However, remember that hard work and financial responsibility led you to this point, so consider how you can avoid these common mistakes that homebuyers make to ensure your long-term financial success as a new homeowner.
By avoiding these financial homeownership mistakes, you'll put yourself on track for long-term success.
Immediately Buying All New Furniture
The weeks and months after closing on your new home is a rewarding time filled with excitement. You'll be unpacking all of the moving boxes you worked so hard to find and then setting things up as you see fit. The process to purchase a home is a long road, and once you finally sign the papers and get the keys, you are bound to want to immediately start making improvements and turning your house into your home.
Perhaps you were living in an apartment or smaller rental before purchasing your new home. This might mean that you have a deficit of furniture or, on the other hand, pieces that now won't fit in your new place.
It can be tempting to go out and finance all new furniture to fit your current style and home, but remember that you just took on a substantial debt. It can be helpful to first take some time to live in your new place to figure out the pieces of furniture you absolutely can’t live without. This will also give you time to adjust your budget to your new monthly expenses.
Remember, you most likely were adequately living with your furniture in your old residence, so try to be diligent about only purchasing the necessities until you can project an appropriate amount to spend on furniture according to your adjusted budget as a new homeowner.
Not Replenishing Your Savings Account
When deciding to purchase your home, you most likely had to come up with a significant amount of money for a down payment, even if you got some help with down payment gift money. As a homeowner, you are going to have added costs that you will inevitably incur on maintenance and repairs. To ensure that you can come up with the funds needed for these sometimes unforeseen costs, remember to save for a rainy day and continue to put money back into your savings account that might have been used to secure your down payment.
Additionally, experts suggest having around three to six months of living expenses in an emergency saving account to protect you from a loss of income due to a situation such as job loss. If you are looking for more of a customized plan, you can use this calculator to personalize the amount you might need to have built up in an adequate savings account.
Similarly to purchasing furniture, there will be cosmetic projects that you may want to tackle in your new home to customize it to your liking. Before spending extra on these projects, remember to prioritize refiling your savings account to protect your future finances.
Not Being Adequately Insured
Before closing on your home, you most likely had to purchase a homeowner’s insurance policy as designated by your bank. If you purchased a plan based on your possessions and home value at the time, remember that you may need more coverage in the future.
For example, if you decide to take on a project such as a kitchen remodel or purchase appliances, you will want to account for these added expenses and reevaluate your homeowner’s policy. Appropriate coverage works to protect your dwellings and belongings in an unforeseen event— such as theft or damage.
Furthermore, now that you are going to be making payments on a significant asset, you will want to reevaluate your life insurance policy or even secure a new policy, if you do not have one yet. If you have a partner or family member who is financially dependent on you to make mortgage payments, you will want to account for this when determining the amount of coverage you need.
A term life insurance policy could be beneficial in this instance because you can provide coverage for your assets for a given amount of time or until your loans are paid off, protecting your family if you were to pass away and unable to make payments on these loans.
Viewing Your Home as a Profitable Investment
As a first time homebuyer, you may have heard that a home is one of the best investments you can make as it will almost always appreciate. This is why some first time home buyers believe that they will be able to make a substantial profit when they sell their home in the future.
While this can be true in some cases, consider the amount of money you will put into maintaining your home and upkeep during the time you live there. This expense must be calculated as you determine your return on investment.
Also, the real estate market can be unpredictable, so by the time you plan on moving out of your first home; it might not have appreciated the way you were hoping. This is important to consider after buying your home because it is beneficial to shift your mindset so that you understand that the primary purpose of your first home is to provide a place to live. This shift in perspective can protect you from investing unnecessary time and money into projects in hopes that five to ten years down the line, you will turn a hefty profit.
Spending Money on Projects That Won’t Result in Equity
As previously discussed, homeownership isn’t necessarily the most profitable investment. However, it is essential to look at the fact that most first time home buyers stay in their home for about 11.5 years before purchasing a new home. This is why it’s important to consider the projects that you take on and compare their cost and potential equity versus your desire to complete them in your home.
For example, specific projects, such as swimming pools and high-end landscaping, cost a significant amount of money that you might not ever recoup once you sell your home. If this is your first home and you are thinking about taking on a large and expensive project, consider how long you realistically will stay in the house before moving on and if it is worth your investment.
Homeownership is a great accomplishment and can provide a sense of security and stability. Remember to enjoy your new residence and not feel pressured to take on projects or furnish your home right away. Continue making smart financial decisions as a homeowner to ensure a healthy and prosperous future.
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About the author: The above article on the financial mistakes to avoid as a new homeowner was written by Scott Kerrigan. Scott is a finance enthusiast who enjoys writing about topics surrounding money management, investing, and personal finances. In his free time, he enjoys golfing and traveling to new and different places.