Just a Mortgage
You signed on the dotted line. Congratulations, you’re a homeowner! Unfortunately, the costs of owning a home extend beyond just your mortgage principal and interest. It is estimated that the average homeowner spends $9,000 a year in other costs related to home ownership. Learn more about these potential expenses so you don’t get caught off guard when they pop up!
Moving expenses will likely be one of the first costs you experience as a homeowner. Because there is so much involved with the build up of purchasing a home, some are left scrambling when it comes time to move. Professional movers can be expensive, costing anywhere from a few hundred dollars for a local move to much more if moving a distance. If you plan to move yourself, make sure you account for the potential costs of boxes, packing materials, truck rental and fuel, if required.
Insurance & Taxes
Homeowners insurance is required not only to be approved for your loan but also to protect your investment. Many new homeowners, accustomed to paying renters insurance, are surprised when they learn about the costs of homeowners insurance. Homeowners insurance is higher than renters insurance as you are paying for a coverage amount that is at least equal to the cost of rebuilding your home. There are many factors that go into the cost of your insurance, including home value, location, and age.
Homeowners insurance should not be confused with mortgage insurance, or Private Mortgage Insurance (PMI). PMI is an additional expense usually required if your down payment on a home is less than 20% and protects the bank should you default on your loan.
In addition to insurance, property taxes can be another big expense. While most homeowners are aware of this fact, taxes on a home can be confusing. Property tax is usually inclusive of two parts: 1) a tax based on the value of your home; and 2) any special assessments that the government has deemed your home benefits from. Examples of special assessments vary by community, but can include water and sewer, landscaping/beautification, parks and libraries, and school districts.
Your lender may allow, or in some cases require, that both your property taxes as well as your insurance be impounded into an escrow account and added to your monthly mortgage payment.
If you will be making your property tax payment outside of an escrow account, be sure to account for this expense in your budget. Usually property tax payments are broken out into two payment periods and thus due two times per year.
It is important to note that both homeowners insurance and property tax can fluctuate during the life of your mortgage and thus affect your monthly payments. Special assessments may be added (or fall off) of your property tax bill, and insurance claims that are filed in the area you live can affect your insurance even if you did not submit a claim.
The majority of the remaining expenses are related to the function and upkeep of your home. This can include Home Owners Association (HOA) fees, utility expenses, repair and maintenance costs, and the costs for appliances that may not be included with your home purchase, such as a washing machine, dryer, or refrigerator.
HOA fees are prevalent in master-planned communities and cover maintenance costs for items such as neighborhood landscaping, pools and parks, and private roads. HOA payments can be due monthly, quarterly, or annually, and should be disclosed by the home seller. These fees can vary greatly based on the amenities requiring maintenance, so it is important to include them in your budget, if applicable.
Many times it is possible to research the utility costs of the home you intend to buy, either through the seller’s agent or via the utility company directly. A little extra work now can prevent unexpected stress later.
There may also be a few expenses that you were not expecting, such as purchasing a lawn mower or paying for lawn service. These expenses can add up over time, and it is important for you to consider how they can affect your budget prior to actually purchasing the home.