Personal Finance Advice

With so many people looking to buy a house with so many foreclosures and short sales on the market, it’s easy to think that now is the time to hop into homeownership.  Just because houses are being offered at attractive prices, however, does not automatically mean that it is time to apply for a mortgage.  Before you buy a house - no matter how good the deal is - you need to take a hard look at your personal financial situation and consider all the additional expenses involved with owning a home.

Think beyond the monthly mortgage payment, and even beyond expenses associated with paying real estate taxes, homeowners insurance, and homeowner association fees.  Think about this: Who pays for repairs when something breaks or something goes wrong?

Financial experts usually suggest that homeowners have a savings account that they regularly contribute to in case something goes wrong with the house.  Suppose the water heater stops working, or a baseball goes through your front window and your insurance won’t cover the cost of the repair or your deductible is more than the total cost for the repair.  These are instance when you dip into the savings account that you have been putting money into faithfully in case something needs to be fixed.

What about the bigger expenses? What if your foundation cracks and you have to pay thousands of dollars to get it repaired? What if your basement floods and you have to pay for the repair costs out of your own pocket? Even the most diligently deposited savings account can be wiped out by something like this, and in many cases homeowners have to turn to credit in order to fully cover the cost of the repairs.

Owning a home is a little like walking a tightrope.  It’s exciting and there is certainly prestige associated with it, but you’re perpetually on the brink of disaster.  Not everyone is financially devastated by having to make a major repair on a home, but a sudden necessary expense on a home that costs a lot of money is enough to throw most homeowners into some form of financial peril.

This is not to say that people should not become homeowners.  Owning a home can be a great way to build wealth and for many people it’s a huge step in achieving their financial goals.  The trick is to stay realistic when buying a home and to not assume that once you buy your house you’re finished with your expenses.

So what can you do to make sure that your personal finances aren’t in danger with every potential home repair? Homeowners should regularly contribute to a savings account that is specifically set for home repairs and upkeep, just like financial experts advice.  There are a couple of other things homeowners should do to avoid financial disaster:

Don’t get overextended.  All of your personal finances are intertwined, so that means that your maxed-out credit card balance greatly affects your ability to pay for a repair needed for your home.  When you own a home you need to try to keep your personal finances in good order, otherwise you’re asking for trouble.

Don’t use up your equity.  Homeowners who gobbled up their equity with cash-out refinances and equity loans back when real estate was appreciating in value rapidly have since become owners of homes that are worth less than they owe, thanks to depreciation.  Your home is not a piggy-bank.  Keep your equity where it is and only use it if you have to. 

Always keep in mind that as a homeowner you are the one responsible if something goes wrong with the house.  If your personal finances aren’t in a state where you could handle an expensive repair without throwing your finances into chaos then don’t buy a home.