You just finished signing the last of the papers at closing, and have OFFICIALLY jumped from a renter to a first-time homeowner! The days of signing a lease, asking permission to paint a wall, hammer in a few nails, or ever having to answer to a landlord again are now behind you. Give yourself a pat on the back and celebrate for all your hard work and savings. This is such an exciting time in your life. After the excitement, you may become a little overwhelmed and make some mistakes that can jeopardize all that you have worked so hard for.
Fear not, for we are here to help! Take a few moments to breathe and calmly check out these tips to help ensure that your first home becomes the place of comfort and financial freedom you’ve been waiting for.
1. Don’t Overspend on Furniture and Remodeling:
Money is tight for most first-time homeowners – not only are their savings depleted, their monthly expenses are often higher as well, thanks to the new expenses that come with home ownership, such as water and trash bills, and extra insurance.
You are probably eager to personalize your new home and upgrade from your temporary apartment furniture. But don’t try to upgrade all of your furniture and decorations all at once. Give yourself time to become familiar with the expenses of home ownership and to rebuild your savings – the new couch will still be waiting for you when you can more comfortably afford it.
2. Save for Unexpected Problems
You determine when or stop things like your dishwasher from breaking, but you can set some cash aside to pay for unexpected replacements. As a general rule of thumb, you should try to save around 1-3% of your home’s initial price each year so that you can afford unexpected problems, and avoid not being able to fix the problem.
3. Don’t Ignore Important Maintenance Items:
One of the new responsibilities that accompanies home ownership is taking care of home repairs. You no longer have a landlord to contact if your sink is clogged or your roof is leaking. It is now up to either take it upon yourself to fix the problem or call someone to fix the maintenance issue for you. While you should exercise restraint in purchasing the nonessentials, you shouldn’t neglect any problem that puts you in danger or could get worse over time, turning a relatively small problem into a much larger and costlier one.
4. Don’t Confuse a Repair with an Improvement:
Unfortunately, not all home expenses are treated equally for the purpose of determining your home’s basis. The IRS considers repairs to be an integral part of home ownership -something that preserves the home’s original value, but does not enhance its value. This may not always seem true. For example, if you purchased a foreclosure and had to fix a lot of broken stuff, the home is obviously worth more after you fix those items, but that is irrelevant to the IRS, since you already received a discount on the purchase price due to those unmade repairs. It’s only improvements, like replacing the roof or adding central air conditioning, which will help decrease your future tax bill when you sell your home. For gray areas, such as remodeling your bathroom because you had to bust open the wall to repair some old, non-working plumbing, consult an accountant.
5. Start Keeping Records:
Every improvement or repair you make to your home – from adding caulk around your bathtub to installing a new roof. Make sure you keep track of all of your hard work from the start. Keep your receipts and put everything in a filing cabinent and/or put it into a spreadsheet.
With the great freedom of owning your own home comes greater responsibilities. You must manage your finances well enough to keep the home and maintain the home’s condition well enough to protect your investment and keep your family safe. Don’t let the excitement of being a new homeowner lead you to careless decisions or oversights that jeopardize your financial or physical security.
Reference Article:: 7 Smart Steps Every New Homeowner Should Take