DEAR IDA: I’m a 29-year-old wife and new homeowner, and I feel like the American Dream is turning into a financial nightmare. Between rising insurance premiums, surprise repairs, and property taxes, our house costs hundreds more a month than it did when we closed, and every neighbor I talk to says they’re getting slammed with the same increases. My husband thinks we should just “tighten our belts” and ride it out, but I’m losing sleep wondering what happens if a storm hits or one of us loses our job when we’re already stretched this thin. I don’t want to sell and start over, but I also don’t want to be house-poor for the next 30 years. How do I figure out if we’re hanging on to a blessing or trapping ourselves in a money pit? – Barbara
Dear Barbara:
If you don’t have any equity in your home or your home has not appreciated in value significantly, selling is not a realistic option. There are ways that you can reduce the costs associated with home ownership.
If you haven’t already done so, work with your insurance representative to put your home insurance in the same policy with your vehicle insurance. On average, industry standards indicate that you can save an average of 15% by bundling your insurances into one policy. If your insurance company doesn’t offer a bundling service, shop around for a company that does. While shopping around, check to see if there are any additional discounts available, such as paying annually instead of making monthly payments.
Speaking of your insurance carrier, it may be time to make a switch. Shop around each year for the best rates. Start looking at least a month before your renewal date. Ensure that you are buying from a reputable company with a good track record for paying claims. Sometimes, low insurance rates seem too good to be true for a reason.
Although it may be intimidating to do so, consider raising your deductible. According to the Insurance Information Institute, about one in 18 insured homes have a claim each year. If you do have an event that would result in a minor claim, consider paying for the repairs out of pocket. The unfortunate reality is that filing a claim will likely result in an increase in your premium.
Consider making improvements that will reduce the risk of storm damage like replacing your roof with hail resistant material, adding storm shutters, improving drainage in your yard, and making upgrades to your plumbing and electrical systems, if needed. If you live in a fire prone area, consider painting your home with a fire-retardant paint. Making these improvements could also increase your home value and marketability.
Keep your credit score healthy. According to the Consumer Federation of America, insurance companies charge homeowners twice as much for having a lower credit score. You can check out their interactive map showing the percent penalty for a low credit score by Parish or County in each State. Having a good credit score will also help should you decide to refinance at a better interest rate.
Finally, consider making additional principal payments. You can use an amortization calculator to see how much you could save in interest over the years by making even a nominal amount towards the principal balance on your loan.
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