We want you to be as prepared as possible; not only when you buy your home, but once you move in and embark on the journey of homeownership. So, we’re here to help you get ahead of the game by pointing out the costs of owning a home most first time buyers do not account for. Yes, even after the downpayment and closing costs are paid, there are still items to account for in your budget.
A recent study conducted between Zillow and Thumbtack, shows owning a home can cost owners an extra $757 a month on top of your mortgage payment. That is a hefty chunk of change! While this is broken down in the study between “unavoidable” costs like taxes and insurance and “avoidable” costs such as lawn care and cleaning services, an extra $9,080 a year (on average, major metro areas like San Francisco, Boston, and New York are a bit higher) can feel like a lot to prepare for.
So, how do you best prepare your budget for these additional homeownership costs? Read on for our recommendations:
Utilities are the items that keep your home running safely and efficiently: water, electric, gas, HOA (if applicable), and home security services. You’ve likely been paying some utilities as an apartment owner, but be prepared to cover some (or even more) of these costs once you become a homeowner.
So, how can you best prepare your budget for these expenses if you haven’t moved in yet?
Tip: When doing your due diligence on a home you’re thinking of buying, ask your agent (or the owner’s agent) about the utility bill rates, particularly paying attention to heating and cooling, as this is one of the costliest utilities for all homeowners.
- If you can’t get your hands on exact numbers and are moving in the same area, consider the square footage of your current home. If you’re moving from a 1,000 square foot apartment to a 3,000 square foot home, triple those amounts in order to create a ballpark figure for your budget.
- See if any friends or family in the area are willing to share the rates they pay and exactly what they’re responsible for. Some cities require owners to pay sewer monthly, others don’t. Again, it just depends on where you live.
- Every area has different utility rates and pricing. Do your own homework to come up with the most comprehensive estimate for you!
The property tax payment is on the home listing, but this may not be the actual amount you’ll pay if the value of the home increased significantly between what the last owner paid and your home purchase price.
Tip: Because these costs can vary so widely, do your own homework:
- Do a quick estimate by multiplying your purchase price by the ad valorem tax rate in your area. For example, if you buy a $100,000 home and the tax rate is 2%, you’ll pay $2,000 in property taxes.
- Once you have an estimate, consult your real estate agent or visit your local tax assessor's website get a firm idea of what you’ll owe.
- Find out when your taxes are due: some areas have owners pay annually or bi-monthly, and many loan services lump in property tax payments as part of the monthly sum. Again, because it varies, do your own homework!
Taxes aren’t always a drag. First time home buyers may be eligible for a big tax benefit at the end of the year. We’ve written about all of the possible deductions for first time buyers here.
According to the Zillow/Thumbtack survey, the average homeowner pays less than $1,000 annually for home insurance. Still, what you’ll owe will depend on your status (your credit for example) and your area, as well as the price of the home you’ll be insuring.
- The good news? Most lenders will require you to obtain homeowners insurance prior to closing. We’ll ask you this information as a part of your mortgage application, so it’s worth it to do this research early on so you’ll have an idea of what to add to the budget before you even move in. Homeownership also covers items within the home, so in addition to protecting the physical structure, your valuables are covered in the event of an emergency as well.
- The bad news? Unless you buy a home in cash or outright, you can’t get around this. Even if you never have to use the insurance (which we hope you don’t!) it’s best for peace of mind and also for your finances in the event of an unexpected disaster.
Tip: See if you can bundle your auto and home insurance to receive a lower rate. Also, don’t forget to get three rate quotes to ensure you get the best deal!
Sure, you can make choices. You can choose to buy a condo without a yard, or choose to buy the old fixer-upper that needs a lot of upkeep. The amount of maintenance you’ll do on your future home is absolutely up to you. However, at some point, all homeowners have to make a repair or two on their home, or will find an unexpected responsibility, such as trimming trees to keep them off a neighbor’s property.
Since it can be tough to anticipate these types of expenses, we suggest putting a little bit away every month in a separate savings account for these surprises so that you are fully prepared. This can include budget for projects you’ve already planned, but should be kept separate from your other accounts to ensure you don’t touch it.
Tip: Try stashing $50 a month away, or adding an additional amount to your regular savings contributions.
Even if you opt for a low-maintenance purchase such as a new build, condo, or townhome, homes still require regular care and “upkeep.” Unforeseen expenses such as landscaping, home cleaning, gutter cleaning and gardeners can cost homeowners an additional $3,000 annually, or an extra $250 each month. The good news is that if you elect to “do it yourself” on items such as caring for the yard and cleaning the gutters, your can cut some of these costs.
Tip: To keep costs low, we recommend prioritizing services based on need. Perhaps you can get away without the bi-weekly maid service, but truly need help wrangling your half acre yard. See? It really is all about choices.
If you take away one thing from this article, let it be this: because the cost of owning a home can vary so widely by city and state, it’s important to investigate the median costs in your area. This way, you’ll be able to truly create a budget you can live by - and most importantly, live with.
Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. Please consult your tax advisor. All calculations and information shown here are for illustrative purposes only. All third parties listed above are for demonstration purposes only and are not affiliated with LendingHome. All views and opinions expressed in this post belong to the individuals referenced. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2019.