6 Home Finances You Should Be Tracking

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Written by Guest | June 26th, 2019
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Guest post by John Bodrozic

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:

1. Track your home asset value

Your home’s estimated value fluctuates based on current real estate market conditions. These market conditions include recent sales, comparable sales, current listings on the market, average days on the market, and other market conditions.

It is good practice to track what the estimated value of your home is at least four times a year. Some tools do a three year forecast that estimate your home’s potential value so you can be constantly aware of what the market says your home is worth.

2. Review your full mortgage costs

When most people get a loan, they tend to focus on the amount of the monthly payment. Your mortgage and property related costs will make up the largest part of your monthly expenses.

You should also track two other metrics on your mortgage:

  • The remaining balance on your mortgage. It is essentially how much debt you have left on your home.
  • The total interest costs over the course of your mortgage. You could reduce interest costs if you pay off your mortgage principal early.

3. Know how much home equity you have

Your home equity is how much of your home 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 secondary loans. You should calculate your home equity at least four times a year. This will bring more clarity to your overall home finances.

The amount of home equity you have is always changing because the market value of your home is changing and the balance due on your mortgage is also changing. Home equity is usually the largest part of your overall net worth which makes it a significant part of assessing your overall financial health. There are some home finances apps that track this automatically for you.

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 estimated home value. 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.

4. Budget for your household expenses

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 your annual home insurance premiums as well your annual property taxes is important.

Other home related expenses to budget for include utilities such as gas/electric, water, garbage, and phone/internet bills.

Depending on home type and personal 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 percent to 40 percent of your monthly incomes, so having a budget keeps you in financial control.

5. Don’t forget maintenance and repair costs

All homes need ongoing maintenance and repair tasks. Replacing air filters, checking fire extinguishers, trimming trees, caulking, mowing the lawn, buying 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.

A good budgeting rule of thumb is to take between 1 percent and 4 percent of the purchase price of your home as your annual maintenance and repair cost. If your home is less than five years old, then 1 percent is a good number because your home’s appliances, equipment, and materials are still relatively new. 

But if your home is 25 years or older, then 4 percent is a better number because many of your home’s materials and equipment have reached the end of their useful life, and you will spend more money fixing or replacing them.

6. Manage home remodel projects

If you perform larger remodel or renovation projects, track your budgets and your actual costs. 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.

While managing your project, track all your costs along with all the invoices 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.

Be financially aware

Many people ignore all the financial aspects of their home, yet 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. Others will use digital home management software apps like HomeZada to 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 even improve the value of your home.

John Bodrozic is a co-founder of HomeZada, an online and mobile digital home management solution. HomeZada strives to educate and provide resources for homeowners in all areas of home management, including home inventory, home maintenance, home finances, and home improvement projects.

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