easy to get caught up in the excitement when you move in to your new home for the first year, some homeowners bite off more than they can chew at first.
Luckily, there are several practical steps homeowners can take early in the journey to save money, effort, and time in the long run.
Tips for maintaining a good home as a homeowner
As a first-time home buyer, it’s impossible to know what it’s actually like to be a homeowner. Keep these tips in mind to avoid making the common mistakes that get new homeowners in hot water.
1. Don’t go overboard when it comes to personalization
You’ve just given up a significant amount of your life savings to cover a down payment, closing costs, and moving costs. It’s a lot of money any way you slice it.
Most first-time homebuyers are strapped for cash. Not only have their savings been exhausted, but their monthly expenses have also increased as a result of the additional costs associated with owning their new house. In addition to paying a mortgage, property taxes, and insurance, homeowners also need to cover the costs associated with all sorts of things — like cleaning out gutters, landscaping, replacing the water heater when it eventually fails, utility bills, and hiring a locksmith to change the locks.
Unless you’re keen on DIY projects, you may also have to hire electricians and plumbers to make sure your lights and faucets are all working as they should.
While everyone is looking to personalize their house and replace their apartment furniture with something more homey, that doesn’t mean you should go on a spending binge to update all these things at once.
Affording to stay in your first home is just as important as securing it in the first place, and no matter how gorgeous firm maple kitchen cabinets are, they aren’t worth endangering your new position as a homeowner.
Don’t rush. Give yourself ample time to calculate the costs of owning a home and manage your savings. For example, the existing kitchen cabinets should still remain in the home until you budget out the project and make sure you’ve saved enough money to make the upgrade.
2. Don’t ignore important maintenance
Making ordinary repairs is one of the new costs that come with homeownership. If your roof leaks or your toilet backs up, you won’t be able to contact your landlord. This is why it’s so important to pay for a home inspection and show the report to your real estate agent, who can then use that information to negotiate with the other realtor to help you get a better deal.
While you should be cautious about spending money on non-essential upgrades, you shouldn’t ignore any situation that puts you in danger or has the potential to deteriorate over time (e.g., a fault HVAC system should be fixed immediately). Procrastination can turn a minor issue — such as a clogged air filter — into a much bigger and more expensive one.
Again, having a property inspected before purchasing it can help you protect against maintenance difficulties down the road. You don’t want to move into a house only to find out you need to replace your thermostat the next day.
3. Don’t hire unqualified contractors
Make no attempt to save money by taking on home improvement projects that you are not qualified to tackle. This may appear in conflict with the first point, but it isn’t.
Your house is both a place to live and a financial investment. As such, it’s deserving of the same degree of care and attention as anything else you hold dear.
There’s nothing wrong with doing your own painting, but if your garage doesn’t have wiring for an electric outlet, don’t make a hole in the wall and start messing around with copper wiring.
Hiring specialists to undertake tasks you don’t know how to do is the greatest way to keep your house in good shape while avoiding harming yourself or creating a larger issue. Also, make sure to check with the local building department and obtain any necessary permits before proceeding with any project.
4. Don’t do your own taxes
Even if you despise the idea of paying for an accountant when you do your taxes, it can be beneficial once you own a home.
Even if you’re penniless from the house purchase, don’t skimp on tax preparation. It’s a great idea to employ an accountant to guarantee that your tax return is finessed accurately so that your potential refund is maximized. Most people’s tax deductions are allowed to increase dramatically when they purchase a home.
If you wish to do your taxes yourself, having your tax expenses carried out by a professional for one year can give you a template to utilize in future years.
5. Keep receipts when you make future improvements
The money you spend on upgrades can be used to increase your home’s basis cost when you sell it, allowing you to maximize your tax-free earnings on the sale.
For argument’s sake, let’s imagine you bought a home for $170,000 in 2007, and it’s been your principal residence ever since. You’re planning to sell it this year for a price of $460,000 — a $290,000 gain.
But over the last 15 years, you spent $50,000 on in-home upgrades. If you’ve kept your receipts and stayed on top of your spending, all of a sudden you’ve spent $220,000 on your house instead of $170,000. So, you’d be hit with a $240,000 capital gains bill instead of a $290,000 bill — unless you buy a new principal residence with these funds, in which case you wouldn’t owe anything at all.
6. Understand the difference between home improvements and home repairs
Regrettably, not all home expenses are evaluated equally when determining the value of your home. Repairs are considered part and parcel of homeownership by the IRS, as they retain the home’s original value while not adding to it. This may not always appear to be the case.
For instance, if you got a foreclosure and had to repair a lot of damaged systems, the home is worth more once you replace these items. The IRS doesn’t care because you earned a discount on the purchase price because of those damages.
Only renovations, such as a new roof or air conditioning, can help you save money on your taxes when you sell your house.
Consult IRS Publication 530 or your accountant if you have any questions about gray areas — such as remodeling your bathroom because you had to bust into the wall to fix some old, failed plumbing.
Also, don’t fool yourself into thinking it’s OK to spend money on something just because it’s a necessary “repair” when it’s actually a pleasurable enhancement. That’s not good for your bank account.
If you’re moving into your first house, you may want to consider working with a company like American Home Shield or Choice Home Warranty. By doing so, you won’t have to worry about paying for so many repairs when you’ve just moved in.
7. Buy homeowners insurance to make sure you’re protected
Your mortgage lender will require you to get homeowners insurance that covers the costs associated with completely replacing the property in the event of a catastrophic loss. As a homeowner, though, that isn’t the only type of insurance you need.
If you stay in residence with someone who depends on your earnings to pay the mortgage, you’ll require life insurance with that individual named as a beneficiary so that they won’t be sent out of their home if you die unexpectedly. Similarly, disability-income insurance will replace your income if you become unable to work due to a disability.
Additionally, once you own a house, you have a lot to lose in the case of a lawsuit, so be sure you have adequate auto insurance coverage. If you are self-employed, you should consider forming a company, which will provide you with significant legal asset protection.
While you’re at it, consider buying umbrella insurance to cover the gaps left by your previous policies. An umbrella policy can help take up the slack if you are involved in a car accident, and you’re at fault with a fine of $1.2 million, and your auto insurance policy only covers the first $260,000. These policies are frequently sold in $1 million increments.
Insurance companies you might want to check out include Liberty Mutual, Progressive, and Geico. These companies have received great reviews from thousands of customers around the world; you shouldn’t hesitate to work with them.
You’ll also want to make sure you’re also protected by installing a home security system. If that sounds appealing, consider working with leading home security companies like ADT and Vivint. Both have great promotions for new customers and flexible packages to meet your needs.
What are the benefits of proper home maintenance?
There are several wonderful benefits to being a homeowner, yet some go unnoticed or unreported. Let’s take a new look at 10 of these benefits, including several that you might not be aware of — particularly if you’re a new homeowner.
You can deduct both property taxes (up to $10,000) and mortgage interest from your yearly income taxes as a homeowner. If you’re a first-time home buyer, you’ll reap more benefits as the majority of your mortgage payment goes toward interest.
Increase in value
Houses usually appreciate in value over time. The Price-Shiller Index explains that the average yearly increase in the cost of existing residences was 3.4 percent from 1988 to 2009.
A $210,000 house becomes a $546,313 house after 32 years — an increase of 173.7 percent. With a yearly increase rate of 3.5 percent, a $500,000 property today will be worth $1,373,293 in 20 years.
Currently, inflation is much higher than it usually is. When you buy real estate and are able to lock into a low mortgage rate, you can protect against inflation with fixed costs. If you don’t own a house now, not to worry; even if you get a mortgage with a higher rate today, you can always refinance when rates go down in the future.
Your debt payment history accounts for the majority (35%) of your FICO score, which companies evaluate to figure out the terms and rate of a loan. Your FICO score increases if you proceed to make a mortgage payment in full when it’s due.
Your score will fall, however, if you fail to pay on time. A 30-day late mortgage payment, for example, may lower your credit score.
If you’re ever struggling to make your payments, consider refinancing your mortgage through Quicken Loans, Amerisave, and LoanDepot. These loan organizations are certified by Better Business Bureau; all three of them have an A+ rating. Also, having more than 3,500 customer reviews on the popular platform Trustpilot, all three lenders score about 3.8 out of 5 stars.
It can help you establish equity
Let’s say you put down 20% to buy your home, and the lender is financing the rest. Each payment you make on your mortgage helps you build more equity. For many homeowners, the goal is to get to 100% equity one day.
When you’re buying a home, creating a budget and sticking to it will help you save cash, time, and effort in the long run. To make sure you don’t buy something you regret, it’s important to pay for a home inspection and share the results with your realtor because the ultimate cost of a new home includes many hidden costs.
As a renter, you may not have been aware of the costs associated with owning a property. When you buy your house, your taxes will change. As such, it’s critical to get familiar with the tax regulations that apply to homeowners or, better yet, engage an accountant.
The enormous independence that comes with owning a home comes with obligations. By managing your funds effectively, you will have the money you need to keep your house in a solid state to secure your investment and keep occupants safe.
Whatever you do, don’t let the thrill of being a homeowner result in making poor decisions that threaten your personal safety and your financial situation. By keeping these tips in mind, you can move into your new home with confidence and begin your journey to financial freedom.