New Homeowners: 4 Tips for Managing Your Mortgage

On the route to homeownership, most prospective buyers exercise heaps of caution. Purchases are delayed. Payments are made on time, if not early. Credit scores are closely monitored.

Don’t let those good habits evaporate after closing day. As a new homeowner, you have even more to lose from poor fiscal management. By signing your name to a mortgage note, you’ve given a lender the right to foreclose on your home, should you stop making payments.

Keep your mortgage on the straight and narrow by following these four tips for managing your mortgage:

Tip #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 cover. Enter an over-stretched budget and a terrified homeowner.

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.

Tip #2: Get used to 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 electric bill can send you into utter shock. Add in a water bill, trash service and cable fees, and you may be ready to move back in with Mom and Dad.

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

Tip #3: Maintain 3-6 months of reserves.

Most new homeowners head into a purchase with optimism. Earnings are high enough to sustain a mortgage, the market is appreciating and equity is building.

But challenges, both minor and disastrous in scale, can occur. Incomes can take a temporary hit, or jobs can be eliminated. Illness can take you off the job for a few days or a few months. Plumbing problems can result in a small DIY fix or a week-long project for a professional contractor.

When facing any sort of financial challenge, it’s extremely reassuring to have a safety net. To protect your family and your future, maintain 3-6 months of living expenses in a separate account.

Remember, 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. But believe us, when faced with a crisis, you won’t regret your dedication to an emergency fund.

Tip #4: Pay your mortgage on time.

Keeping mortgage payments current is one of the simplest ways to maintain the health of your mortgage. Late mortgage payments can rack up huge penalties and send your credit score tumbling.

An even scarier realization is the fact that late mortgage payments can trigger foreclosure. Rules vary by state, but typically if you fall 60 days behind in your mortgage payments, lenders can start foreclosure proceedings against you. Avoid the headache and heartbreak of foreclosure by always making your mortgage payments on time.