- Buying a home can come with unexpected expenses, but planning ahead can make those expenses more manageable.
- Budgeting is essential to help you prepare for your new homeowner expenses.
- First-time homeowners should prepare for both first-time and ongoing homeowner expenses.
Becoming a homeowner is an exciting milestone in a person’s life; it means making an investment in your financial future, and it means creating your own space for you and your family. It also means you will encounter homeowner expenses, sometimes unexpectedly, as you care for your new property. Budgeting with these expenses in mind can help you feel comfortable and confident as you navigate homeownership.
The Importance Of Budgeting As A New Homeowner
Homeowner budgeting begins before you even purchase the home. You want to start well in advance to prepare for this new chapter in your life by saving for your down payment. With a larger down payment, your monthly mortgage payment will be lower, and you may avoid having to purchase private mortgage insurance (which is often required when your down payment is less than 20 percent of your home’s value).
As you begin budgeting for your new home, you also want to keep in mind that the expenses of owning a home are different than expenses associated with renting. Your budget will need to account for regular home and yard maintenance, unexpected repairs that you can no longer call your property manager to fix, and additional utility expenses.
If you are not accustomed to keeping a budget, buying a home is a great reason to start. And if you already are diligent about keeping your budget, this is a good time to revisit other aspects of your financial picture, like your emergency fund, your life insurance and your retirement contributions to account for your new home’s expenses. For instance, you can find life insurance for low-income families that can vastly reduce your monthly budget. Qualified first-time home buyer expenses can add up, but if you plan your budget carefully, chances are you will see your investment increase in value, and you will find yourself building wealth and living the lifestyle you always wanted.
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First-Time Homebuyer Expenses
We all know that moving is expensive, but moving into a new home that you’ve purchased can be even more costly. When you consider things like closing costs, in addition to expenses associated with furnishing your new home, there can be several unexpected first-time homebuyer costs to consider.
Be sure to budget for these homeowner one time expenses before you make your offer, and you will be well-prepared to settle into your new home:
Earnest Money: Earnest money is the money submitted to the seller with your offer. It’s a measure of good faith; it shows the seller that you are serious about the offer and helps them to feel comfortable taking the property off the market. Once your offer is accepted, your earnest money will go toward your down payment or closing costs. If your offer is rejected, you get your earnest money back. So while this isn’t necessarily a separate expense, it is something that you will need to plan for at the outset of the homebuying process.
Closing Costs: Closing costs cover things like attorneys fees, preparation fees and all the other small fees that add up to the cost of purchasing a home. Sometimes you can negotiate that the seller pays these fees, but more than likely you will be responsible for them, and you should plan on your first-time home buyer closing costs amounting to about three to four percent of the home’s value.
Real Estate Title Insurance: Real Estate Title Insurance protects you from a financial loss in the event of defects to your title, invalidity of mortgage liens, or any number of other issues. Essentially, Real Estate Title Insurance will cover legal expenses if there is a lawsuit brought against your title. As a first-time homebuyer, this may be something that you are tempted to skip in order to cut costs, but if you ever need the policy, it will pay for itself many times over.
Buying New Furnishings & Appliances: Unlike homes that you may have rented in the past, your new home is like to come without all the necessary appliances. You will need to allot funds for purchases like a refrigerator, washer and dryer, and even a microwave. Additionally, if your new home is larger than your previous one, new furniture will likely be on your move-in checklist.
Initial Home Upgrades: One of the best things about purchasing a home is that you now have a space that is completely yours. That means you can paint your interior and exterior walls however you like, you can freshen up the front yard with new flowers, and you can replace those dated light fixtures… but these are all first time home buyer expenses, so be prepared for the initial cost of making your new house feel like home.
Continuous Homeowner Expenses That Are Often Forgotten
Even if you can afford your mortgage payment, there are additional long-term costs associated with homeownership that you will need to account for in your budget. Planning for all of the monthly costs of owning a home before you purchase one can help ensure that you don’t get in over your head with a mortgage that takes up too much of your budget and doesn’t leave room for things like ongoing care and maintenance, as well as other monthly homeowner expenses.
Property Taxes: Property taxes are an additional expense that you would not have paid as a renter, and according to a homeowner expenses calculator, can range from one to two percent of your home’s value, depending on the state you live in. You can typically choose how to make this payment: you can split it up into 12 chunks and tack it onto your mortgage or choose to pay in one lump sum. If you are wondering what homeowner expenses are tax deductible, property tax is one of them.
Homeowner Association Fees (HOAs): If you buy your new home in a planned community, chances are there is a homeowners association that you will need to factor into your homeowner monthly expenses. These fees go towards upkeep of the grounds, and towards amenities like a golf course, clubhouse, or swimming pool. Condos and co-ops will also charge a similar HOA fee for maintenance of common areas.
Homeowner’s Insurance: The cost of your homeowner’s insurance will vary by region, but will generally cost anywhere from $500 to $1,500. You should also consider hazard insurance as a part of this cost, as it will cover things like hurricanes, floods or earthquakes, and must be purchased separately from your main insurance policy.
Yard Care (Including Pool Maintenance): Now that you own your property, it is up to you to keep it maintained. Depending on the size of your yard and whether you have a pool or not, the expense of upkeep can add up. Even if you plan on doing most of the maintenance yourself, you will still need to set aside some cash for tools like a lawn mower, hedge trimmers, and pool equipment, not to mention the occasional heavy-duty tasks that you will want to hire out, such as tree-trimming or repair to your pool’s filter system.
By considering all of these homeowner expenses before you buy, you are less likely to be caught off-guard when it comes to your budget. While this is not an exhaustive homeowner expenses list, and there will still be some surprises, building these costs into your budget now can save you money and stress in the long-run. What other unexpected costs did you discover when you bought your first home? Let us know what our readers should keep an eye out for in the comments below.