Buying and moving into a new home is one of life’s great experiences, especially if you’re buying your first home. From getting that pre-approval to the “yes!” response on an offer to closing and moving in, every step is exciting. And while the process is engaging and fun, it’s important to prepare for moving day […]
What is Risk Management?
Are you ready to invest your money into a home? A home is one of the biggest assets and investments you will ever have, but it’s also a non-liquid investment. Once you make your down payment, you can no longer easily access that money for any other reason—even if it is an emergency. So before you think about purchasing a home, you need to do a serious review of your financial situation and do some risk management.
Preparing for the Future
Risk management helps you determine the amount of risk you are taking when buying a home by identifying, analyzing, evaluating, and treating loss exposures. It also monitors risk control and financial resources to mitigate the adverse effects of loss.
Since every real estate transaction involves risk, buyers should know how much risk they can handle and how they will choose to manage that risk. If after you’ve done a self-audit and still have money in your emergency savings which you don’t need to use towards a home, you may be able to purchase a home with a low amount of risk. A high-risk home purchase would be one in which you have little disposable income and wouldn’t have any money in an emergency.
Getting a Fair Deal
Your house can be an asset right now, but there is no guarantee that the price you pay for it will be the same amount you can sell it for in the future. Often, this situation is unavoidable, such as if property value in your area drops or you paid too much for the home. Risk management can help you get a fair deal by helping you determine how much you can afford and keeping you within your budget.
Know When to Back Out
If you aren’t planning on staying in the home for at least 5-7 years, it is probably not worth the risk and money to purchase the home unless your financial situation allows you to do so without strapping your budget. Your financial adviser can help you with risk management and help you determine if buying a home is within your means, and your real estate agent can help make sure you’re paying a fair price for the home.