|Managing Your Mortgage
Acquiring your first home, or a larger one to meet growing family needs, usually focuses all of your attention on accumulating the down payment and qualifying for the financing on the property you have selected. There is a sense of relief when the loan is finally closed and you have settled in the house. It will not take long, however, before you will have to face the financial responsibilities that home ownership imposes.
If you are a first-time home buyer, many of the problems that you simply turned over to the landlord (or your parents) are now yours to fix and pay for. If you have moved from a small house into a larger one, you may find the expenses of maintaining the property have grown along with its size. In either case, careful planning and budgeting are essential in order to guard against financial problems in the future.
Your home is a major investment and you have a great deal to lose if you default on your mortgage payments or fail to maintain the property. Planning for unexpected situations as well as the routine costs of owning a home can help you avoid foreclosure or bankruptcy when emergencies arise.
Be Prepared For Homeownership
The expenses of owning a home go beyond the monthly mortgage and utility payments, and can create financial difficulties, particularly for first-time home buyers who have minimal cash reserves. Mechanical failures in the plumbing, electrical and heating systems seem to occur at the worst possible times, but have to be repaired. If you have purchased an older home, complete replacement of water heaters, furnaces or kitchen appliances may be needed. You should have drawn up a budget before beginning your search for a home, making allowances for such expenditures. If you did not, it is time that you begin to accumulate adequate reserves to deal with such emergencies.
In a newer property, your immediate expenses may be confined to landscaping, interior decoration and furnishings. Under normal conditions, mechanical items and appliances will be under warranty for six months to a year and will not require major expenditures, but may need minor repairs.
In an older property, replacement of major items can be very expensive. You should have determined the age of the furnace, hot water heater, air conditioning system, kitchen appliances and the roof. Your home inspector's report probably noted the ages o f these major items. If they are older then half their expected useful life, you will need to plan for the costs of the replacement.
Set up a budget and plan for both regular maintenance and major repairs. Establish an emergency fund for repairs and appliance replacement. Know what sources of financing are open to you when a major item such as the roof or heating system has to be rep laced. These are things that can cost thousands of dollars and you may have to finance them through a home equity loan, a second mortgage or an installment loan. Determine which kind of loan you are likely to qualify for, the pros and cons of the alternatives and have a plan for dealing with a major expense.
Your budget should also include a reserve for making your mortgage payments in the event of illness or loss of income in the future.
Planning For The Unexpected
While over-obligating yourself or unexpected repair bills may jeopardize your ability to keep up your house payments, the primary causes of foreclosure and bankruptcy are unanticipated personal crisis. More homeowners lose their homes because of illness, loss of employment or marital problems than all other reasons combined.
None of us factor these things into our plans for the future, but you should know about some of your alternatives if you find yourself in such a position. It is much easier to look at alternatives and plan an effective course of action before you are in trouble and in a state of anxiety and stress.
Sometimes you can see the trouble coming before financial problems begin. An advance notice of a layoff means the family income will be severely cut back or eliminated in the near future. A major medical operation or property repair bill may be more than you can afford to repay, even with a short term loan. You have to address the situation as soon as possible or risk losing your home.
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