You’re looking to buy your first home and you’ve started doing all the research on types of homes, pricing and neighborhoods. You’ve even started a budget to make sure this new investment makes sense financially. Buying a house is a big step with many decisions to make, so it can be easy to overlook some of the costs associated with becoming a homeowner. Accounting for these hidden expenses early on will make your life easier and your budget more practical as you search for the perfect place. Here are 5 homeowner costs 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, which means you could end up paying more than necessary with a 30-year fixed rate. Be sure to 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 paid 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 you keep your budget flexible if your state fluctuates.
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 a year. You can expect your homeowners 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 a homeowner will also have to pay a deductible, which is a set payment required by the policy holder before the insurance company will cover the rest of the expenses. Generally, the lower the insurance premium, the higher the deductible will be. A $1000 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 but earthquakes or floods. If you live in an area where these kinds of disasters occur, you’ll probably need to purchase separate insurance to cover them.
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. This involves inspecting all appliances and other vital house systems to make sure they are in good working condition, and making any small repairs to keep them that way. Maintaining your appliances on an ongoing basis will only make up a small portion of your budget and can prevent serious failures that will cost you a lot more money 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 be 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 kind of alteration will take a big chunk out of your savings. You may also need to make improvements one day to prevent serious problems. Your electrical wiring could become faulty and need to be replaced to prevent a fire, for example. Whether a repair is needed or desired, it’s important to plan for these 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.