Smart Money Moves to Make After Buying a Home for the First Time

April 26, 2023 - 6 min read

Buying a home for the first time is a major financial and personal accomplishment. This is likely your biggest purchase thus far, so it’s important to create a plan to protect your investment and build a solid financial foundation.

Here’s a look at several smart money moves to ensure long-term financial stability after buying a home for the first time.

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1. Create a monthly budget

It’s not uncommon for household costs to increase after buying a home for the first time. Your mortgage payment might be more than your previous rent, and homeownership can involve new expenses such as homeowners insurance, property taxes, bigger utility bills, and homeowner association fees.

Therefore, a monthly budget is a “must” to ensure you have enough money for managing expenses, saving, and paying off debt.

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The first step to creating a budget is calculating your net income (take-home pay) and tracking all of your fixed and variable expenses. Next, categorize expenses based on whether they’re “needs” or “wants.” Add up your needs and subtract this number from your take-home pay. From here, determine how much to set aside for savings and discretionary spending (entertainment, dining out, clothing, personal care, etc.)

A common budgeting method is the 50/30/20 plan. This involves spending 50% of your take-home pay on needs, 30% on wants, and 20% on savings and debt repayment. This is only a guide, though, so tweak the plan according to your circumstances.

2. Build a home repair emergency fund

As a homeowner, you’re responsible for maintenance, repairs, and other home improvements to the property. Unexpected costs such as replacing your windows and HVAC system can be expensive, and without an emergency fund there’s the risk of using a credit card and getting into debt.

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On the other hand, building a savings account can provide much-needed cash when the unexpected happens, thus contributing to financial stability.

Get into a routine of paying yourself first. This involves treating your savings account like a bill and allocating a portion of your income to savings—before doing anything else. Aim to save at least three to six months of living expenses.

3. Set aside other money each month

Along with creating a home repair emergency fund, you can put funds toward paying down your mortgage and removing private mortgage insurance sooner.

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PMI is common when buying a home with a conventional loan and putting down less than 20%. This insurance protects your lender in the event of default, although you’re responsible for the premium.

The good news is that your lender can remove PMI once you have 20% equity. Making at least one extra principal-only payment each year can build equity faster, or you can make smaller principal-only payments throughout the year. Divide your mortgage payment by 12, and then make additional monthly payments in this amount.

4. Keep your debt obligations low

Maintaining a low debt-to-income (DTI) ratio also builds a solid financial foundation. DTI is the percentage of your gross monthly income spent on debt payments.

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To illustrate, if you earn a gross salary of $5,000 and pay $1,500 toward debt each month, you have a debt-to-income ratio of around 30%.

Keeping your debt low can free up cash for saving an emergency fund and paying down your mortgage faster. Also, a low ratio can positively impact on your credit score, making it easier to refinance to a lower mortgage rate in the future.

5. Create a last will and living testament

A last will and testament is a legal document that thoroughly explains how to divide your property and other assets upon your death. If you don’t make your wishes known, your state decides how to split your property. You can also name an executor in this document to manage your estate. This can make the process easier for your loved ones.

To create a last will and testament, you’ll need to take stock of your assets and contact an estate planning attorney to properly draft your wishes.

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6. Reconsider your life insurance policy

After buying a home for the first time, you should also review your life insurance policy (or purchase a policy).

In the event of your untimely death, life insurance can provide your partner, dependents, and anyone else who relies on your income with financial support. If your survivors keep the home after your death, you can purchase enough coverage to pay off the mortgage balance.

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7. Make your dollars go further

Also, take advantage of ways to get more bang for your buck. For example, select a credit card with a rewards program that aligns with your spending pattern. Use your card for everyday purchases (gas, groceries, drug store, etc.) and earn cash back, points, or miles redeemable for gift cards, statement credits, travel, and more.

A rewards credit card is a simple way to “get back” some of what you spend. Ideally, choose a card that doesn’t charge an annual fee and pay off your balance in full each month to avoid interest.

8. Get rid of high-interest credit card debt

High-interest credit card debt is costly—and the more debt you have, the harder it becomes to save and reach other financial goals. If you have enough equity in your home, you could eliminate such debt by applying for a home equity loan.

Home equity loans are second mortgages that allow you to tap into your equity and access cash. You can use the cash loan to pay off your higher-interest credit card debt or virtually any other expense.

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Another way to pay off your high-interest debt is to explore credit cards offering a 0% introductory APR for a limited period. This can be a smart option if you plan to repay your outstanding balance relatively quickly.

Aside from earning rewards, credit cards help build your credit score, but you must use them responsibly. This includes setting a monthly spending limit and keeping a low balance.

To pay off your credit card debt:

  • Temporary freeze the card to prevent new purchases
  • Pay more than your minimum
  • Negotiate your credit card rate (more of your payment goes toward reducing the principal balance)
  • Transfer your balance to a credit card with a lower rate
  • Use a tax refund, work bonus, or other windfalls to pay down balances

9. Take advantage of homeowner tax deductions

Homeowner tax deductions can save you thousands of dollars a year – effectively reducing the cost of owning your home. If you choose to itemize your tax return, you might be eligible to deduct certain homeowner costs and reduce your taxable income.

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The IRS offers a number of tax breaks for homeowners. Here are some of the most common tax deductions you might encounter:

  • Mortgage interest deduction
  • Property taxes
  • Private mortgage insurance
  • Discount points
  • Home office expense
  • Medically necessary home improvements

Note: The Mortgage Reports is not a tax website. All the information provided is intended to be for general guidance only. Check the relevant Internal Revenue Service (IRS) rules with a qualified tax professional to ensure they apply in your personal circumstances.

Buying a home for the first time: The bottom line

Buying a home for the first time is a big financial responsibility, but it’s also an excellent way to increase your net worth and build financial stability. Budgeting, saving money, paying off debt, and preparing for the unexpected all contribute to building a solid financial foundation today—and in the future.

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Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree in finance from DePaul University. She is also a licensed real estate agent in Arizona and a member of the National Association of Realtors (NAR).