House hunting is a very exciting process and as you start to zero in on that perfect home, you need to dig deeper into your budget. How much of a down payment will you need? How much will your monthly mortgage payment be? What interest rates can you get? These are common questions that help you determine if that dream home, is also an affordable one. While your lender and websites like Zillow can show you an estimated monthly payment, that amount does not encompass all that you will spend on your new home. It is vitally important that you understand the true costs of homeownership before getting to settlement.
Insurance and Taxes
You need homeowners insurance to protect what is likely the largest investment you will ever make. Insurance amounts depend on many aspects of the home you are buying, as well as your credit score. Once you have picked out that dream home, call a handful of insurance companies to compare rates and deductible amounts to see how the annual cost would impact your total budget.
Another necessary expense of homeownership are taxes. Typically, you will incur annual property and school taxes which are commonly paid through your escrow account. This means that while you will not feel the costs in a lump sum, they will however increase your monthly total mortgage payment.
Insurance and taxes are costs that will never go away, regardless of the status of your mortgage. If you are trying to create a long-term budget or understand what your costs will be in retirement, you must factor in insurance and taxes, even after your mortgage is paid off.
Moving and Storage Costs
It goes without saying that you will incur moving costs when buying a new home. You may also need storage until your new house is ready for all of your things. Take the time to price out different moving companies, supplies (boxes, tape, furniture covers, etc.), and labor to add to your homebuying budget. Find ways to limit your expenses by asking stores if they will give you boxes for free – usually on a specific day of the week. Ask friends if they will help you move rather than paying a company – and make sure you buy them dinner afterwards! Talk to relatives and friends that have recently moved to see if they have any money saving tips.
When a home is staged to sell, it likely has all the kitchen and laundry appliances you would expect: washer, dryer, refrigerator, oven, stove, microwave, and dishwasher. However, that doesn’t mean all those appliances will be in the house when the keys are turned over to you. Make sure you know which appliances are staying and which you will need to purchase. Then, head to your local home appliance shop to price out the cost of the necessary appliances. Hint: If you are closing on your new home around a holiday when there are usually sales, talk to the store representatives about the best day to buy your appliances.
Some homebuyers are interested in a home central air conditioning. If that’s on your wish list, get an estimate from a local HVAC company to see what the annual and long-term maintenance costs will be. Factoring these items into your budget will prevent you from sticker shock when it is time to use these services.
Although the home you choose may be “move-in” ready, that doesn’t mean it is “perfect-for-you” ready. If you know that as soon as you move in you are going to change the carpets, remove wallpaper or change fixtures in the bathrooms, add these items to your total budget for buying the house. If you do not have the cash to cover all of the changes you want to make, prioritize them so that you are only paying for things you can afford in cash. Charging items that are not necessities to a credit card will add financial stress and burden to an already expensive endeavor of homeownership. Be patient.
One of the things people often forget to budget for are utilities. This is actually very easy to do and will really prepare you for what your monthly expenses will be after the move. Usually, you can find out which utility companies the sellers were using. Call those local companies to get the annual cost or monthly average for the property you are interested in. They can usually also put you on a monthly payment plan where you pay the same amount every month and they adjust annually for actuals.
One last thing to consider in the cost of homeownership is property maintenance. You may need to buy some equipment such as a lawn mower or weedwhacker. If you plan to outsource, you can get an estimate from a local landscaping company.
Although everything may be in working order when you buy the house, there is no certainty on how long it is going to stay that way. Make sure to maintain a little cushion for unexpected repairs. To better gauge how much may be needed, find out the age of things such as the furnace, hot water heater or roof and compare them to the average lifespan of such items.
Buying a home is a big step in your life and it comes with large financial responsibilities. This list may seem a bit overwhelming but if you can prepare yourself and your budget for the true cost of homeownership, the overwhelming feeling will dissipate. Creating a realistic budget will enable you to relax and enjoy the homebuying process. Explore our website for all the counseling services and webinars CCCSMD has to help you prepare to buy your first home. We are excited to help you make your housing dreams come true!