Financial Planning Tips For Homeowners

4 Helpful Financial Planning Tips For Homeowners

My memory of the moment our journey began as homeowners is crystal-clear.

Our kitchen table creaked as the mortgage lender slowly leaned across it, passing us the papers. He clicked the pen outward and sat it delicately on top of the paper pile, eagerly awaiting our signatures. Doug signed easily. I, however, had a momentary freak-out as I stared at the dotted line, which sat below a summary of the total dollar amount we were beholden to from this point forward. I did one of those audible, nervous swallows as I suddenly wished I’d read more financial planning tips for homeowners. But, then I felt comfort as I thought about how we’d been wanting this – planning for it – for a long time. I trusted Doug. I trusted myself. So, even though I was nervous, I signed.

I’m a big believer that reality is the best teacher, so looking back, how could I have felt completely prepared? I’d never been through the reality of being a homeowner before. And you know what? I now sit here typing this, so thankful that we took the homeownership plunge even though it was scary for me. After all, without our home, I wouldn’t have the knowledge I do now about financial planning.

The truth is, being homeowners has helped our financial situation for so many reasons.

To start, we’re more intentional with our finances. Homeownership comes with more fixed costs and things to plan around, inherently making us more responsible. But beyond personal discipline and being more thoughtful with financial planning, our home has taught us very practical lessons on finances that I’m excited to share with you today (with the help of Doug!)

But first, let’s face the harsh reality of the current time we’re in.

Buying a home is even scarier now than ever with the COVID-19 pandemic and our country in a spiraling financial state.

Personally, we’re in the thick of it all, with a newborn and two toddlers at home as we’re facing sudden job loss. Some of you may have read that the company Doug worked for went bankrupt recently, and now, unfortunately, we’re members of the 30 million people facing unemployment with COVID-19 running rampant and stay at home orders in place. It’s been a very stressful time for our family and has further bought to light the extreme importance of effective financial planning. As homeowners, yes, but especially as individuals with a family to take care of.

For anyone who, like us, is in an unforeseen circumstance (to which none of us have any control over, may I add), it’s important to know that there are resources out there to help. One of my amazing long term partners is the Michigan State Housing Development Association (MSHDA), and especially during this time, I’m grateful to them for the knowledge and help they offer to Michigan residents.

The MSHDA has a variety of services and resources available to residents facing financial and housing crises.

In fact, their network of agencies are trained in community disaster response, and they work with HUD certified Housing Counselors who can help you navigate the disaster recovery process, access recovery resources, keep finances in order and avoid foreclosure or eviction. Luckily we haven’t needed to leverage this resource yet. But honestly, I don’t know what the future holds at this time. I find comfort in knowing they’re there for us if we need it.To find a Housing Counselor in your area, swing by this link! If you’re not a current homeowner, they also have a ton of amazing resources for homeownership education and even loan help, so be sure to keep them in mind as you’re navigating the process.

Especially during this crazy time, these have proven to be foundational elements that have helped us make the most of our finances. I hope they’re beneficial for you as well!

Doug is the guru of all things finance here, and so I’m turning the keys over to him for these lessons. He has a B.A. in Finance, a M.A in Business from the University of Chicago – one of the nation’s top business schools – and professionally helps to accelerate businesses with growth strategies. I’ve learned so much from him and am ecstatic that he’s agreed to offer his advice in today’s post for us all to read. Take it away, Doug!

4 Helpful Financial Planning Tips For Homeowners

Alright, blogosphere, Doug here. Emily has talked about how owning a home has helped us to be better financial planners, and I definitely agree with that. Here are a few ways that this is true for us. I’m setting each section up into two parts: 1. What we did as homeowners, and 2. Why. Let’s get to it.

Refinancing Mortgage Interest Rates Creates Options

What we did: A year into being homeowners, we refinanced our mortgage because there were better interest rates available. This saved us thousands of dollars!

Explanation: After purchasing a home, you naturally become astutely aware of your monthly mortgage payment and, perhaps, more importantly, your mortgage interest rate. If you are unfamiliar with either, it’s time to get educated! Talk to your spouse or lender. Why? Keeping track of both of these numbers can help save you thousands of dollars over time.

Take your mortgage interest rate, for example. This rate dictates your monthly payment, along with a few other factors, most notably, the payback term of your mortgage (15 years, 30 years, etc.). The lower the interest rate, the better! With a lower rate, you can lower your monthly payment or potentially take cash out of the equity in your home for other expenses. You heard me right! Straight cash! This could be especially helpful during this pandemic if you run across an unaffordable expense.

My recommended method for lowering your interest rate is called refinancing. Start by searching online for a better rate on a refinanced loan; there are thousands of lenders who offer refinancing opportunities. If you find a better rate than your current one, apply to be pre-approved and take it from there. However, be careful, there are closing costs with refinancing, and you may end up increasing the total payoff cost of your loan, among several other factors to consider. Work with your mortgage lender to find the best option for you.

Don’t Forget About The Other Loans In Your Life

What we did: As 30-somethings with a young family and careers, we have loans beyond our mortgage. These include car loans and student debt. We’ve refinanced them all to get better rates when possible.

Explanation: Your mortgage interest rate is very important, but so are all the other loan rates in your life! Even if you have not purchased a house, you may have student loans, car loans, or other personal loans that add up every month. Lowering ANY of these monthly payments can free up cash to use for other necessities, which can be important during this time. All of these loans have interest rates attached to them, and, similar to a mortgage, those rates are a driving factor in the amount you pay per month. With any loan, the lower the rate, the better!

That being said, you should also be looking to refinance your other loans beyond your mortgage. Shop around online for better interest rates to refinance your loans, OR consider a longer payback term (for example, go from a 36 month loan to a 48 or 60 month loan). You can shave off a ton of money on your monthly payment.

We highly recommend going through a local credit union or smaller regional bank. They can have better rates and terms for borrowers because their primary focus is on banking for their customers, while bigger banks have a lot more going on (private equity, investment banking, etc.).

Strategically Use Debt as A Financial Life Raft

What we did: After we bought our house, we knew we’d come across big expenses that we didn’t want to put on our credit card. So, we opened a credit line. Expenses we’ve used this for have included furniture for our house and even unforeseen home repairs. I should note that we both firmly believe the best way to manage finances is to avoid debt. But of course, life happens, and sometimes you need a helping hand. This is a tip for those times. (i.e. COVID-19. Yikes.)

Explanation: A mortgage is debt, and debt can be a scary animal that is typically vilified because of its unforgiving nature. However, debt can also be your best frenemy, especially if it is available for emergencies.

Let me introduce you to the credit line.

A credit line is a form of a loan that is available to you whenever you need it. If you don’t need it, that’s, of course best, because you don’t pay a monthly payment. However, having a credit line that is immediately available is a Godsend, especially since financial pinches can sneak up on you quickly with very few options on how to get out of it. We took out a credit line with our local credit union as a backup plan for any large, unexpected expenses. It has come in handy on multiple occasions.

One note is that the credit line interest rate will be higher than your mortgage, but will typically be substantially lower than your credit card rate. So you need to weigh the pros and cons of using a credit line for yourself. Speaking of which, you may ask – why not charge an emergency expense to my credit card? GOOD QUESTION, DOUG! Credit card rates typically run north of 18%, while credit line rates hover around 10%. Remember, the lower the rate, the better. Plus, you may not have enough on your credit limit to afford a large expense, on top of your normal monthly bills. Credit lines are typically free to open up, costs nothing till you use it, and usually have long payback terms. Win, win, win.

Viewing Your House As An Investment

What we did: Buying our home was something we did for our family, of course, but we also see it as a great investment. Through the renovation process, we repaired and focused on improving things that we know will increase the value of our house. By doing this, we have more than doubled the appraisal value of our home, which will be beneficial if we decide to sell it down the road.

Explanation: Your house is your home, but it’s also one of the largest, if not THE largest investment of your life, outside of retirement. A great way to help improve the value of this investment is to find ways to improve the value of your house with projects that you can slowly chip away at. Improving the value of your house can lead to a better appraisal value, which can mean more cash when refinancing or a higher price when selling your home down the road.

Not very handy? Don’t worry! There is still a tremendous amount you can do. Landscaping, painting, tuckpoint repairs (if you have brick), or fixing driveway cracks are some ideas for DIY projects that can enhance the inside of your home and your outside curb appeal, which is much more important than people would like to believe.

Three quick pieces of advice:

Start small. If you begin with a list of 400 projects and tackle multiple simultaneously or try to do the biggest one on your list, you will likely fail. Start with something easy and build DIY momentum from there.
Google it before you begin. There are a lot of You Tube videos and DIY sites that can help guide you with best practices on your project. Use the internet!
If you do not feel comfortable doing something, HIRE A PROFESSIONAL. Electrical, plumbing, and heating/cooling (HVAC) are not something to be messed with if you do not know what you are doing.

Em again! He’s a smart guy, right?! I feel like I’ve been fairly decent in the basics of finance in my adult life — I’ve saved a portion of every paycheck, paid off my graduate school student loan debts all on my own, try to contribute the max amount to my retirement every year, etc. — but homeownership has opened up a whole new world of financial knowledge and planning to me. Doug has been so helpful in navigating these waters.

Remember, these are complex times, and there are resources available to help, such as MSHDA! Be sure to swing by their site to learn more.