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Turning the key in a lock that no landlord has access to, reading in a hammock in your own backyard and painting your dining room bright red - what could be more exciting than making the leap from renter to first-time homeowner? Getting swept up in all the excitement is a wonderful feeling, but some first-time homeowners lose their heads and make mistakes that can jeopardize everything they've worked so hard to earn.
Don't be one of those people; take a few moments to ponder these seven practical concerns that will help ensure that your first home becomes the place of luxury and financial freedom you've anticipated.
Don't Overspend on Furniture and Remodeling
You've just handed over a large portion of your life savings for a down payment, closing costs and moving expenses. 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.
Everyone wants to personalize a new home and upgrade what may have been temporary apartment furniture for something nicer, but don't go on a massive spending spree to improve everything all at once. Just as important as getting your first home is staying in it, and as nice as solid maple kitchen cabinets might be, they aren't worth jeopardizing your new status as a homeowner. Give yourself time to adjust to the expenses of home ownership and rebuild your savings - the cabinets will still be waiting for you when you can more comfortably afford them.
Don't Ignore Important Maintenance Items
One of the new expenses that accompanies home ownership is making repairs. There's no landlord to call if your roof is leaking or your toilet is clogged (on the plus side, there's also no rent increase notice taped to your door on a random Friday afternoon when you were looking forward to a nice weekend full of naps). 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.
Hire Qualified Contractors
Don't try to save money by making improvements and repairs yourself that you aren't qualified to make. This may seem to contradict the first point slightly, but it really doesn't. Your home is both the place where you live and an investment, and it deserves the same level of care and attention you would give to anything else you value highly. There's nothing wrong with painting the walls yourself, but if there's no wiring for an electric opener in your garage, don't cut a hole in the wall and start playing with copper. Hiring professionals to do work you don't know how to do is the best way to keep your home in top condition and avoid injuring - or even killing - yourself.
Get Help with Your Tax Return
Even if you hate the thought of spending money on an accountant when you normally do your returns yourself, and even if you're already feeling broke from buying that house, hiring an accountant to make sure you complete your return correctly and maximize your refund is a good idea. Home ownership significantly changes most people's tax situations and the deductions they are eligible to claim. Just getting your taxes professionally done for one year can give you a template to use in future years if you want to continue doing your taxes yourself.
When you sell your home, you can use these costs to increase your home's basis, which can help you to maximize your tax-free earnings on the sale of your home.
6. 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 TRA considers repairs to be part and parcel 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 bought a foreclosure and had to fix a lot of broken stuff, the home is obviously worth more after you fix those items, but the TRA doesn't care - you did get a discount on the purchase price because of those unmade repairs, after all. 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.
Get Properly Insured
Your mortgage lender requires you not only to purchase homeowners insurance, but also to purchase enough to fully replace the property in the event of a total loss. But that's not the only insurance coverage you need as a homeowner. If you share your home with anyone who relies on your income to help pay the mortgage, whether it's a girlfriend or a child, you'll need life insurance with that person named as a beneficiary so he or she won't lose the house if you die unexpectedly. Similarly, you'll want to have disability-income insurance to replace your income if you become so disabled that you can't work.
Also, once you own a home, you have more to lose in the event of a lawsuit, so you'll want to make sure you have excellent car insurance coverage. If you are self-employed as a sole proprietor, you may want to consider forming a corporation for greater legal protection of your assets. You may also want to purchase an umbrella policy that picks up where your other policies leave off. If you are found at fault in a car accident with a judgment of $1 million against you and your car insurance only covers the first $250,000, an umbrella policy can pick up the rest of the slack. These policies are usually issued in the millions.
With the great freedom of owning your own home comes great 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 bad decisions or oversights that jeopardize your financial or physical security.