Now you’re ready to take the plunge into home ownership. You’ve reviewed your budget, crunched the numbers, and researched your options. But are you truly ready?
Most prospective homeowners use mortgage calculators by imputing current bill payments, income, and maybe insurance costs and property tax rates of themselves. This calculator shows them an estimate of what they would spend on a newly acquired home.
While very useful, what mortgage calculator does at best is to give rough estimates. Compared to the detailed budgeting exercises that Home ownership education will give you, it’s not a substitute.
You’ll need to take some time to consider the cost of home ownership, because a house can quickly earn the nickname “the Money Pit” if you don’t do so, whether you’re in the “trying to figure out how much I can afford” stage of the home buying process or you’ve already closed on your new home. These are expenses that goes beyond the mortgage, property taxes or homeowner’s insurance.
A publisher of Inside Mortgage Finance Magazine, Guy Cecala say’s “Most people are unprepared for the big repairs — and even the small repairs”.
Here are some financial factors that home buyers need to budget into their monthly home ownership costs and expenses.
- Your heart: Even when you’ve got a budget on how much you want to spend on a new house and you saw something you love or can’t stop thinking about. You’ll end up buying it even though it cost way much above your budget. Homeowners, oftentimes buys home with their heart and not with their head. This resulted to Gail Cunningham, the vice president of public relations for the National Foundation for Credit Counseling advising people to make financial decisions with their head, and leave their heart out of it.
- Appearance: There is always going to be something you want to change even before the first thing in your house breaks. This is as a result of wanting people to know you have taste when viewing your house for the first time. The executive vice president of CESI Debt Solutions, Neil Ellington said “you don’t want it to look like the worst house on the block”. So, you add shutters, landscaping, flower boxes, a paved walkway up to the house. Just to beautify your home.
- Insurance: To insure a home, cost more than say a one-bedroom apartment. Hence, you’re still going to up the budget for insurance even if you have renters’ insurance. We have lots of factors to consider when dealing with insurance. Lots of people buy old house thinking they will save more doing so. But, guess what: It cost more to insure an old house because the electrical, plumbing and heating are prone to disaster. Or you think always paying your mortgage validates you to not make your credit card payments during recession? You know what, insurance companies increase your rates based their assessment of your “risk” level because they periodically inspect your credit score. If you live in earthquake zone, flood zone, volcano or tsunami zone you will need to make extra payment for hazard insurance. Home ownership increases your insurance payment.
- Property taxes: Most people think paying $1,500 rent means they could pay a mortgage and own a home for themselves. They miss out on a huge cost right out of the gate (property taxes) when they impute only the interest rate and principle into the calculator without knowing. You need to divide by 12 what the taxes are in advance and immediately add it to your estimated monthly payment. Have at the back of your mind that taxes will keep on going up. So make sure you have enough left in the budget to pay even more taxes.
- Maintenance: Who thinks about things like re-sealing the driveway, re-staining the deck, cleaning the gutters, repairing any cracks in the siding, patching the front steps, repairing and eventually replacing the roof? But these are things you’ll consider cleaning quite often and repairing once noticed. You also need to repair the appliances, replace filters, fix any plumbing leaks, seal your doors and windows, clean the chimney, drain the water heater, patch the walls, re-paint, replace the toilets, re-stain the floors, re-grout the bathroom and replace the carpet. This is the reason why you mostly see homeowners looking grumpy for no reason.
- The Lawn: When you first saw your new house, the huge backyard you fell in love with. Will be all yours to weed, water and mow. Whether you choose to contract the lawn out or you decide to do it yourself, it will still cost you. Cost of contracting the lawn out: You pay someone to cut the lawn, you also pay for weed killer, fertilizer and pest control. Getting new trees, bushes, flowers or fencing also cost you. Cost of doing it yourself: You buy a lawnmower, weed whacker, hedge trimmers, a hose, rake, bucket, sprinkler, gloves etc. You also need to install a shed to house them, this also cost you.
- Cleaning: Not only does it takes a lot of time and energy in cleaning your home. It also requires using a multiple vacuum and a set of cleaning supplies when compared to cleaning an apartment. When you lack much time and energy to get this done, and other adults who could have helped with the cleaning had gone to work, you will be forced to hire a cleaner to get the job done. This will cost you as well. Hence, home ownership has it’s price to pay.
- Furnace and air-conditioning: The longer the life-span, the lower the energy efficiency. Hence try to figure out how old the furnace and air-conditioner is during inspection. So you could have a rough estimate of when to replace them. It’s best to buy a new furnace or central air instead of repairing them for the next couple of years. Also know the type of furnace you have in the house before buying it.
- Time: Elington said “time is your biggest cost of being a homeowner”. Before getting your home, you were not aware where your rent went towards. After buying your home you now spend most times changing a light bulb or lawn maintenance with little or no time left for you to play with your kids. Hence you just discovered that you’ve always bought time for yourself with your rent. Home ownership requires less or no time with your kids.
- Wiring — cable, phone, internet: Carolina Spencer and her husband bought their first home some years back without prior inspection. This costs Mr. Spencer and his wife more money on repair because, the cable system was inconsistent — some stations worked but others didn’t. The house wiring was wrongly connected or not suitable which led to the cables leaking. Wires outside is the utility company’s responsibility and wiring in the house is the owner’s responsibility. The electrician they brought home took about 4-5 hours to rewire the home. You would have spent less time (2-3 hours less) compared to the time the electrician took in rewiring the cable if you had tour the house a few times when you were house hunting and was present or not for inspection.
- Do-it-yourself (DIY): It seems everyone now has the do-it-yourself fever with the rise of home improvements channels. You’ll be hearing some statement like “lay down your own flooring? No problem”. While in reality there is because most of us, no matter the number of hours of HGTV we’ve logged. We still don’t know much about plumbing, electricity. Doing it yourself might seem as though you will save on labor cost but in reality, it cost you more. You end up ruining the materials you bought. Hence, buying a second set of materials and still pay for the service of an expert.
- Safety: Extra safety features are going to cost you money, from repairing the front porch to installing an alarm system. This and many more are what home ownership entails.
- Pest control: In your apartment, at the sight of any pest you’ll call the landlord. But you now own a home and there’s no landlord to call when you see a bug or a mouse. Preventing pest infestation cost a lot of money than pest control, like sealing all entry points, replace infected furniture.
- Extra stuff an expert finds when he comes for something else: An expert comes to your home to help you fix your kitchen. While still outside he pulls out what looks like a handful of straw under the front porch. That’s the very porch your precious little girl bounces on when playing with her friends. It looks good to your untrained eye, but bring in a professional and he will spot places that needs to be fixed.
- Emergency: You can only plan for somethings, things like flooding, hail damage can’t be planned for. You could only be aware of the damages they’ll cause depending on where your home is located. Know the areas covered by homeowner’s insurance policy and make emergency savings fund that could go towards unexpected repairs. Having no cash to take care of the problem is the only thing worse than experiencing repair issue. Home ownership comes with the task of always preparing yourself for the unexpected.
- Kids: Not only will your kids cost you money for baby food, diapers, clothes they’ll out-grow, dance classes, phones and colleges, but they will cause many thousands of damages with time. They will stain walls, spill cranberry juice on rug, run into the screen door, and more. You had to worry about security deposit alone, when staying in a rented apartment. But home ownership will only make you reminisce those days when security deposit is all it cost you. You are advised to set aside a jar for kid disasters apart from jars of money for vacation and fun items.
- Savings: You have got to spend a lot up front in order to save a lot. Your money is slipping out through the back door while you are focused on saving. Ellington says “home ownership is just like marriage, people don’t think about these expenses when they buy a home but starts thinking about it after the honeymoon phase with the house”.
- Nearby construction: Make sure you know what the zoning laws are and who owns the surrounding land. After buying a home with an amazing view, then someone comes to build a 20-story building in front of it. This will cost you big time when you want to sell the house. If a nearby land is assigned for commercial use, your property value will be slashed because the road will be busy. This is one of the most important cost of home ownership you might face.
It’s important to find out if you can afford all the expenses of a new home before you think of buying the house. In the first few years spend little on non-mandatory items like, gadgets, clothes, and vacations. Much should be kept for unexpected costs to see how it unfold in the coming years.
There are several questions on the site of The National Federation for Credit Counseling. Check them out and ask yourself those questions to see if you are ready to have your own home. They also have home buyer courses to educate people on all the ins and outs of buying a home.
Owning a home is like marriage, if you prepare for it, you’re better off those who just bump into it. You can prepare for owning your home by helping your friend with his yard work. This will help you know how much money, time and energy is involved before having plans of getting your home. Your home can be more of a haven and less of a burden by budgeting expenses from day one.
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