For most people, your home is the biggest investment you’ll make in your lifetime. You’re looking at hundreds of thousands of dollars that are likely to be appreciated over the years you live in the home. Still, far too many people lose their homes or end up upside down on their mortgages because they don’t understand them. To prevent that kind of trouble, homeowners should know the most important things to safeguard their investment.
1. Keep Up With Ongoing Costs
One of the nicest parts of owning a home is the freedom you have to do what you want, when you want, with your home (in most cases). One of the worst parts is that anything that happens to the home is your responsibility. Many people don’t realize the difference between renting and owning is not just paying rent versus paying a mortgage. Rather, if a pipe suddenly bursts under your home, if you need to upgrade your ductless air conditioner, or if the refrigerator breaks, it’s all on you.
Sadly, when one thing breaks down in your home, it’s often followed by another. The concept of Murphy’s law has been around forever for a reason. So, to safeguard their investment, homeowners should save money for a rainy (stormy) day. It’s a good idea to keep six months’ worth of living expenses saved in an emergency fund to keep up with ongoing costs as well as to protect against any loss of income.
2. You May Need Specific Insurance
When you first apply for a mortgage, you’ll likely hear about homeowner’s insurance because your lender will insist upon it. Think about it. In the beginning, your lender is actually the one making the large investment. They’re the ones that technically own the home, at least until you pay off the loan. Of course, they want to protect their investment, so they’ll only offer you a mortgage if you agree to insure it with basic coverage.
However, they won’t shop for insurance for you. That’s where you have to step in and be savvy. You can work with any insurance company you like, so call around and get a home insurance quote from the agents you speak with. Ask about what specific insurance you might need, whether it’s for natural disasters, running a business out of your home, or taking on renters, for example. Explain your region, what you plan to do with your home, and that you want it fully covered.
3. Interest Rates Matter
Many people get mortgages at the current rate, and then they sit on that rate for as long as they have the home. They don’t realize that refinancing at the right time could save them thousands of dollars over the life of the loan. It will not only affect the total cost of the loan over time, but it will also dramatically affect the monthly payments. This means that as you pay off your loan and the value of your home rises, your investment becomes more valuable.
Homeowners need to watch interest rates to safeguard their investments. You don’t have to stress yourself out about it, but just keep an eye on how the real estate market is doing. The general rule in real estate is that it’s worth refinancing if you can cut one percent off of your mortgage loan (from 7% to 6%, for example). Remember that the lower the amount of what you owe on your house, the more equity you have, which is where your investment really lies.
4. How Your Mortgage and HELOC Work
Speaking of what you owe on your house. Just because you have a mortgage doesn’t mean you understand how your mortgage works. As a result, you may end up tricked into loans and lines of credit against your investment that may be too risky. A miscalculated loan can find you upside down on your mortgage, which means you owe more on the home than it’s worth. So, before you agree to any loan, make sure you understand the terms.
A conventional mortgage is one where you agree to a term, usually 15, 20, or 30 years, at a fixed rate. This means you’ll know what your monthly payment will be for the life of the loan. In contrast, a variable-rate loan often starts off with low interest rates but then balloons up to an unaffordable rate after a few years. Likewise, a home equity loan might seem like a good idea, but you could lose your home if you default for any reason. Educate yourself so you don’t get cheated.
5. To Establish a Living Will or an Estate Trust
Finally, it might feel morbid, but you need to prepare for the unexpected event of your early demise. Far too many family members of homeowners end up in probate court or lose the property altogether because the homeowner didn’t take the time to establish a living trust. While you might spend a couple of thousand dollars to establish a living trust, that’s nothing compared to the several thousand dollars your inheritors will pay in probate court.
It’s a good idea to see an estate attorney as soon as you buy a home in order to establish your beneficiaries in the event of your unexpected death. Especially if you still have young children, you don’t want them to end up losing out on a potentially valuable investment you made that could have been part of their inheritance. Take the time to draft your wishes and have them notarized to protect your investment and your loved ones.
Ultimately, the few steps homeowners need to take to safeguard their investment might seem complicated and time-consuming, but they can be. But the time you take today to protect what’s valuable to you and your loved ones will save everyone lots of time and money in the long run. It will also make your pathway toward capitalizing on your investment much smoother. Basically, if you’re going to go to the trouble of making an investment, you may as well go to the trouble of protecting it.
Photo by Tierra Mallorca on Unsplash
