The documents are signed, the boxes are packed, the keys are in hand, and you’re ready to move into your new home. While this is a time of excitement and anticipation, taking the plunge into homeownership often comes with a heap of additional expenses. Some of these costs are routine and expected, but the actual cost of owning a home can involve many hidden and unpredictable costs that you may not have initially budgeted for.
Expenses to Expect
Each year you will be expected to pay property taxes on your home. While some people choose to manage property taxes themselves, many mortgage providers will allow you to make monthly payments towards property taxes as part of your monthly mortgage payment, hold the funds in escrow and then pay them as they are due. The average property tax varies widely depending on the location of your home. While New Hampshire is known as a low-tax state for personal and sales taxes, it has the fourth-highest property tax rate in the country, with an average tax rate of 1.77% (varies by township/city).
There are several forms of insurance to be aware of when purchasing a home. Here we’ll cover homeowners and mortgage insurance, but depending on the location of your new home, you may need additional coverage. For example, if your property is in a designated flood zone, flood insurance is required.
Homeowners insurance helps to cover the costs associated with damages and losses to your home, helping to keep you financially whole and protect your investment in times of distress. If you have a mortgage you will likely be required to maintain homeowners insurance, typically paid on a monthly basis. How much you pay depends on many factors including: the size of your home, the location, if you have pets, if you have a pool or trampoline, etc. An insurance agent will help you to determine how much home insurance you need. Keep in mind, not all damages and losses are covered by homeowners insurance. Read your policy carefully to determine what is and is not included.
Mortgage insurance is typically required if you put down less than 20%, also paid in monthly installments. The mortgage insurance you receive can vary depending on your type of mortgage and how much money you put down. In this case, the insurance is protecting the lender rather than the home buyer.
Closing costs are an often overlooked aspect of purchasing a home and can vary considerably depending on location and how you obtained your home. Closing costs are the final transactional fees that you’ll pay when you’re in the last stages of acquiring your new home. These costs can include a variety of miscellaneous fees from inspection, attorney, loan application, appraisal, and more. For many homebuyers, there are a lot of closing costs that can quickly add up to be as much as 5% of the home’s total value.
If you’re moving from renting an apartment to owning a home, your utilities are likely going to increase dramatically. Additionally, there may be utilities associated with homeownership that you weren’t responsible for as a renter, such as water, sewage, and garbage collection. Now, every square inch of your home is your responsibility. Before closing, ask for copies of recent utility bills and research waste management for homes in your area.
Homeowner Association Fees
If you purchase a condo or a home that belongs to a neighborhood or development with a homeowner’s association, you should also expect to pay HOA fees. An HOA fee is a regular fee (usually monthly or quarterly) assessed by the homeowners association to pay for the services it provides, which typically include the maintenance and upkeep of common areas such as shared hallways, grounds, and parking lots. Some HOAs include services such as lawn care or snow removal. Fees and services provided are specific to each HOA, so be sure to thoroughly read up on a property’s HOA code and fees before purchasing.
Budgeting Long Term for Surprise Expenses
Maintenance and Repairs
Maintenance and repairs are the biggest wildcard expenses that homeowners should prepare for. These can vary from smaller costs like lawn care and clogged drains, to large expenses like a roof replacement. Over time, your home is bound to take some degree of wear and tear and require maintenance. This can vary greatly depending on how old your home is, if you have children and/or pets, and how you generally take care of your space. A good rule of thumb is to estimate expected yearly maintenance expenses to be about 1% of your home’s total value.
While renovations and home improvements are not always a necessity, it is typical for homeowners to want to make their home truly theirs, personalizing their space through painting, rearranging, and updating. However, it is important to remember that home improvement can quickly become costly and extravagant, cutting into your budget for necessary costs. For new homeowners especially, a discretionary home improvements budget should be limited by what you can afford and should not be allocated as a monthly cost. Depending on the size of the projects and associated costs that you would like to take on, consider limiting larger home improvement tasks to once a year in the first five years of homeownership.
Budgeting long term can be a daunting task. Planning ahead, taking the time to save, and having realistic projections of how much you can expect to spend on a home and its associated costs will help you to enter the world of homeownership with confidence. If you’re feeling lost about where to begin your budgeting journey, return to the budget basics. Understanding, creating, and sticking to a budget will help you to stay out of financial trouble while you prepare for the future. For more information on budgeting for homeownership, visit our blog on saving for a down payment.
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