Buying your first house is an exciting step. It can also be scary so you'll want to do your homework, and prepare so you can remain in control versus getting overwhelmed. Remember there's no landlord to call. You have to handle repairs and that takes time and money. Home ownership means taking on new responsibilities. Have you looked at how you spend your free time today and considered how your life will change after you own a home? You may be able to continue daily visits to the gym before work while cutting weekend hikes to once a month, so you can mow the lawn and rake the leaves.
Lifestyle Changes for First Time Homeowners
Buying a house involves significant lifestyle changes, and they're not temporary. Yes, you'll spend a few months painting rooms, decorating and making small changes … the new homeowner energy bubble. But after this, the lawn needs to be mowed, gutters need to be cleaned and your home's trim needs touch up painting every year and first time homeowners don't always recognize this. If you're looking at buying a fixer-upper, you'll probably spend much of your free time (nights and weekends) working on it for several years, yes that's right. When we bought a 100 year old Victorian, it took us a year to settle on a design, about 6 months to get bids from remodelers and wait over the winter, and then a full year of construction. You might want to try this lifestyle out for several months, by volunteering to help a friend first. You might find after 3 months, it's not for you … and better if you don't own the 5 year project house.
First Time Homeowners & Budgeting
Owning a home will also impact your finances. Today your discretionary income goes to clothing, eating out and vacations. As first time homeowners, you're used to making short term decisions which you can change easily. Your mortgage, insurance and taxes as a home owner aren't discretionary. On top of these fixed expenses, you also have to manage home maintenance, repairs and save for home renovations like a new roof, refrigerator and hot water heater. The challenge is noone tells you how to prepare, or better delay these expenses. That's where our homeowner guide helps you manage your home by … Putting Your Home Maintenance on Autopilot If your refrigerator stops working tomorrow, you need to buy a new one right away. Once you own a home, it will be easier to manage these unplanned expenses with an emergency fund to cover 3 to 6 months of expenses. Too often first time homeowners stretch to buy homes they really can't afford yet. Rather than saving for several years, they borrow money for the down payment from family members. They run up credit card charges to furnish the new home and after closing costs, there isn't any money left in their emergency fund. As you put together your new home owner budget, here are recommended tips:
- Don't burden yourself with hidden family loans to buy your home. If you don't have enough money, start saving more aggressively and wait until you're ready.
- Don't shift expenses to credit cards to squeeze through the closing. Start eliminating recurring expenses that offer less value than owning a home.
- Make sure your emergency fund is funded for 3 to 6 months, as you might need to make some repairs in the first 1 to 2 years following your purchase.
- Adjust your budget for higher utilities, higher insurance plus home maintenance which should be 1 to 2% of the purchase price of your home.
- Think through discretionary trade-offs. Try to replace your “eating out” budget to fund a furniture allowance, and pay cash to save interest charges.
For first time homeowners who want to learn more about the total cost of home ownership, the True Cost of Home Ownership lays out operating costs and how to budget for home maintenance.