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Personal Finance and Your Home

Personal finance is a tricky thing, and it gets even trickier when you’re dealing with the most expensive thing that most of us will ever buy: A house. How can you make real estate work for your personal finances? Is buying a home a good idea for you? What will you do if a flood or fire destroys your home? And what if you can’t afford to hang onto your house, or need to move fast for some reason? Here’s what you need to know about homeownership and personal finance.

Should you buy a home?

It’s arguably the biggest question in personal finance: Should you buy a home? The answer depends on a lot of factors.

Generally, buying a home can make more sense than renting if you stay put long enough. All else being equal, paying into a mortgage is better than paying rent, because a mortgage goes toward the home you own (while rent just goes into your landlord’s pocket). But there are also one-time costs that come with a home sale or purchase, like paying the real estate agent and handling other closing costs. To offset these costs, homeowners have to stay in their home long enough for the advantages of paying a mortgage (rather than rent) to add up to most than they lost in payments to folks like lawyers and real estate agents.

Of course, how much you spend to buy a home (as well as on legal fees, real estate commissions, and so on) will depend on your savings, your income, and your long-term plan. As you calculate how much home you can afford, be sure to remember costs like maintenance and homeowner’s insurance. As a homeowner, you’ll pay for things like your burglar alarm, water bills, property taxes, and repair costs that might have been your landlord’s problem back when you were a renter.

Protect what’s yours.

Your home and everything in it represents a huge chunk of your net worth. Most homebuyers work with mortgage lenders to take out debt on their home, simply because homes are so valuable that they are tough to purchase with cash (for most people, anyway!). There’s a danger in this, though: What if a flood or a fire causes serious property damage? What if it ruins your possessions or even damages the very structure of your home? That wouldn’t just be a personal tragedy — it would be a financial disaster, too.

That’s why responsible personal finance decisions for homeowners start with securing homeowners insurance. Homeowners insurance will cover your home and the personal property within it in the event that a disaster strikes. But not every insurance policy and the insurance company is created equal, so make sure that you check different home insurance policy options and compare homeowner’s insurance quotes. A standard homeowner’s insurance policy may not cover flood and water damage, so be sure to add that coverage if you’re concerned about floods and water damage on your property (there will be an extra cost, of course). If all of this sounds like a hassle, consider working with an insurance broker.

What if you need to sell fast?

Generally, a strong personal financial plan will lead to relatively slow decision-making on big issues like buying and selling a home. But even the best-laid plans can go awry, and there are a lot of reasons why you might need to sell the home quickly. Perhaps you’re having serious financial problems and can no longer afford to hold onto the home; if that’s the case, you’ll probably want a quick cash offer and a quick house sale. Or maybe you’re making a whirlwind move to a new city as you seize a huge professional opportunity; striking while the iron is hot is the right move for your career, but you’ll definitely need a quick house sale to make things work out.

If you find yourself in this situation, don’t panic. A quick house sale isn’t as hard to come by as you might thing. In fact, there are a lot of potential buyers out there for homeowners looking for a quick sale. Property “flippers” specialize in snapping up homes fast, improving them, and then selling them just as quickly. Many of them are willing to give homeowners fair prices that reflect the market value of the homes in question because flippers can still make a profit by improving the property before the next sale. On top of making a quick and fair cash offer, this sort of buyer will be more likely to overlook property damage and other issues that other sorts of potential buyers would make a hassle over. All of these make a buyer in the home-flipping business a good option for sellers who need to move their hours fast. If you can’t afford to wait for a more traditional sort of buyer, remember this option.

Categories: Editorials
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