Buying a house changes your finances. While many lenders are concerned with the payment-shock aspect of borrowers switching to higher mortgage, tax and insurance payments than they had been making before, homes are even more expensive than these payments indicate. Between saving for a higher monthly expense load and preparing for both the recurring and occasional expenses, your home will have you saving more than before.
Adjusting Emergency Funds
Owning a house doesn't change the rule of thumb that it's wise to have approximately six months' worth of income in a rainy day fund, and more experts are now recommending that you build up nine months to a year. What changes is the amount of your monthly expenses that will be consumed if you need to tap into the fund. If your mortgage, tax, insurance, utilities and other payments rise with a new mortgage, you could use your savings up more quickly. With this in mind, if you were saving less than the guideline, intending to tighten your belt, the increased bills that come with homeownership makes skimping on your rainy day fund a dangerous business.
Taxes and Insurance
If you don't have an escrow account paying your property taxes and your homeowners insurance for you, you'll want to set money aside for those bills. If you choose to save as if you had an escrow account, you can make monthly deposits equal to 1-12th of your tax and insurance bills and, if you want, add a little cushion. Otherwise, it's important to have the money available to pay these bills when they come due.
Maintenance costs for your house can bounce around a great deal. Some years, you might just need to do some touch-up caulking or fix a leaky faucet -- while you'll spend tens of thousands of dollars on major maintenance projects in other years. Saving anywhere from 1 to 3 percent of your home's value in a maintenance fund every year should give you enough money to cover expenses.
Cash Management Concerns
As you save for your house and for your rainy day fund, you could amass a significant sum of money. While you want to keep it accessible, putting it in a low-yielding savings account might not be the best way to invest your money. One strategy is to keep three months' worth of money in a highly liquid account, and keep the rest in certificates of deposit with a three-month maturity period. That way, you've got enough money to keep you and your home afloat until your CD matures. You may even choose to use longer-term CDs and take the risk that you have to pay a few months' interest as a penalty if you have to pull money out.
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