When you sign for your home, you know right at that moment what your payment will be. You can see it clearly outlined in your amortization schedule so you know your principal and interest. However, there is MORE to owning a home than just your mortgage payment.
Many times, new homeowners forget about the monthly costs of owning a home. And, unfortunately, there are also things your homeowner’s insurance may not cover either! Make sure you keep these in mind when determining your budget, so they don’t take you by surprise.
HIDDEN COSTS OF OWNING A HOME
If you rent, you may have been paying a very small amount annually for renter’s insurance. However, when you own a home, you will pay a lot more to have home owner’s insurance. In fact, it is much more!
You may not have to pay only homeowner’s insurance, but also private mortgage insurance (called PMI). If you do not put at least 20% of the purchase price of your home down in cash, then you will have to pay for this additional line item.
This typically costs around .05 – 1% of the total loan amount. For example, if you purchase a $150,000 home, you could pay $1,500 per year or $125 per month. Fortunately, once the amount you owe on your home drops below 20% of the value, you can request it be dropped. Even if you forget, your lender is required to drop it once your loan when the value drops to 78%.
The average homeowner will pay more than $70 a month towards homeowner’s insurance. You need to make sure that your policy covers not only the cost to rebuild your home, but also all of the contents inside.
Most of the time, both of these amounts will be rolled into the cost of your mortgage, but make sure you keep that in mind when looking at loan calculators so that you do not forget that you will pay for these on top of your monthly payment.
When you rent, you do not have to pay any additional taxes to live in your apartment or home. However, when you own your home, you may need to also pay personal property taxes (depending upon your state, of course). These amounts can be thousands of dollars annually.
Your taxes are another thing you need to consider when buying a home. If you choose to live in a more affluent area, your taxes may be higher. The MLS listing will typically include this information as you search for properties.
If you have a mortgage your taxes are usually included in the monthly payment. That amount is held in Escrow (a holding account attached to your mortgage) and is paid annually on your behalf. This amount is also usually included in the monthly mortgage payment, so it can be held in an Escrow account and then paid annually, on your behalf.
3. Furnishing and window treatments
Sometimes, when you purchase a home, some appliances are not included. Make sure you know up front what you need to purchase. Often this includes appliances such as a refrigerator, washing machine, and dryer. If your home has more space than where you currently reside, you may have additional furniture costs as well.
You may also need to purchase blinds or shades (especially in the case of a brand new home). These costs can quickly add up, so include these in your budget.
In addition, if you did not have a lawn previously, you will need to purchase a lawnmower and other lawn maintenance equipment to keep up with the growing grass – or hire a service to cover those lawn care costs.
Some renters are required to pay for utilities. However, when you own a home, these costs can increase as they are typically larger than apartments. That means more cooling and heating costs. You can request this information when looking at the property, so you can have an idea of these costs before you put in an offer.
5. Maintenance and repairs
When you rent and the sink backs up, you just have to place a call to your landlord and he or she takes care of it for you. When you own your home, you have to cover this yourself. On average homeowners spend anywhere from $1500 – $5000 annually on home repairs.
Your costs may be lower if your home is newer, but if you opt for an older home, it can often mean that there will be more repairs to be made. But, no matter the age of your home, keep this in mind when planning your monthly budget.
6. Pest Control
Most of the time, when you see a bug, you just kill it and go on with your day. But, what happens if you notice an infestation of ants or worse yet – catch a rodent eating dinner in your pantry?! You have to get rid of them.
When you rent, you just call the landlord and they take care of this for you. When you own your home, you have to take the steps to get rid of these pests on your own. While many times you may be able to purchase products yourself, there are times when you have no choice but to call an expert (think termites).
What might work best is to pay for routine maintenance from a pest company to avoid the additional costs associated with losing furniture, food or worse, like replacing trim, your floor, or more!
7. Kids and Pets
It may seem like a given, but it something you don’t plan for. You know you have to feed and clothe your kids, but you also need to plan on home repairs because of them.
When our youngest was 3, she stuffed a bunch of toilet paper into our upstairs toilet and I did not know it. That is until I was standing in my kitchen and noticed water dripping from the ceiling. It was not that much damage, but still cost just about the same amount as our home owner’s insurance deductible, so we just paid it all ourselves to avoid filing a claim (I think we paid only $150 more than our deductible).
Thankfully, we had money set aside for this repair. We don’t want our kids to damage anything and even the best kids in the world can do something, without even meaning to.
When you rent, the landlord takes care of your maintenance. You don’t spend time mowing or fixing a leaky sink. That falls onto your shoulders. You have to make the time to fix those small repairs before they turn into larger ones which take more of your time!
9. Closing Costs
When you purchase a home, there are closing costs associated with the purchase. These average between 2 – 4% of the mortgage balance. You can often negotiate to have the seller cover all or a part of these costs. If you do not have the cash, they can be rolled into your mortgage, which can, in turn, increase your monthly payment.
10. Homeowner’s Association or Condo Fees
Many areas have Home Owners Associations or Condo Fees, which you have to pay. These are either due monthly, quarterly or annually.
Your fee covers things such as the general maintenance of signage, flowers and sometimes even a swimming pool. They can also be used for paving and other maintenance in your community. You will need to ask up front if this is included, so you aren’t surprised when you get to closing and learn that you have more expenses.
When you look at your home you can often overlook the floral wallpaper in the bathroom or bright pink walls in the nursery. You figure it is easy enough to fix it yourself. Paint and supplies cost money and if you can’t do it yourself, you’ll need to hire someone to do the work for you.
You may also want to update the exterior with new landscaping, shutters or paint. These hidden expenses can quickly add up, which can blow your budget.
You need to protect your investment, and more importantly, your family. Adding a security system or hiring a security company is another fee you may not have thought about.
With a little careful planning, these hidden homeowner costs won’t take you by surprise as you’ll be ready for them.