Is it cheaper to buy instead of rent? If you are basing your answer solely on a mortgage payment, then you aren’t getting the full story. Homeownership, though rewarding in many ways, also comes with hidden costs. You need to budget for them as you calculate how much house you can really afford.
Property taxes are usually bundled into mortgage payments. The money goes into an escrow account until the tax bill is due. The amount of tax you’ll pay is determined by your home’s assessed value and the current rate in the place where you live.
It’s important to note that the assessed value is not necessarily the same thing as your home’s appraised value–or the price tag on your house. Tax assessors calculate the market value of your property, including both the structure and the land it sits on. According to Rocket Mortgage, assessors look at “home inspection findings, prior years’ worth of property data, and comparative market analysis” to determine the taxable value of your home.
As a proud new homeowner, you’ll need to protect your purchase. Homeowners insurance costs about $109 a month for a $250,000 home, according to Bankrate. However, your premium may be more or less than the average depending on where you live.
These policies cover potential damages to your home and your personal property. However, they also cover personal liability in the case that someone is injured on your property. In addition, if someone else experiences property damage because of something that happens at your home–for example, if one of your trees falls on a neighbor’s car–that will also be covered by a standard homeowners policy.
Private Mortgage Insurance
Homeowners insurance isn’t the only policy you need to worry about. Depending on your lender and the percentage you were able to put down on your home, you might need private mortgage insurance. PMI is generally added to your mortgage payment if you aren’t able to make a downpayment of at least 20%.
Nerdwallet reports that you can expect to pay 0.58% to 1.86% of the initial loan in PMI. That might not seem like much, but it can add up. For example, if you put down $45,000 on a $300,000 home (a 15% downpayment), your monthly PMI bill could range from $123 to $395!
When you rent your home, the landlord is responsible for maintaining the structure, grounds, and major appliances. When you own, however, everything is up to you. Too many homeowners fall into the trap of skipping routine preventative maintenance. The saying “If it ain’t broke, don’t fix it” does not apply here!
Routine upkeep on your house includes replacing air filters and getting an HVAC checkup once a year. Pest control, which is usually handled by your landlord, is essential for maintaining the health and integrity of your home. Don’t wait until you see a critter; set up regular service from a pest control company.
Deferred maintenance can result in sky-high repair bills if you wait until something goes wrong to take action. All told, experts recommend that you save between one and two percent of your home’s total purchase price for routine maintenance. If your home was $250,000, then you should plan to save $2500 to $5000. Anything you don’t spend should go into your emergency fund.
Everyone should have an emergency fund with a bare minimum of three months’ living expenses. Most experts recommend upping that number to six months. For renters, it’s fairly straightforward to estimate how much to keep in an emergency account. For homeowners, it’s a little more complicated.
Beyond covering your mortgage, insurance, and tax bill each month, you should be prepared for the most expensive repair to your home at any time. While some homeowners assume that they can just tap into their home’s equity to make a costly repair, it’s far better to have money in the bank instead.
Older homes are more likely to have things go wrong, so scale your emergency fund with the age of your house. Likewise, the bigger or more expensive your home is, the more money you’ll need on hand in case something goes wrong. It’s a good idea to get a sense of how much each of your major appliances, including your hot water heater and furnace, would cost to replace.
Many repairs will require urgent attention, such as broken windows, leaky roofs, and burst pipes. Keep your emergency fund in a regular checking or savings account instead of tying it up in investments–you never know when you might need to access it!
In a perfect world, your home would already have your dream kitchen, updated bathrooms, and brand-new major appliances. In reality, you will probably need to spend at least a little money on updating your home. Even if you don’t plan to remodel, it’s likely that you’ll want to upgrade something at some point.
For example, a home with an older–but still functional–suite of kitchen appliances is perfectly fine. However, you should make a plan to budget for replacing them sooner or later. In many cases, older appliances are not nearly as energy-efficient as newer models, so you might actually save money in the long run.
Other upgrades and updates might include refinishing hardwood floors, laying down new laminate, or replacing carpets. Changing interior paint colors or even touching up the current paint might cost more than you think, especially if you need multiple coats. Swapping out hardware in the kitchen or bathroom can make a major impact, but even a minor update like this costs money. And that money needs to be factored into your overall budget as a homeowner.
You might assume that your utility bills won’t change much when you buy a home compared to renting. However, many new homeowners are surprised to find that their monthly bills increase. In part, that’s because some rentals will bundle certain utilities, such as water, into the monthly rent.
Heating and electrical costs will go up if you are moving into a place with larger square footage. Beyond the mere size, however, other factors can increase your monthly utilities. If you were living in an apartment complex, for example, then your home was likely insulated on at least one side by another unit. A detached house doesn’t have that buffer against the weather, so it can cost more to heat and cool even if the square footage is the same.
If your new home uses natural gas for heating and cooking, that adds another bill to your list. A larger home or one that is older and has thick plaster walls might require that you invest in Wi-Fi extenders. And depending on how far away you are moving, you may also find that your new utility providers are simply more expensive.
Although many newer homes are clad in vinyl siding, which does not need to be painted, you’ll still need to perform maintenance to the exterior of your house. Pressure washing, especially if your home is heavily shaded and tends to get mildewy, can keep the place looking new.
Washing exterior windows, touching up trim and shutters, and other maintenance tasks are better done on an annual or semi-annual basis instead of waiting until you reach the point of crisis.
You should also get your gutters cleaned once a year to prevent them from getting clogged with dead leaves. Clogged gutters can result in water accumulating in places that could damage woodwork. In addition, standing water that freezes could spell trouble for your roof or masonry.
Whether you’re someone who loves to garden or who just wants a tidy lawn to enjoy, landscaping and lawn care are part of maintaining your home. If you want to take care of these tasks yourself, then you still need to budget for the equipment–a good lawnmower isn’t cheap!
In addition to lawn care and landscaping, you should get a professional out once a year to check on the health of your trees. They’ll be able to trim any potential trouble spots and make recommendations about whether any trees need to come down before they cause a problem.
If you live someplace snowy, you also need to budget for shoveling, plowing, snow blowing, and/or de-icing. Again, even if you decide to tackle these tasks yourself, don’t forget to add the cost of tools and supplies to your home budget.
HOA fees vary wildly from neighborhood to neighborhood. You might only pay a small amount each month or year for lawn care in common areas. However, you could also be expected to pay hundreds of dollars each month for exterior upkeep (including your roof) and amenities such as a community pool or clubhouse. Beyond the fees, you should also take into account how much it might cost you to maintain your property to meet the association’s rules.
Last–but certainly not least in terms of cost–are association fees. HOA fees won’t always be a factor for homeowners, but if you’re moving into a neighborhood with an association that provides amenities or upkeep, then you’ll have to pay for it.