Owning real estate is a key component of the American Dream. Are your finances ready for your first homeownership purchase – or an upgrade? Most people only prepare themselves for the mortgage application and home buying process.
They think about their credit rating and how much they have saved for a down payment and closing costs. However, it is important to remember there are other expenses that need to be taken into account that are associated with owning a home:
After the home purchase is complete, homeowners can expect to have ongoing home maintenance. It is recommended that each year homeowners set aside 1% of their home’s value for maintenance costs. That means if you are buying a home for $500,000, having $5,000 in home maintenance is on par. Replacing a room or furnace can take a big chunk out of this budget and need to be prepared for.
Utilities are another cost that tend to increase after purchasing a home. People who are used to their landlord footing the bill for these or paying less in a smaller space when upgrading can be surprised when those first bills begin to arrive. I advise asking the seller for what was paid in utilities in the last year.
If you are moving to an area with an HOA or Condo Association, the regular payment amount is usually listed front and center. But what about special assessments or if the HOA votes for an increase? When buying in an HOA, I encourage buyers to review the HOA minutes for the last year or so to make sure the HOA is financially sound, is functional, and see if there are clues regarding upcoming assessments.
A survey on consumer spending data conducted by the National Association of Builders found that new homeowners spend $4,500 more per year on appliances, furnishing, and home improvements than a similar non-moving homeowner. In fact, a non-moving homeowner will spend about $7,568 per year on furnishings and upgrades, where new homebuyers will spend $12,023.
To be comfortable in your new home and to avoid surprises, take all of these factors into account to determine the true cost of owning a house and make sure it is affordable. Overall, the costs of homeownership are well worth the sense of pride in calling something your own. And don’t forget about how homeownership builds your net worth! If you are thinking about a purchase or an upgrade, let’s talk! We can discuss your goals and I can help you determine if your dreams fall in line with your finances.