Homeowners’ Costs: Beyond the Mortgage
After saving up for a down payment and for your closing costs, you might be tempted to start thinking about the fun stuff you’ll buy when you move into your first home — maybe a barista-style coffee maker, a quiet dishwasher or a media center for your new flat-screen TV.
Not so fast. As a first-time homeowner, it’s important to remember that, besides the monthly mortgage payment, which may be reasonable thanks to historic low rates, you’ll have regular fixed expenses.
And they do add up. In addition to your mortgage, here are additional home-related expenses you’ll want to include in your budgeting:
Real estate taxes
The amount will vary depending on your home’s value and your community’s services. Sometimes, you pay your real estate taxes directly, but, in many instances, your mortgage lender may bundle your real estate taxes into your monthly payment to be certain they get paid on time. Your monthly mortgage payment might also include an additional private mortgage insurance (PMI) fee, which lenders typically charge if your loan exceeds 80 percent of the sales price.
Mortgage lenders typically require homeowners insurance, which you would probably want anyhow as protection from costly problems due to a range of perils, such as fire, theft or a frozen pipe. And, while your insurance will take on most of the cost of a covered loss, you should also think about saving up for a deductible, the portion you pay before insurance kicks in. (Tip: A larger deductible can usually mean a lower premium, so talk to your agent about what’s best for you.)
Homeowners association fees
Subdivisions may charge homeowners association fees to care for sidewalks and landscaping or to hire security; condos almost always do.
Natural gas, oil, electricity and water costs can add up. Ask sellers for copies of past utility bills to see what they have paid. Of course, keep in mind that amounts will vary due to personal use — how warm or cool you want your house, or how long your teen’s showers last.
Most homeowners want some or all of these services, and they can add up to some hefty bills. Pricing out a bundled offer for all three services (it can run about $100 a month) can be less expensive than paying for each service independently. You might also consider ways to “cut the cord,” such as using low-cost (or even free) Internet-based streaming video or video-on-demand services as alternatives to cable television.
From your water heater to the hose on your washing machine, every part of your home has a life expectancy. Experts suggest budgeting 1 to 2 percent of your home’s purchase price for annual upkeep. Also, if you have plans to remodel or otherwise improve your home, remember that the three most expensive words can be “as long as.” As in, “as long as you’re painting the living room, why not do the dining room?” or, “as long as you’re putting in a backsplash, why don’t you replace the countertops, too?”
The good news is that mortgage interest is tax deductible.
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This guest post comes from the editors of The Allstate Blog, which helps people prepare for the unpredictability of life.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.