Buying a home means freedom, investment, equity, and pride. It can also mean costs that you don’t realize. Before you jump on board and become a homeowner, you should know the full implication of what it costs to give yourself that title.
In general, you should set aside 1% of your home’s value for regular maintenance. This is regular work, not unforeseen issues that may arise. Knowing this ahead of time can help you plan accordingly. Of course, you’ll also want an emergency fund for the emergencies that arise, such as a broken furnace, busted pipe, or broken window.
Aside from maintenance, though, you’ll have to prepare for the following homeownership costs.
Real Estate Taxes
Probably the most expensive and overwhelming homeownership cost is real estate taxes. When you rented, you weren’t responsible for the taxes on the property – the landlord paid them. Now that you own a home, though, you get to pay this hefty fee.
The exact amount you pay will depend on where you live, the size of the home, the size of the land, and even the type of home. Before you buy a home, ask about the property tax rate. Keep in mind that your proper taxes won’t remain stable, either. As your home appreciates, your taxes increase.
If you have a mortgage on your home, you will be required to have homeowner’s insurance. Each lender requires a different amount of coverage, but at a minimum, you’ll need enough to cover the amount of the mortgage. Many lenders require that you have replacement cost coverage as well to ensure that you can rebuild your home in the face of a complete loss.
Just like your property taxes, the amount of the homeowner’s insurance premium depends on the size, age, and value of your house as well as its location. You’ll likely find different premiums from different insurance companies too.
Keep in mind, if the home is located in a flood zone, you’ll also have to buy a flood insurance policy that is separate from your homeowner’s insurance.
If you rented your home before, you may not have paid utility bills. If you did, it may have been wrapped up in your rent, not giving you a true idea of the cost of those bills. As a homeowner, though, you pay all of your utility bills. This includes gas, electric, and water. You may also want to consider costs like phone service, cable service, and internet. No matter how small a bill may seem, each one adds up, costing you more for homeownership.
Homeowner’s Association Dues
If you buy a condo or townhome, it’s more than likely that you’ll pay homeowner’s association dues. But if you buy a single family home, don’t think you don’t have to worry about this expense. Many developments of single-family homes also have this fee.
A homeowner’s association oversees the development, setting rules on what homeowners can and cannot do. In some cases, they handle the outside maintenance, such as snow removal and landscaping or they provide central amenities such as a workout facility or a pool. It’s important to know how much you’ll pay for these services, especially if it’s a monthly expense so you know can budget for it.
Repairs and Replacements
Finally, don’t forget that all repairs and replacements are now your responsibility as a homeowner. That means you’ll have to fork over the cash when your furnace dies or you need new windows. Even small repairs, like the garage door not working or the caulk in your shower requiring replacement can add up. While you may be able to predict the cost of regular maintenance, large repairs are impossible to predict. Having an emergency fund for these instances will help you prevent financial disaster.
Homeownership has its benefits, but it has its costs too. Before you become a homeowner, make sure you truly understand the cost of owning a home versus renting. A majority of the costs and responsibilities are now on your shoulders. Make sure it’s something you are ready to handle.