Buying a house is an exciting life event, but it also entails a significant financial responsibility. If you’re not prepared to manage the ins and outs of mortgage payments, your home purchase could very well put yourself into a a serious financial predicament.
The good news is that appropriately planning for and managing a mortgage isn’t as impossible as you might be tempted to believe. By following a few key guidelines, you can manage your mortgage responsibly so that you can enjoy your new house without hurting your finances.
Minimize Other Debts
Because a mortgage is such a large financial responsibility, it is strongly recommended that you take steps to minimize other debts (especially credit card debt) before buying a home. In some cases, an excessive amount of debt could disqualify you from being able to take out a mortgage loan in the first place.
Paying off debts will help improve your credit score, allowing you to lock into a more favorable loan rate that could save you thousands of dollars over the lifespan of your loan. Even more importantly, this will make it easier to manage your monthly payments.
Conversely, adding mortgage debt on top of pre-existing credit card debt, auto loans, and other large financial obligations will only make it more difficult to manage your finances. A higher loan rate will make monthly and long-term payments more expensive. You might end up having to cut back significantly on other basic purchasing needs.
After purchasing a home, you should also be careful to avoid taking on any other major debts besides your mortgage. If you’re not careful, doing this might put you at risk of defaulting on some of your payments.
When you pay a smaller initial down payment on a home (typically less than 20% of the total price), the mortgage lender will most likely require you to take out a mortgage insurance policy. This protects the lender should you ever default on your loan, but it also enables you to purchase a larger and nicer house than you could otherwise afford.
However, this isn’t the only type of mortgage insurance available. Many homeowners gain peace of mind by taking out mortgage protection insurance. This policy allows you to , protecting your interests if job loss or another life-altering event makes you temporarily unable to make mortgage payments.
While you want to free yourself from the bank’s private mortgage insurance to lower your monthly payments, mortgage protection insurance is worth keeping throughout the duration of your loan. Should the unexpected ever occur, you won’t be forced into foreclosure.
Plan For Other Expenses
With mortgage payments taking a big bite out of your monthly budget, it can be easy to overlook the other expenses that come with buying a new house. Like it or not, you’ll probably have much higher utility bills once you move into your new place — especially if you are moving from an apartment complex.
When planning your monthly budget, be sure to take these higher living expenses into account. In fact, it’s probably best that you obtain an average utility bill estimate before buying the home, just so you can be certain that you’ll be able to afford your new expenses.
While moving into a new home might require that you sacrifice your weekly restaurant trip so you can cover your higher utility bills, you must continue to add to your savings account. This way, you can be prepared when repairs are needed or when you need to buy a new appliance.
In addition, don’t give in to the temptation to try to fill your home with new furniture and decorations all at once. Stagger your purchases over time so that the expenses are more manageable and don’t drain away the savings you’ve worked so hard for.