Unbiased Financial Information Provided by Financial Finesse
Owning a home can be the best investment you ever make, but any of these eight common mistakes can turn what would otherwise be a wise investment into a financial liability.
Mistake #1: Not maintaining a cash reserve to fall back on. If you don't have a stash saved up, a broken water heater or leaking roof could wreak havoc on your possessions and your pocketbook. An emergency fund can also protect your equity and your credit by providing the funds to cover mortgage payments if you find yourself temporarily unemployed.
Mistake #2: Not having adequate homeowner's insurance. Make sure your coverage is sufficient for your needs and is updated to keep pace with inflation and the rising value of your home. If you ever have to rebuild and your home is underinsured, you could lose thousands of dollars. The Insurance Information Institute offers advice on how to put an adequate homeowner's policy in place (which may mean purchasing a personal liability umbrella policy as an extra layer of protection).
Mistake #3: Not keeping written and photographic records of valuables. If you have to make an insurance claim because of a fire, flood or theft, you're more likely to recoup the full value of your lost or damaged belongings if you've kept good records. Keep a current written inventory as well as photographs or videotapes of your home's contents. Store copies in a fireproof lockbox in your home as well as in your safe deposit box.
Mistake #4: Not evaluating and improving your home's energy efficiency. According to the U.S. Department of Energy, installing proper insulation can reduce your heating and cooling costs by up to 30 percent. Fixing a faulty or dirty furnace can keep the system from wasting fuel (and money). Both the Alliance to Save Energy and the ENERGY STAR offer online assistance for sizing up your home's energy usage. Energy-wise upgrades may also increase your home's resale value.
Mistake #5: Overestimating your handiness around the house. You've heard plenty of home improvement horror stories -- don't star in your own! Trying to tackle a remodeling or repair project beyond your skill level could be costly if you have to call in a professional to salvage the job. Be realistic and know when a task is too tough to handle by yourself.
Mistake #6: Choosing contractors carelessly. A home improvement project gone wrong can quickly turn your place into a money pit. If you decide to remodel, your contractor should be bonded, insured and licensed by your state, if required. Ask around to find one that's trustworthy and reasonably priced. And always check references.
Mistake #7: Not having adequate, working smoke detectors. Smoke detectors are a must in any home. They improve safety and, in many cases, qualify you for savings on your homeowner's insurance (ask your agent if a discount is available). Test the batteries monthly and change them yearly. If you want added assurance, many local fire departments provide free inspections of your home's fire safety measures.
Mistake #8: Assuming it's not worth refinancing. Refinancing isn't for everyone, but it's always worth considering. Depending on the prevailing interest rate, your tax bracket, the remaining mortgage balance and fees on the new loan, you may be able to reap significant savings by refinancing your home.