Managing Your Money for Homeownership

For many people, home is more than shelter: it is their biggest investment and a considerable financial asset.  The difference between what your house is worth and the amount you owe is called your equity.

The first and most important way to protect your investment is to make sure you have enough money budgeted each month to make the PITI (principal, interest, taxes and insurance) payments on your mortgage loan and set money aside for home maintenance.  You made a family spending plan when you were saving for a home.  Now it is time to make a new spending plan to include all the expenses of homeownership.

To make a spending plan, meet with your family to budget your normal expenses, plus the new costs of homeownership, including:

• Mortgage Payments: monthly principal, interest, taxes and homeowners insurance payments, as well as homeowners association fees and mortgage insurance if required.
• Utilities: average monthly costs for electricity, gas, water and sewage, and trash collection
• Routine Maintenance and Repairs: monthly savings for preventive maintenance and repairs (1 percent of the purchase price of the house for annual maintenance and repairs divided by 12 months)
• Reserves: monthly savings for emergencies and/or goals (at least one month’s mortgage payment divided by 12 months)

*Note:  Consider signing up for a “budget” or “average payment” plan with your gas and electric companies.  Based on the history of gas and electric use in your home, the company will estimate the annual cost and divide it by 12 months.  Once a year, the company will adjust the monthly payment up or down to reflect actual use.  Then you pay the new amount for another year. 

Paying a set amount each month for some of your utilities helps with budgeting since it spreads the high cost of winter heating or summer air conditioning throughout the year.

Developing a Savings Plan

Put money in savings on a regular basis.  Ideally, you want enough savings to cover emergencies, routine maintenance and repairs, and your goals.  Financial experts recommend building an annual emergency fund that is equal to one percent of your home’s purchase price.  The amount of money you need to set aside to reach your goals depends on what your goals are and when you want to reach them. 

Remember the Credit Trap

New homebuyers should not take on any new debt for car loans, credit cards or revolving credit for at least one year after closing.  It will take that long to get used to making the new mortgage payments and to really understand how much it costs to take care of your home.