Buying a house is an exciting and sometimes slightly terrifying time in many people’s lives. If you’ve never bought a house before, the process can be daunting. It’s fairly overwhelming to say the least!
However, owning a home is a big part of the American dream. Once you close on the home and get settled in, things will start to level out until you reach your new normal as a homeowner.
When buying a home, most people focus on the details of the house buying transaction which of course you’ve gotta do. What type of house do we want and how can we get the best deal on a mortgage and homeowner’s insurance?
While these factors are definitely important, there are two other financial aspects most people completely ignore during the homebuying process. They are:
- making sure you’re properly insured with life insurance and
- making sure your estate planning is properly covered with a trust or will.
How life changes when you buy a house
When you become a homeowner, your life changes in fairly substantial ways. First and foremost, as a homeowner, you now have to make a monthly mortgage payment or you could face foreclosure.
But there’s more, of course!
You have to consider ALL your home’s expenses
You also have to pay property taxes, homeowners insurance, and potentially even HOA fees depending on where you live.
And then you’ve got to pay to maintain and update your home over time. It’s not just the roof, it’s the humidifier, the garbage disposal, the hot water heater. The list goes on and the budget is never-ending.
You’ll need a backup plan in case of emergency
Since owning a home can be a very expensive process, you simply have to plan to come up with a backup plan in case life throws you an unexpected twist. After all, you don’t want to lose your house because you couldn’t make a mortgage payment due to unexpected circumstances.
I’m a big fan of emergency funds for obvious reasons to make sure that unexpected twists don’t cause you crazy havoc. Your emergency fund may be essentially for home repairs as those things usually have to be done pretty much right away.
It’s so not like buying a new couch…
How life insurance needs change as a homeowner
As a homeowner, your life insurance needs will have change and here’s how:
- If you bought life insurance previous to buying a home, your new home expenses might mean you need more life insurance.
- If you didn’t have life insurance before owning a home, you may need it after you own a home.
But the question is – why would you need more life insurance?
Losing one person’s income could mean the loss of your home
If you or your spouse passes away, the first and primary thing you’re going to want to check is whether the mortgage payments are going to be reachable with the loss of income. As you know, most people qualify for a mortgage based on household income so your household income could way drastically drop with a death.
Bottom line – without the same level of income, you or your spouse may struggle to make the mortgage payment each month.
I was interested to find out recently that for a relatively small cost, you can purchase enough life insurance to pay off your mortgage in full should you pass away. Similarly, you probably want your spouse to get at least enough life insurance to pay off the mortgage as well.
This way, if either of you dies, the other could pay the mortgage off.
Setting up life insurance
You should have enough life insurance to cover all of your family’s needs after a spouse passes away – which is usually in excess of the amount of your mortgage – and Policygenius is one good place to get started to see how much life insurance you should have.
With Policygenius you will need to just fill out a few simple questions about you, your family health history, and your coverage needs in a few minutes. Once you’re done answering their questions, you get initial quotes from several companies that offer life insurance.
This is great because you don’t have to fill out multiple questionnaires to get pricing from multiple companies. It can save you both time and money.
And I always say, “time is money.”
If you already have enough life insurance, make sure to update the beneficiaries on your policy. If you’ve recently divorced or remarried, an update is most likely needed to make sure the correct person receives the money needed to pay the mortgage payment.
You may be able to save money by bundling insurance products
One way you could potentially save money on your insurance products is bundling. When you have multiple insurance policies with the same insurer, they most often offer a discount. As a homeowner, you may be able to bundle homeowners, life and other insurances you have to start saving even more money today.
Why you should update your will or trust as a homeowner
Your home gets passed on to your family
Homeownership adds another layer of complexity to your estate as well and you are highly advised to consider getting your estate in order at this point too. This way, assets will pass to who you want them to, not who the courts decide they go to.
And this, of course, includes your home. And not surprisingly, laws vary wildly from state to state when it comes to what happens to property after your death.
Family is complex 🙂
Depending on how you purchased your home and your other family circumstances, things get tricky if you pass away without a trust or will. Others might object to using the word tricky, but whatever word you choose here, it’s mighty complicated.
If you purchased a home by yourself without putting your spouse on the mortgage or the home deed, what you’ve got to know is that your spouse technically doesn’t own the home at all.
Only you do.
When you consider the complicated relationships of many families today, it’s easy to see why things often get complex. Many families end up dealing with divorces, remarriages, and children from other marriages. With all of these variables, who gets the house after you pass away would be left up to the courts unless you have a trust or will.
And in general, if you’re asking the question whether you need a will or not, the answer is that usually that yes – in fact – you do.
Setting up a will or trust
There are many different types of documents you can use to prepare your estate. A will, trust, and nomination of guardian form are three of the most common examples.
- I have kids under 18
- I want to specify my health care wishes
- I own a home or business
- I have more than $100k in assets
- I’m married
- I want to leave gifts to people or charity
On the page, you can select which of the circumstances apply to your family (or will apply to your family in the near term) and Trust & Will tells you if you need to only nominate guardians, if you need a will or if you need a trust.
According to Trust & Will, clicking the “I own a home or business” button means you actually need a trust instead of a will. They say a trust-based estate plan allows you to avoid probate court. It lets your assets, including your home, pass straight to your beneficiaries.
When it comes to owning a home, this makes a lot of sense. You don’t want your family to have to deal with going to court so they can fight over who gets the home your spouse is already likely living in.
Updating wills and trusts
If you already have a trust or will, make sure it is up to date. Outdated wills or trusts, such as those created during a previous marriage, usually just need to be modified with new designations. But it’s important to do it right away, and it’s one of those things that it’s super easy to forget about as time passes.
While the journey of homeownership can be expensive, don’t wait to get your life insurance and estate planning in order. You never know when an unexpected death could rock your family and your finances.
Life insurance can protect your spouse so they can pay off the mortgage and continue living in your home after you die without worrying about how they’re going to make the mortgage payment each month. Combining life insurance with a trust can help make sure the house gets passed to your spouse or whoever else you wish upon your death without dealing with the courts.
If you don’t have life insurance, get quotes through Policygenius today in just a few minutes. Then, select which provider is the best fit for you and apply for a policy.
If you don’t have a trust, head over to Trust & Will and begin the process of starting a trust to make sure your home is passed to the person you desire, not who the courts decide.