The biggest financial challenge most first-time homebuyers face is qualifying for a mortgage and saving up for a down payment. In fact, for many, this can mean many months and sometimes years of personal sacrifices and penny-pinching.
And yet, the actual cost of owning a home can be a major challenge, too—especially if you don’t know what to expect. So, we put together a few things you should know so you’re prepared when you get to the closing table and beyond.
Taking Care of Uncle Sam
If you rent, you’ve probably never had to think about paying property taxes. But once you own your own home, they’re unavoidable. And the amount you’ll have to pay will vary depending on where you live and your property’s value.
Most buyers have two options when paying annual property taxes – set up an escrow account or pay them out of pocket. An escrow account is a separate account that you fund each month as part of your total monthly mortgage payment. In fact, depending on the terms of your mortgage, you may be required to go this route. The funds that are collected in your escrow account are used to make your property tax (and homeowners insurance) payments on your behalf. But if you have the option to pay property taxes yourself and choose to do so, you’ll have to factor these payments into your budget.
Moving & Utilities
Even before closing on your home, you may face the first major expense of homeownership – moving. It can cost up to $1,000 or more to hire a professional moving company to move your belongings from your old home to your new home. For a long-distance move, it will cost much more.
If you rent, your landlord probably takes care of some or all of your utilities. When you own your own home, utilities are entirely your responsibility. For this reason, it’s a good idea to find out what water, electricity, gas and garbage services will cost for your new home ahead of time, and put those costs in your budget, too.
Handling Upkeep
When you’re a tenant, your landlord or property manager is responsible for making sure your living space is safe and functional. You may need to change the lightbulbs and do other minor upkeep, but that’s it. All of this changes when you own your own home. If your furnace goes out in the middle of winter, the person in charge of fixing it is you.
Routine maintenance includes everything from painting and landscaping to having your heating, cooling and plumbing systems serviced regularly. While these extra costs may feel like a downer, maintaining your property not only protects its value, but it keeps small issues from developing into financial disasters.
Take rain gutters, for example, which are designed to channel rainwater away from your home’s roof and foundation. When these gutters become clogged with leaves, twigs, and other debris, water can seep into your home and cause major damage to your roof, walls or foundation—which can cost thousands of dollars to repair.
Planning Ahead
By now, it should be clear that budgeting is crucial to managing homeownership costs. And the best time to start is at the very beginning of your homebuying journey.
Start by breaking down your monthly expenses, allocating funds for mortgage payments, utility bills, insurance and property taxes. Next, factor in regular maintenance and whether you’ll need to hire professionals, like a landscaper, to help. Be conservative with your estimates. Once you’re moved in and are able to track your expenses over time, you’ll be able to adjust your budget as needed.
It’s also a really smart idea to set up an emergency fund for unexpected repairs, such as a clogged sewer line or a leaking roof. Simply take a certain amount of your income and place it in a separate fund to be used only for emergencies, so you’re not likely to use it for day-to-day needs.
While the extra time, money and effort involved with owning a home may seem a bit of a hassle, for most homeowners, it’s totally worth it. Owning your own home provides a feeling of independence and the opportunity to build wealth as your home equity grows over time. By planning ahead, you can enjoy the rewards of homeownership without the stress.
Have more questions about homeownership costs? Find a local loan officer near you or email us at inquqiries@rightbyyoumortgage.com to get started.
