You’re looking to buy your first home and you’ve started doing all the research on types, pricing and neighborhoods. You’ve even started a budget to make sure this new investment makes sense financially. Buying a house comes with many decisions, so it can be easy to overlook some of the costs associated with becoming a homeowner. Account for these hidden expenses early in your search to make your life easier and your budget more practical. Here are five hidden costs of homeownership you definitely want to budget for.
Interest Rates on Mortgages
It’s no secret that your mortgage will be your biggest payment each month. Most mortgages are 30-year lending agreements that lock in at a fixed rate to offer homeowners more security. But the fact is, most people don’t stay in their first home for 30 years, so you could end up paying more than necessary. Investigate all options, like a shorter mortgage term or an adjustable rate mortgage, which has low costs up front but less long-term security.
Property Tax Fluctuations
Property taxes are typically due twice a year, but the laws vary from state to state. For some states, property taxes fluctuate year to year. It’s possible to reassess them at a lower rate, but generally speaking, you’ll end up paying more if your local tax rates change. Make sure your budget is flexible to account for this.
Homeowners Insurance Costs
The cost of homeowners insurance varies by insurance company and location, but it can run you anywhere between $500 and $1,500 or more per year. You can expect your insurance to cover structures and possessions that may be damaged, but not the cost to fix the cause of the damage. For example, homeowners insurance may not help you pay the cost to repair or replace a burst water pipe.
If damage does occur, you will also have to pay a deductible before the insurance company will cover the rest. Generally, the lower the insurance premium, the higher the deductible will be. A $1,000 deductible is not uncommon on a homeowners policy. That can be a huge out-of-pocket expense should something go wrong.
In addition, most homeowners insurance policies don’t cover all natural disaster damages. They will cover basic natural disasters like fire and wind storms, but not earthquakes or floods. If you live in an area where these kinds of disasters occur, you’ll probably need to purchase separate insurance.
Preventative Maintenance Costs
Preventative maintenance is something all homeowners should consider to reduce out-of-pocket repairs or replacement costs that insurance won’t cover. Inspect all appliances and other vital house systems to make sure they are in good working condition and make any small repairs. Maintaining your appliances on an ongoing basis will only make up a small portion of your budget, but it can prevent serious failures that will cost you a lot more down the road.
Large Renovations and Repairs
As a new homeowner, renovations and repairs may not be on your mind, but at some point you’ll want to upgrade or improve on some part of your house. It may become time for a new roof. Maybe you’ll decide to upgrade the master bath or the kitchen. Homeowners eventually decide to start a new improvement project, and this will take a big chunk out of savings. You may also need to make improvements to prevent significant hazards, such as if your electrical wiring becomes faulty and needs to be replaced. Whether you require or just desire a repair, it’s important to plan for renovations and to save money for them early. Consider creating an emergency fund equal to three months’ salary. You can start by cutting back on daily or miscellaneous expenses to build up your savings.
Before you begin a new project, decide whether your project is DIY or you need a professional. Then check out the Midland National blogs on safety tips for DIY home improvement or how to find a good contractor.