Now that you’ve shelled out the cash for your down payment and closing cost, you’re ready to sit back and enjoy your new home. But before you spend money on renovations and decorating, it’s crucial to budget for other expenses that you may not have planned on.
It’s easy to get caught up in homeownership, especially for first-time homebuyers, but failing to prepare for all the costs associated with owning a home can lead to disaster. Here are five expenses that every homeowner should prepare for.
Mortgage Payment
This may seem obvious, but many new homeowners fail to properly budget for their mortgage payments. You should know the exact amount of your mortgage payment, the due date, and if you have a grace period for late payments. When you budget, your mortgage payment should always come first. Additionally, it may be worth working with a financial advisor for recommendations about whether or not larger payments should be made. This is typically only recommended if you have a high interest rate. Otherwise, the cost of inflation may balance out your interest rate and making larger payments can actually lose you money in the long run.
Mortgage Insurance
Mortgage insurance is becoming a requirement for more and more homeowners as the cost of the average down payment percentages are going down. If you only made a small down payment on your home, you will most likely be required to obtain private mortgage insurance. Lenders usually require private mortgage insurance if you put less than 20 percent down on your home. The costs of the private mortgage insurance will be added to your mortgage payment.
Property Taxes
Your property taxes will most likely be the largest expense next to your mortgage payment. Your property taxes will be assessed, calculated, and collected by your county and based on the value of your property. When you have a mortgage, your property taxes will be paid in monthly installments to your lender, where the payments will be held in escrow. Your lender will pay the entire property tax bill on your behalf before the due date. This is another non-negotiable payment that you must pay in order to stay in your home. Additionally, you are responsible for the increase in payments when your property taxes go up.
Maintenance Costs
If you want your home to last and avoid high repair costs, you have to keep your home properly maintained. Just like you keep your car running its best with routine maintenance, your home should be treated the same way with regular maintenance of your plumbing, electrical, HVAC, and other systems in your home.
When it comes to your HVAC, most systems have a warranty for repairs, however, to prevent any issues, you’ll need to do HVAC maintenance services annually, in most cases. Many local HVAC companies have a contract where you pay a monthly fee to cover any repairs and it includes the annual maintenance. Before signing one of these contracts, consider how old your HVAC system is. If you are moving into a brand new home, it is less likely that you’ll need repairs done in the next 5-10 years. However, if your home is more than 10 years old, then it is likely that your HVAC system is older and may need additional maintenance so a monthly contract can be a good choice.
Plumbing and electrical is similar to HVAC where there are often local companies offering monthly contracts for covering annual maintenance and any repairs or issues that come up during that time. However, if your home is brand new, it is likely that you wont need those services. Additionally, builders often have a warranty on the home for a certain amount of time that typically covers any plumbing or electrical issues that you have during that time. Be sure to check your contract with them to get clarity as needed.
Pest control is often overlooked as regular maintenance, but it’s crucial to keep your home free from unwanted pests that can cause severe damage to your home. Mice, rats, squirrels, termites, and other vermin can damage walls, electrical systems, and other areas of your home. Invest in a good pest control company that will routinely inspect and protect your home against pests.
Major Appliance Repair and Replacement
The appliances in your home will eventually break down and need replacing or repair. You should set aside a small amount of money each month for appliance repair or replacement or have your appliances insured. These can include things like the stove, refrigerator, and washing machines. In new homes, they are often covered by warranty for a few years, however, if you’re buying a new home, it is a good idea to expect issues with your appliances, especially if they are older than five years.
Some appliances also take up additional electrical or gas that may be adding to your monthly bills. If you are noticing a large amount of funds going toward your appliances, it may be worth considering upgrading your appliances to be more energy efficient. It is a larger up-front cost but it can save you a lot of money in the long run.
There are tons of advantages of owning a home over renting. Homeownership is a great way to build wealth and security, but it’s vital to educate yourself on all the costs and expenses associated with buying and owning a home.