Home ownership has its many advantages and tax benefits, but many first-time home buyers aren’t aware of all of the costs involved. These are not only the short-term expenses involved in closing on your home, but also the long-term operating and maintenance costs. Even if you aren’t a new homeowner, this cheat sheet can help you prepare your budget for the coming months.
Down payment, mortgage, insurance and taxes
These are often the first costs we think of when we start planning for home ownership, and for good reason. In order to purchase a home, you must consider how much of a down payment will need to be made, what kind of interest rate you will qualify for and how that will affect your monthly mortgage payments, as well as homeowner’s insurance and property taxes. Be sure to speak with your lender about these items and the possibility of combining your mortgage, insurance, and property taxes into one monthly payment.
Most homeowners cannot avoid basic utility costs such as electricity, water, heat and/or air conditioning, and possibly garbage service (depending on where you live). Keep in mind that homes heated by oil (instead of natural gas or electricity) often require increased maintenance costs. And while these costs are not always considered necessities, the majority of homeowners have additional operational costs such as telephone, internet, and cable TV, which can become quite expensive if you have more than one cable box.
Whether you’re buying a home with old appliances that will need to be replaced in the near future or brand new ones that can be costly to repair, make sure you set aside money for appliances such as refrigerators, ranges/ovens, dishwashers, washers, dryers, hot water heaters, furnaces, and garbage disposals. As any seasoned homeowner will tell you, appliances tend to break down when you least expect them to, so allocating money for repairs and replacement in advance is a very wise idea.
Maintenance, repair, and improvements
Routine maintenance and upkeep is imperative for any home in order to protect your investment. Neglect can lead to dilapidation quickly, so dedicate money in your budget for repairs to your home’s plumbing, HVAC, and electrical systems, as well as structural maintenance including roofing, foundation, insulation, windows, doors, drywall, etc. If you’re handy, you may be capable of handling some of this maintenance yourself, but even if that’s the case, there are some jobs that must be handled by licensed electricians, plumbers, or builders.
Improvements, on the other hand, are not always a necessity but are desired by homeowners who wish to enhance their homes, either because they get enjoyment out of it or because they want to improve the home’s resale value. Home improvements can range in size and scope – new siding, windows and doors, updated kitchens and bathrooms, swimming pools, and outdoor kitchens are just a few – so how much you budget for this is entirely up to you.
Pest control & extermination
This is a cost that varies significantly from region to region. In some areas of the country, homeowners typically do not have to worry about insect infestation. However in other areas, this is a common problem and often requires a monthly or yearly fee for control. If you are purchasing a home in an area where termites are a concern, you should have a thorough termite inspection performed before closing on the home. If termites are found, a termite baiting system should be installed around the perimeter of the home which will require quarterly inspection and service to ensure proper control. Other common insects that often require periodic extermination are ants, bees, wasps, roaches, etc.
Furniture and decorating
This expense can be particularly significant for first-time homebuyers, who often do not have enough furniture to fill an entire home, or for those who are moving from a small home to a larger one with additional rooms. How much you dedicate to this cost is entirely up to you. Some homeowners only require limited furnishings and home décor, while others place considerable importance on it and therefore require substantial budgeting.
Homes with front and/or backyards typically require simple upkeep such as lawn care, leaf cleanup, and tree maintenance, but some homeowners also like to invest in gardening, in-ground sprinklers, fences, pavers or walkways, and exterior lighting. Some of the basic chores such as lawn care, raking, and gardening can be undertaken by the homeowner, but you may need money in your budget to hire a professional to handle other more involved projects.
For more helpful home ownership tips, visit the Cliffco Mortgage Bankers Know-How Center.