With the activity in the housing market last year, it’s likely there are a number of us with new homes as we enter 2022. In addition to the typical things we consider with a new home (securing homeowner’s insurance or adjusting your emergency fund appropriately to cover unexpected home expenses) there are a few less than obvious financial considerations we should also evaluate.
Broader Insurance Considerations
A home purchase impacts more than your homeowner’s insurance.
Life Insurance: If the income earners in your household were to pass away, could your family afford your mortgage payment? Our goal for our clients is typically to have a mortgage paid off upon a wage earner’s passing, as it reduces stress to the surviving family. A term life insurance policy aligned with the term of your mortgage is a reasonably priced way to protect your family’s home.
Disability Insurance: Like life insurance, disability insurance with ample benefits to cover a mortgage payment should a primary wage earner become disabled is also important to consider. Sadly, a severe disability can at times be more financially devastating to a family than a death. Sufficient disability coverage can allow a family to stay in their home when they may otherwise be forced to move.
Umbrella Insurance: This coverage protects against liability exposure over and above that covered on your auto/home coverage, which is particularly important if you have a pool, trampoline, etc. It’s also reasonably priced. Your financial advisor can help you determine the appropriate level of coverage, but you should also discuss with your insurance agent to make certain the underlying coverage is structured such that the umbrella policy will “kick in” should it be needed.
Record Home Improvement Expenses
In today’s market, it’s easy to imagine your home increasing in value. In the future, if you sell your home at a gain, you may owe tax to the IRS. The good news is you can reduce the tax owed if you show record of money spent on home improvements. The bad news is that you need those records on hand! Given that the sale of your home may be many years into the future, it’s important to keep good records now. Every time you put money into your home (a new deck, new appliances, etc.) keep the receipts. Your tax professional can help you navigate this at the time of sale if you’ve kept good records.
The purchase of a new home is exciting but can also be overwhelming. The above tips can help put you and your family on solid footing but having trusted professionals to help you evaluate other areas for planning can be invaluable. A well-rounded financial plan should include these and other considerations. If 2022 will be your first full year in your new home, congratulations, and cheers to the many happy memories to be made in the year ahead!
PYA Waltman Capital, LLC (“PYAW”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about PYAW’s investment advisory services can be found in its Form ADV Part 2, which is available upon request. PYA-22-04