Homeowner Finance 101

You’ve worked hard, saved your money, and straightened out your credit to purchase the house of your dreams. Now that you’ve moved in, your financial concerns are over, right? Wrong.

“You’re more vulnerable and more at risk now because of all the sacrifice you made to get into your house,” says Askia M. Aquil, executive director of St. Petersburg Neighborhood Housing Services Inc., in St. Petersburg, Florida. “The money you’ve saved, the good credit you’ve established, is at risk.”

To address this risk, home buyer’s education groups across the country are emphasizing post-purchase education — information homeowners need to help them make wise financial decisions. According to RealtyTrac, the number of homes entering foreclosure nationwide was 67,024, up from 62,432 in May, with one new foreclosure for every 1,726 households.

There are many traps to avoid long before the word foreclosure enters the picture.

Hear from financial experts about what to avoid once you get a home:

Cashing out equity to pay off other debt. While you may lower your monthly payments, in many cases, you’re stretching the debt out over 30 years, and you may end up paying more in interest in the long run. According to Freddie Mac, 64% of loans refinanced in the first quarter of 2005 resulted in new mortgages that were at least 5%, compared to 56% of refinanced loans in the fourth quarter of 2004. That means most Americans who refinanced took some cash out in the process.

Taking on additional credit cards and incurring new debt. If you’re in the position to buy a home, chances are your credit is reasonably good, so you’re a prime candidate for a new credit card. Throw those offers away, experts say. Not only do credit card companies target new homeowners, furniture companies do too, says Marcia Griffin, president of Washington, D.C.-based HomeFree-USA (www.homefreeusa.org), a nonprofit homeownership organization.

Neglecting to create a financial cushion for home maintenance. “Furniture companies know that the average person wants to be in a house with a lot of furniture,” says Griffin. Rather than charging furniture you cannot afford, Griffin suggests creating a savings account for furniture, repairs, and other things associated with home maintenance. Homeowners can also take home-decorating classes from do-it-yourself stores such as Home Depot or Lowe’s, or even home buying education organizations like Homefree-USA.

Waiting until the situation is dire to seek help. Visit a local home buying education organization, or even fork over a little money for a financial adviser. Says Aquil, “In the long run, people would be better off if they had to pay a little something to have someone sit down and help them preserve the most important investment of their lives.”