Yay, I bought my first home, what do I do next?
Moving into your home is the first step, but what do you do next?There are a few things you need to think about when you become a home owner. From a financial point of view you need to think about how you are going to service your loan for the long term and how you are going to protect yourself.
Oh as well as this, you are now responsible for the upkeep of your place. This means that when something breaks, you need to fix it. No more late night calls to the real estate when the hot water system goes. You now need to be the one organising repairs and paying for them yourselves.
There are some expenses you can anticipate such as rates and water, so it is important to allow for these in your yearly budget. You should be putting away money each pay cycle to account for these expenses so that when they become due, you have the money sitting there ready to go.
When it comes to maintenance and repairs however, it is hard to know when you will need to be paying for something. Personally I allow between $2,000 to $4,000 a year in my ‘house repairs’ fund. This money is only used for our house upkeep. Fixing small things in your house like door handles is pretty cheap, but what happens if your plumbing goes? These expenses can really hurt your hip pocket so having some money ready for an emergency will ensure you can continue to eat.
Touch wood, I have never had any fundamental issues with our home, but we have had to replace small things here and there. If I do have a major issue however, I know the money is there ready to go.
Life and Income Protection insurance – You would have attained your loan based on your earning capacity. Banks will lend you an amount of money based on your salary and your ability to pay back the loan. Depending on your level of debt, it is likely that you will be relying on your income in order to pay back this hefty loan.
What happens though if you don’t have an income for an extended period of time? Do you have the right protection in place? Income protection insurance is pretty important when it comes to your home loan because most people fully rely on one or both incomes within the household.
Unfortunately it’s not always a choice not to work. An illness or injury may be stopping you from working, and income protection is the best way to protect you and your home if this affects you.
You also need to consider the worst case scenario. If you or your partner dies, what happens to the house? Consider a life insurance policy that at a minimum accounts for the value of the home loan. That way if tragedy strikes, you know that whoever is left behind doesn’t have to deal with their loss as well as how they are going to pay for your home.
Home, contents and building insurance – If you have been renting in the past, it is likely that you have had contents insurance, but you now need to ensure that you also have building insurance. Your home contents insurance provider should be able to help you with building insurance too.
Think about it, in a fire, your contents will be destroyed, but so will your building. Remember it is your building now and you are responsible for it. If you only have contents insurance, in a fire, you would not have the correct cover to rebuild what you lost.
Set up a Will – Most people only consider setting up a Will once they have a substantial asset. Well, you can’t get more substantial than your first home. If you are in a partnership you need to consider this when setting up your Will, and an estate planning professional will be able to help you with this.
You also need to think about any dependents or children that you have to ensure that your wishes are being carried out and that you have provided for those who rely on you.
Pay more if you can – One thing you should consider when preparing your new budget to include your home loan, is whether you can pay more than the minimum amount. The banks usually give you a home loan with the minimum repayments for a loan that is set to last for 25 years. Do you really want to be paying off your loan over 25 years though? That is a loooong time.
If your cash flow allows for it, top up your loan repayments. For those with an offset account, you have the benefit of less interest, as well as having access to some reserve funds in case of emergency. I have previously spoken about the magic of offset accounts here and here. If you have a home loan, you really should consider having one of these, it can potentially save you thousands in interest over the term of your loan.
For those of you with willpower, an offset account is a win/win situation for you. You can top up your offset account, thereby reducing the level of interest you are paying. But, if you need this money, it is sitting there ready to go, you don’t need to redraw this from the loan.
There you have it. From a finance point of view, these are some very important things for you to consider now that you have your new home.
I know that decorating and house warming parties are so much more exciting than that, but if you get all of the above sorted out, you will sleep easier in your new home.
– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.