You're A Homeowner! Now What?

Save For Repairs

Be prepared. Putting a small amount away each month may not seem like much but it is definitely better than nothing. You need to understand that repairs in your home are your sole responsibility now, and having an emergency fund in place is a great idea to fall back on if necessary. You should also know that there are many companies out there who offer home warranties. There are service plans which charge an annual amount and then a deductible amount for each home visit.

 The amount of things the warranty covers depends on how much you pay and what plan you choose, but this sort of thing can be a great idea for homeowners who are a little nervous about the thought of things starting to break. Just be sure that the amount you pay for a home warranty does not exceed the possible cost of repairing everything. There is a certain point when the warranty simply costs too much to justify, but a nice inexpensive plan with a somewhat small deductible can bring some piece of mind to nervous homeowners.

The darndest things happen. Sure, everyone knows that water heaters need replacing and sprinkler systems sometimes need repair. There are other (and more costly) occurrences which can happen, though, which are sometimes enough to make a homeowner dream about being a renter again. Foundations can settle, resulting in a sinking house. A car can veer off the street and plow straight into your front window. Graves can be discovered on your property. The essential message is this: you are solely responsible for your home and you need to make sure to prepare for the unexpected. A settling foundation can be repaired but it is a costly procedure so homeowners need to make sure they have adequate funds available.

The same goes for a car zooming into your living room…although in theory the driver's insurance should cover this you may not have the chance to check the driver's insurance coverage as they burst through your window. Something bizarre like a grave or other historical discovery made on your land might be covered by title insurance if it had previously been recognized but either forgotten or hidden. Yes, being a homeowner has its rewards but it also has its headaches. It is best to be prepared for anything.

Make sure you have adequate homeowner insurance. The aforementioned settling foundation and historical discoveries may not be covered by a homeowner's insurance policy, but it is best to keep adequate coverage for anything else that may pop up. Homeowner's insurance doesn't just cover things like fire and windstorm damage. For instance, if a visitor walks up your front steps in the winter and trips on some ice you may be liable for any resulting medical care. A good policy will cover this sort of thing. Take note that people who run small businesses out of their homes, especially home day care providers, will need to notify their homeowner insurance companies of this arrangement.

If, for instance, a child in your care falls off your swing set and needs to see a doctor, the parents to cover the medical bills might sue you. If you contact your insurance company and they realize you had neglected to mention the fact that you're a day care provider out of your home not only will they probably not pay the claim, but they will either raise your monthly premiums or cancel your policy all together. One more thing: homeowner insurance does not usually include flood coverage. Even if you don't live in a flood zone it is a good idea to get some sort of flood coverage since you never know when a pipe might burst and flood your basement.

Equity

What exactly is equity? Equity is the amount of money your home is worth minus the amount of money you owe. For example, if your home is worth $200,000 and you owe $120,000 then you have $80,000 worth of equity. You gain equity through paying down your principal balance and also by your home appreciating in value. Home values have a tendency to go up, although this is by no means a guaranteed phenomenon. As your home appreciates and you continue to make your scheduled payments you will slowly build up equity. Your home will be worth more than you owe and this is a great situation to be in.

You're going to get offers immediately. You need to understand that the details of your home purchase are a matter of public record. Information such as the sale price, your name and the name of the previous owners, and the name of your financing company are all things which are easily accessible to anyone who goes looking for them. Now that you know this you will be less likely to think that every bit of mail, which comes to your mailbox regarding your mortgage loan, is from your lender.

You will start getting offers quickly for equity loans and various insurance products, and most of the companies who send these letters do their best to make the letters look official by putting seals on them and referencing the name of your lender or the sale price of your home. Anything that says something along the line of "Congratulations, the recent purchase of your home qualified you for buyer's protection…" or anything similar is quite simply junk mail. Shred it and ignore it. Unless a letter has the return address of your lender on the envelope then you can probably bet that it's just someone wanting you to think that they are affiliated with your lender. If in doubt, call your lender directly and ask about the mail you received; they should be able to clear up any mysteries.

Save your equity for emergencies. The equity in your home can be like money in the bank. It is not wise, however, to cash in this money for your every whim. Lending institutions will be trying like mad to get you to open equity lines of credit or to apply for equity loans, but these sorts of products are best reserved for when you really need them. Many people utilize their equity to take care of home improvements, which will bring the value of their home up, and some people use their equity for emergency situations when there is no other money available. In most cases, both of these reasons for using equity are acceptable.

There is a big trend for people to use the equity in their home to consolidate existing debt, such as combining all their credit card accounts into one equity loan. This can be a dangerous proposition. It is hard to change spending habits, and many times people will consolidate their debt into an equity loan with all the best intentions to never use their credit cards ever again. Old habits run deep, though, and there are some people who wind up consolidating their debt but keeping the paid-off credit lines open. They then start using the credit lines again, cautiously at first, but then eventually with full gusto. This is the sort of behavior which results in people winding up right back where they started: with maxed-out credit cards. The only difference is that now they also have an equity loan to contend with. Think long and hard before cashing out the equity in your home. Remember that an equity loan is considered a second mortgage, and that means if you don't make your payments they can take your home.

Equity loans can help your taxes. You'll want to talk to a tax consultant regarding your particular situation, but in many cases the interest paid on equity loans and equity lines of credit can be tax deductible, just like your primary mortgage payment is. This isn't always the case though, so don't jump to the conclusion that using an equity loan is always the best way to finance things or get a chunk of cash.

Rate modifications are offered by some lenders. Sometimes interest rates go down and people look to refinance their mortgage loan with the sole intent of bringing the rate down. Closing costs and additional fees can make this a costly proposition, and generally it is best to only consider something like this when the interest rate will drop at least two percentage points (for example, from 8.25% down to 6.25%). Although lenders do not generally advertise this, many do offer a simple rate modification plan, which simply drops your interest rate down to the current interest rate being offered for new loans.

Lenders usually charge a fee for the modification, which can be based on a percentage of your current loan balance, such as 1%, which would translate into $1000 for a $100,000 balance. $1000 may seem like a lot of money, but when you consider all the closing costs associated with a refinance it may be worth it to just do a rate modification. You'll probably need to ask your lender about this since many institutions simply do not openly advertise it, but the consultant should be able to run the numbers and let you know what the most economically feasible option will be.

Upkeep

You can't be a passive homeowner in most cases. When you drive down a block you can tell which homeowners take care of their homes and which don't. Much like a car, a home has scheduled maintenance, which needs to be accomplished at regular intervals in order to keep the home at its best. Things like cleaning out the gutters, having the air conditioning serviced, and aerating the lawn are all the sorts of things, which will turn ugly if not accomplished as needed. If you haven't the faintest idea what sorts of things need to be done for the general upkeep of your home then it is a good idea to purchase a good book about home maintenance and use it as a guide to tell you what sorts of things you need to do to keep your home in good shape. If you let things start to slip, you will surely regret it down the road when your house starts to fall apart due to your negligence.

Do it yourself, or pay someone else? You may be the kind of person who has always had a knack for fixing things around the house. Or maybe you have always had the fantasy of being a veritable handyperson, complete with tool belt and fix-it savvy. You might also be the kind of person who breaks into a sweat when confronted with the need to do something in your home other than change a light bulb. Either way, you can rest assure that something is going to break and need repair in your home at some point, and you need to make the decision if you are going to tackle it yourself or pay someone else to handle the repair.

It is fine to take on home repair projects if you have some sort of idea of what you're doing…you might also be able to take care of small projects by utilizing one of the many how-to books available about home repair. The simple truth is this: don't attempt to take on a project, which you have no idea how to finish, and which also make matters worse. Flushing out a radiator hose with bleach is one thing, but ripping up existing flooring and installing laminate is another issue entirely. Some projects simply beg for a professional to handle them. Just be sure that when you use a professional to take care of your home repair needs that you get at least three estimates before deciding on a professional and to also check with the Better Business Bureau to make sure the person you hire has a good reputation.

Some things just have to happen. Roofs need to be replaced, appliances eventually conk out, and water heaters won't last forever no matter how much preventative maintenance you do on them. You need to take this fact into consideration when budgeting for repairs. You aren't only setting money aside to cover any emergencies which might pop up, but you also need to stash some money for the inevitable replacements which will come along the longer you own your home.

Payments and Taxes

Your payments go mainly to interest in the beginning. Don't be shocked when you take a look at your first mortgage statement and realize that the vast majority of the payment went straight to interest. If you're making a $1100 payment it isn't unheard of that $800 of that first payment goes towards interest. Before you fly into a rampage and declare the entire mortgage business crooked just realize that this uneven payment distribution does not last forever. The longer you have your mortgage the more the payments will go towards the principal instead of the interest, and you will notice your mortgage balance going down. Although it can certainly be disheartening in the beginning to put so much money towards something and not see a quick reduction in the balance you can take solace in the fact that someday interest will play less of a part in what you owe.

Consider making some extra principal payments. Since the beginning of your loan repayment is pretty much consumed with paying interest it may behoove you to put a little extra money towards the principal balance of your mortgage. The trick, however, is to make sure you specify that the sum is designated for the principal balance otherwise your mortgage company will surely apply the added money primarily to interest. Paying down your principal balance will also lower the amount of money you will ultimately pay in interest since the interest you pay is based your principal balance. Bring the principal balance down, and the amount you need to pay in interest goes down. Adding more towards your principal balance will also pay off your mortgage sooner. That means if you have a thirty year amortization and pay just a little bit extra per month then you may wind up shaving years off your mortgage.

Some financial experts suggest that paying extra on your mortgage is not a good idea if you have other debt, such as car loans and credit cards. The argument is that it is better to pay off so-called "bad" debt before attacking the "good" debt. Sometimes, though, simply rounding your monthly payment up a little is enough to make a good dent in the overall interest you pay since it lowers the principal balance. Rounding up a $1149 monthly payment to $1200 may not seem like much, and you probably won't even notice the extra money being gone when it is such a small amount per month. Adding even a minimal amount of principal payment monthly will have a huge effect on your mortgage eventually. Don't believe it? Try out an amortization schedule on a mortgage website. You may be amazed at how much of a change a few extra dollars per month will make, and you will surely be convinced that you should be putting a little extra towards the principal balance each month, even if is only a small amount. The sooner you pay off the loan, the better.

What about escrow? Most lenders will insist upon putting extra money into an escrow account each month to hold until property taxes and homeowners insurance comes due. Why do lenders do this? It makes a lot of sense when you think about it from the lender's perspective. They have put a lot of stock into your ability to keep the home within your possession. You might pay your mortgage each and every month religiously but if you skip paying on your property taxes then you will lose your home. Property taxes are a county tax, and in some instances there are also state taxes as well. If you skip paying on your homeowners insurance nobody is going to take your house, but if a fire breaks out or a wind storm drops a tree onto your house and you don't have homeowners insurance you arrive at a situation where you either have to come up with the money to pay for the home yourself or instead simply abandon the home. As you can see, taxes and insurance are serious business.

Why don't lenders trust borrowers to pay their own taxes and insurance? Since both of these bills come about either annually or semi-annually many people simply forget about them until the bill arrives in the mail. If the borrower hasn't thought ahead and put money away for these bills then the arrival of the statements in the mail will come as a rude awakening. Lenders forcing people to put money aside in an escrow account avoids this sort of problem. So why do people detest escrow accounts? Many feel as though they would do better with an interest bearing savings account where the money could sit until the bill comes due. Although it is true that some lenders do pay interest on their escrow accounts this interest rate is nowhere near attractive, and is almost always below the interest rate offered on regular savings accounts. Another possible problem with escrow accounts is that lenders sometimes make mistakes; property taxes will go unpaid until the county sends a notice to the homeowner asking for their money and the homeowner in turn calls up the lender to raise a stink.

The good news is that lenders who utilize escrow accounts are liable for any mistakes, and if any late fees are imposed they become the responsibility of the lender, not the homeowner. For this reason, you can rest easy if your tax and insurance money is sitting in an escrow account. If this argument does not sway you and the idea of money sitting in an escrow account is simply too much for you to handle you can talk with your lender to see if they have any way to waive the requirement and allow for you to pay the bills yourself. Many lenders have less problem with you paying your own homeowners insurance than paying your own property taxes, and a lot of this has to do with the fact that taxes can be a significant amount and also because unpaid taxes will result in dramatic consequences. Lenders may require you to pay a fee to avoid escrow if they will allow it at all, so you must decide which route makes more sense to you: allowing the lender to deal with the bills or instead paying some money to handle your own affairs.

You'll notice some good news on your taxes. If taxes have always been an annoyance to you then you may find some respite when you file your taxes the after you purchase your home. Owning a home can be a major tax break because the interest you pay on your mortgage can be tax deductible. Since the first few years of your mortgage payments go primarily towards interest then this translates into a big tax break for you.

The servicing of your loan may change. One of the ways mortgage lenders make their money is by securing mortgage loans and then packaging them up in groups and selling them to mortgage servicing companies. The servicing company then owns the loan and the payments go to them. You may not even realize that the lender has sold your loan because often times the lender will still continue to be the one to contact with questions. There are some products, such as rate modifications, which lenders can only do if the servicing of the loan remains with them. This means that you may call to do a rate modification and the lender may tell you that they can't help you because the loan doesn't belong to them anymore. There is really nothing you can do about this; lenders have the legal right to sell loans as they wish unless they previously stated that they would not sell your loan to another company. You simply need to be aware that this sort of thing happens so you aren't surprised if it happens to you at some point during the life of your mortgage loan.

What if you have trouble making your payment? Many people have a tendency to avoid unpleasant situations, and facing overdue bills are no exception. It doesn't matter what event results in late mortgage payments, whether it's an unexpected job loss, illness, or a major case of overspending. The fact of the matter is that an unpaid mortgage will generally wind up with either the threat of foreclosure or with actual foreclosure proceedings. If you don't pay your credit cards you get some annoying phone calls and letters, but if you don't pay your mortgage then you will wind up being kicked out of your home. For this reason it is imperative that you make your mortgage a first priority when you are deciding where to send your money too.

Getting behind with a mortgage becomes a sort of downward spiral; the monthly payment is probably larger than any of your other bills and getting one or two months behind will certainly give a person a definite feeling of hopelessness, more so than being a couple of months behind with a smaller bill. If falling behind is inevitable due to some unforeseen circumstance then it is incredibly important to contact your mortgage lender and fill them in on the situation. How can they help you if you don't let them know the situation? For all they know you're off spending your mortgage payment money on a trip to Las Vegas when in reality you may be in the middle of a nasty divorce, which has thrown your financial affairs into an upheaval.

If you haven't yet fallen behind in your payments but know that you are heading in that direction then call your lender and ask to speak to a manager. Explain to him or her the current situation and make sure they notate in your file. In some instances mortgage lenders will do what is called a "skip pay" where you can skip a payment for one month without any sort of penalties. You will pay interest on the balance, of course, but the payments simply get stretched out to one more month. For some people in tight financial situations, a month off from mortgage payments can be just the breather they need to get back on track. If, however, you have already fallen behind with your mortgage payments you need to call your lender and ask to speak to the Delinquencies and Collections Department. See if there is a way they can temporarily lower your monthly payment or even forgive some of the fees they have undoubtedly tacked onto your account for not making timely payments. It is always better to contact your lender instead of simply ignoring the problem. They can't help you if you aren't honest about the situation.

Owning a home is more than paying a mortgage payment on time. You need to maintain your investment by being vigilant with the upkeep. When you finally reach the point where you have purchased a home, you are making your payments, and you find that you are actually building up some equity then you can sit back and enjoy being in a position in life which many people merely dream about. Congratulations on achieving The American Dream!

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