Everyone tells you that your home is your largest financial asset and biggest ongoing expense. But no one seems to help you understand all the different financial ways to manage your home. Here are six home finances that you should track and manage.
Track YourHome Asset Value
Your home’s estimated value fluctuates based oncurrent real estate market conditions. These market conditions include recentsales, comparable sales, current listings on the market, average days on themarket, and whole host of other market conditions.
It is good practice to track what the estimated value of your home is at least four times a year. There are even some tools that do a 3 year forecast that estimate what your home might be worth in the future. The reason for this is to be constantly aware of what the market says your home is worth.
Review YourFull Mortgage Costs
When most people get a loan, they tend to focus onthe amount of the monthly payment. This makes sense because it is important toassess your monthly income against all of your monthly expenses, of which themortgage and property related costs is the biggest part.
You should also track two other metrics on yourmortgage. You should know what the remaining balance is on your mortgage at alltimes as this is amount goes down with every monthly payment you make. It isessentially how much debt you have left on your home. In addition, you shouldknow what the total interest costs will be over the course of your mortgage.This is helpful because you could reduce those interest costs if you pay offyour mortgage principal early.
Know HowMuch Home Equity You Have
How much home do you own?
Your home equity is how much of your home do you own.Your current estimated home equity is calculated by taking the current estimated home value minus the remaining balance on your primary mortgage and the remaining balance on any second loans you have. You should calculate your home equity at least 4 times a year. This will bring you more clarity to your overall and home finances.
Ever changing
The amount of home equity you have is alwayschanging because the market value of your home is changing and the balance dueon your mortgage is also changing. Home equity is usually the largest part ofyour overall net worth which makes it a huge part of assessing your overallfinancial health. There are some home finances appsthat track this automatically for you.
Loan to Value Ratio
In addition, your home equity can also be expressed as your loan to value (LTV) ratio. This is essentially taking the remaining balance on your loan and dividing it by the current estimate value. This is important to know because many people look for home equity loans to help pay for home improvement projects, or even other life expenses like college tuition or unforeseen medical expenses. How much of a home equity loan you might qualify for is dependent on your LTV ratio. The lower the percentage is, the more of your home you own.
Budget forYour Household Expenses
InsuranceandTaxes
Your mortgage is usually your largest home related expense. But there are many more property related expenses you should budget for including property taxes and home insurance premiums.Sometimes these are bundled together in your mortgage, but even if they are, tracking how much your annual home insurance premiums are as well your annual property taxes is important.
HouseholdExpenses
In addition, there are many more home related expenses to budget for that add to your overall home finances. Including utilities such as gas/electric, water, garbage, and phone / internet bills. Depending on the type of home you have and your preference, there are more service related costs such as pest control, landscaping, cleaning, and pool service costs. Your total home related expenses are your largest set of expenses, often times 30% to 40% of your monthly incomes, so having a budget keeps you in financial control.
Don’tForget Maintenance and Repair Costs
All homes need ongoing maintenance and repair tasks. Things like air filters, fire extinguishers, tree trimming services, caulking, mowing the lawn, small tools, repairing broken toilets, steam cleaning the carpets, etc. all add up. It is important to track these costs as they add up to your total cost of ownership.
Annual Budgeting
A good budgeting rule of thumb is to take between1 and 4% of the purchase price of your home as your annual maintenance andrepair cost. If your home is less than 5years old, then 1% is a good number because your home’s appliances, equipmentand materials are still relatively new.But if your home is 25 years or older, then 4% is a better number becausemany of your home’s materials and equipment have reached the end of theiruseful life, and you will spend more money fixing or replacing them.
HomeRemodel Projects
For those people who perform larger remodel or renovation projects, it is important to track your budgets and your actual costs for these.The budget is important because each project can have a wide range of costs depending on the products and brands you select.Start by creating a realistic budget for your project. This can be done simply by researching different brands and products at different price points.
KeepDetailedRecords
While managing your project, make sure you track all your costs along with all the invoice and receipts. Many renovations can be considered as additional investments in your home.By adding up the total amount of all your remodels to the original purchase price of the home, you have your tax basis. Your accountant will need to know this number if you ever decide to sell your home to assess your tax situation.
BeFinanciallyAware
Many people ignore all the financial aspects of their home, yet as you can see above, there are so many reasons to manage all your home finances.Some people will use spreadsheets and paper to try and stay on top of these.Yet, others will use digital home management software apps like HomeZada to help them get organized.Whatever method you choose, managing your home as a complex financial asset will save you money both short and long term, and can possibly even improve the value of your home.
