The Costs of Home Ownership
Buying a home is a significant financial commitment in itself, but some first-time buyers are hit hard when they realize that there are associated costs they hadn’t considered when they became homeowners. There are the closing costs, of course, which include the loan origination fee as well as a variety of administration fees, and add up to a hefty sum—but they aren’t the only additional expenses you can expect when you purchase a house. If you’re buying a house for the first time, it’s definitely good to be thinking in advance about how home ownership will affect your finances, and about essential expenses versus optional ones.
Insurance and Taxes
Home insurance and property taxes are two expenses that can be highly variable. Property taxes can cost you anywhere between 0.2% and 2% of the value of the property, depending on the state and county in which you live; the current rate for Bellingham homes is $10.91 per $1,000 of the home’s assessed valuation, or 1.091%. Keep in mind also the possibility of your home’s assessed value increasing over time, especially if you have plans to make extensive home alterations, as this will increase your property tax bill.
The cost of your home and contents insurance depends on several things: where you live, the value of the home, and the value of its contents. Depending on where you live, you may end up paying more for insurance that covers your home and contents for damage incurred by natural disasters such as floods, hurricanes, or earthquakes. These aren’t covered by standard policies, and you’ll typically pay much higher premiums for this kind of protection if you live in an area where it’s necessary. One thing to note is that many homeowners are underinsured, because they’re not covered for the full cost of rebuilding their home. For example, it seems sensible to insure for the amount the mortgage is worth, but if the market has improved in the meantime, the house could be worth much more than it was initially, and insurance therefore wouldn’t cover the full value of the home. It makes more sense to insure for the actual cost of the home, or for the cost of rebuilding it.
Home Furnishings
If you are currently renting, and are buying your first home, you might be in need of new furnishings. If your rental comes with, for example, dining or living room furniture, you’ll need to replace those items when you move. You’ll also be needing furnishings for an entire house, rather than what might be a smaller apartment or condo. If this is the case, and you’re wondering if your finances will stretch to new furnishings, remember that you don’t have to buy everything right away. You may decide to buy used furnishings, for example, and buy permanent replacements later on when you have the money to spare, or alternatively go without the non-essential items for a short time. The bonus here is that you have time to find items that you really like, and perhaps wait for them to go on sale.
Utilities and Home Maintenance
These are expenses that are definitely essential, and for some people—especially those who are moving out of their parents’ home for the first time—these costs can be an unwelcome surprise. Even if you are already paying for things like TV, internet, and garbage collection, if you’re moving from a smaller home into a larger one, some of your utility costs are likely to increase. Your energy usage in particular may increase, although you may qualify for rebates and save energy by purchasing energy-efficient products.
Home maintenance is another expense you can’t afford to ignore, as neglecting necessary repairs can lead to worse and more expensive problems, and it’s definitely better to fix a leaky roof or get rid of a termite infestation sooner rather than later. A good strategy to prepare for these costs is to start a dedicated fund to cover regular maintenance and emergency repairs, so you can take care of problems as they arise. If you’re handy with tools there are probably some tasks you can take care of, although some, like electrical repairs, are better left to an expert.
Sources
Bank of America. “Closing Costs Calculator.” Accessed April 30, 2014. Tool for estimating closing costs.
City of Bellingham. “Homeowner’s Guide to Property Tax.” Accessed April 30, 2014. Property tax rates.
LA Times. “The Hidden Costs of Homeownership.” Accessed April 30, 2014. Home ownership expenses.
Forbes. “4 Costly Homeowner’s Insurance Mistakes to Avoid.” Accessed April 30, 2014. Getting the right insurance.
Puget SoundEnergy. “Rebates.” Accessed April 30, 2014. Savings on home energy.
Quotezone. “Home Insurance.” Accessed April 30, 2014. Protecting your real estate investment.
Veterans United Network. “Avoid Sticker Shock.” Accessed April 30, 2014. Saving on ownership costs.
Thanks to Emma Crosby
Image courtesy of Michael Elliot / FreeDigitalPhotos.net