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5 Budgeting Tips for New Homeowners

A smiling couple stands close together in a room with unpacked moving boxes, looking affectionately at each other, indicating a new chapter in their lives as homeowners.

Stepping into homeownership is a significant milestone filled with excitement and responsibility. While the journey is often paved with careful financial planning, the path doesn't end at the front door.

As new homeowners navigate the world of mortgages, property taxes and unexpected maintenance costs, it's crucial to have sound financial strategies in place. Here are some essential financial tips to ensure new homeowners can maintain their investment and enjoy the comfort of their new abode without breaking the bank.

How should I budget after buying a house?

The 50/30/20 rule is a simple yet effective budgeting guideline for new homeowners. It suggests budgeting 50% of your income for essentials, 30% for wants and 20% for savings or debt.

Essentials typically include primary expenses such as mortgage payments, utilities, property taxes, homeowners' insurance and groceries. Wants include items like home upgrades, landscaping, new furnishings and leisure activities. The last 20% is earmarked for emergency funds (vital for sudden home repairs), extra mortgage payments, retirement contributions and repaying other debts.

Here are a few more tips to help you manage your mortgage obligation and stay financially disciplined as a new homeowner:

1. Avoid Big Purchases

A big, empty house can easily stir new homeowners into a shopping frenzy. New TVs, furniture or appliances are exciting purchases and can seem essential at first. But then the bills start rolling in. On top of a new mortgage payment, you have new furniture, top-of-the-line kitchen appliances and fresh carpet to pay for each month.

Spend slowly, and schedule your big expenses over time. Don’t make all improvements the day after closing on a new home. Give yourself a few weeks to figure out the essential improvements and space your expenditures adequately.

2. Prepare for New Expenses

Every home has different monthly expenses. If you’ve been living with family or renting a condo where utilities are included, your first batch of utility bills can send you into shock. Now add in a water bill, trash service, wifi fees and more.

Before purchasing a home, you should have received an estimate of average utility bills for the location. Make sure your budget can safely cover those expenses, and give yourself time to adjust to your new bills before making any big purchases.

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3. Maintain an Emergency Fund

Most new homeowners head into a purchase with optimism. But challenges, both minor and major, can occur. Plumbing problems can result in a small DIY fix or a weeklong project for a professional contractor. Your employer could cut back on hours or, even worse, your job.

When facing any sort of financial challenge, it’s extremely reassuring to have a safety net. To protect your family and your future, strive to maintain three to six months’ worth of basic living expenses in a separate account.

These reserves are not designed to fund your dream vacation or a rainy day splurge. Reserves are only to be used in case of emergency. That kind of diligence can be tough to maintain. If you’re faced with a crisis, you won’t regret your dedication to an emergency fund.

4. Pay Your Mortgage on Time

Staying on top of current payments is one of the simplest ways to maintain a healthy mortgage. Late mortgage payments can incur huge penalties and significantly impact your credit score. An even scarier realization is the fact that late mortgage payments can trigger foreclosure.

Mortgage servicers can send a first notice or even file for foreclosure once your mortgage is more than 120 days delinquent. Avoid the headache and heartbreak of foreclosure by always making your mortgage payments on time. Contact your mortgage lender or servicer immediately if you have trouble making payments.

5. Beware of Refinance Scams

Now that you’ve closed on your home, your real estate transaction is a matter of public record. This means other mortgage companies can and often will access your information and send you refinance and credit offers.

Some may be reputable advertisements from legitimate companies, but many others won’t be. These shady offers may even feature imitation insignias and fake logos meant to look like official correspondence from the VA or other government agencies.

You’ll often see rock-bottom interest rates and terms that promise significant savings. No matter how tempting these offers seem, please remember: If it looks too good to be true, it probably is.

Identifying a Mortgage Scam

Here are some things to keep in mind when dealing with potential mortgage refinance scams.

  • Be wary of mortgage and credit offers that seem to imply a government affiliation by using official-looking logos, insignias and titles. The VA and other governmental agencies don’t make home loans or advertise them.
  • Be cautious of incredibly low interest rates. Always check the fine print, as these rates tend to last only a short time before increasing, sometimes significantly. Also, these rates don’t usually reflect the Annual Percentage Rate (APR) on the loan, which can be a better reflection of the total cost of borrowing.
  • Be skeptical of anything that sounds like a guarantee. Loan preapproval is not the same thing as loan approval.

The best thing to do when you receive an offer like this is simply throw it away. Better yet, you can opt out of receiving them entirely. Visit the Federal Trade Commission’s website to learn more about managing prescreened credit and insurance offers.

In addition, you can always call your loan officer with questions about a refinance offer you’ve received. They can help you separate fact from fiction and determine whether a refinance might be in your best financial interest.

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