If you’ve just closed on your first home loan, you’re probably busy unpacking and trying to get your house in order. Many important details are demanding your attention. However, there is one that you should put ahead of everything else: your loan payments and household costs of owning a home. Controlling the additional costs may seem overwhelming but with a few strategies, you can manage them successfully.
Create A New Budget
Right after closing, you have four to six weeks before your loan payments begin. Take advantage of this time to make a new budget that fits your basic household costs. Start by estimating what the utilities would cost for one month including, water, garbage removal, natural gas and add your monthly loan payment. This your basic budget to use while planning for other expenses. You can then create a budget for dining out, entertainment, gifts and extra items that you consider to be nonessentials. Lastly, design a plan to save or invest for emergencies and for your future financial goals.
For adjustable mortgage loans, it’s important to save if your interest rate is adjusted to a higher rate. Ask your lender what the estimated increase may be so you can save enough to cover it. If the increase is too high, consider refinancing with a fixed mortgage loan.
Use A PITI Escrow Account
Your monthly loan payment consists of principal, insurance, property taxes, and interest or PITI. The principal and interest go to the lender. Property taxes and the homeowner’s insurance are paid to third parties, which can be administered through an escrow account.
Ask your lender to create an escrow account for the property taxes and homeowner’s insurance that would be paid through monthly installments. When the payments are due, the lender withdraws the proper payment and sends it to the third parties for you. Some loans require escrow accounts.
Another option is to start a savings account. This option allows you to earn interest and have the funds available when payments are due. Insurance companies sometimes offer discounts if payments are made in one lump sum.
