Buying your first home is a really exciting time in your life, but it’s important that you understand all of the costs that come with homeownership before you sign the paperwork.
Today, Twin Cities Habitat for Humanity Financial Coaching Coordinator, Pa Lor, is walking you through some of the hidden costs of homeownership and the financial pitfalls to watch out for:
When you meet with your loan officer and real estate agent, you will talk a lot about getting pre-approved for a mortgage and figuring out how much you can afford. Property taxes are an important factor for that calculation. You will likely pay your property taxes into an escrow account that the bank sets up and manages. The bank collects the taxes every month as a part of your payment and will make the payments to the county on your behalf.
Property taxes fluctuate from year to year and that affects your monthly payments. Every year, you will get a letter from your bank explaining how much your payment will go up and they’ll issue new payment coupons or adjust your online payment accordingly.
If you’re buying a condo, townhouse, or a single-family home in an association, there will be association fees to budget for. Your association fees typically offset some of the other costs associated with homeownership, like snow removal in the winter or lawn mowing in the summer, but you’ll want to make sure you understand what is covered and what isn’t.
Maintenance and Repair Costs
The biggest hidden cost of homeownership is maintenance and repair. Renters can call the landlord when the dishwasher breaks or the furnace goes out. As a homeowner, those unexpected repairs will be your responsibility.
It’s good to understand what things cost and how to budget for them. That way, you have the money in the bank when you wake up and there is a pool of water in the kitchen from a broken pipe or the furnace goes out and you need to call for a repair.
Also, make sure to consider long-term maintenance issues. Things like replacing the roof or repainting your home don’t happen often, but when they do happen, they can be very expensive. Understanding the life expectancy of your appliances, siding, windows, roof, etc. will help you prepare for when you may need to replace them.
The last big additional expense you’ll face is utilities. Often landlords pick up the cost of water/sewer, garbage, and sometimes even heat. “As a homeowner,” Pa says, “those are additional utilities that you're going to have to start incorporating, budgeting, and planning for.”
You will also want to think about the size of your rental versus the size of the place you’re buying. Homes are often a lot bigger than apartments and you’ll have to pay to heat and cool all that square footage.
Once you’ve entered into a purchase agreement on a home, the seller will likely be willing to share the average utility costs they pay.
As Pa says, “Things may go wrong. You might have things that come up that are a surprise. But I just know that's kind of a typical homeowner experience.” With a little planning and foresight, you can help make those unwanted surprises a little easier to manage.
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