Why discuss a homeowner’s budget? Because there are expenses many first-time buyers don’t think of when talking to lenders about how much home they can afford. Your lender will discuss the mortgage payment (usually estimated to include your actual mortgage, property taxes, and can include mortgage insurance (PMI), and perhaps even your homeowner’s insurance bundled together), but they don’t often discuss the actual costs of buying, owning, and operating a home. We’ll help you plan your budget so that it includes most or all of the possible costs, so you can see more accurately how much home you can comfortably afford!
Home Costs, Recurring
Home Insurance. If this isn’t rolled into your mortgage payment, then your mortgage probably requires you carry a certain amount of home insurance. DO shop around for the best price, and see if you can get a better deal by buying car and/or other types of insurance from the same company for overall savings. Home insurance in Ohio starts around $1,000/year and can run much higher if your home has a higher value or is in an area where frequent claims are made.
Homeowners Association or Condo fees. If you purchase a condo, you’ll pay a monthly fee to help pay the costs of maintaining common areas and green spaces. Fees vary widely, so be sure to ask about monthly fees before you make an offer. If you purchase a home in a planned or gated community or in a neighborhood with an active civic association, you’ll pay a fee that could be as small as $10/year, or upwards of $300/month, depending on what is covered and what the association has voted to charge members. You may be asked to pay a one-time transfer fee, too. Membership may not be voluntary, so ask your REALTOR.
Property taxes. These are paid monthly, and are often paid in advance to your lender, who bundles the cost with your mortgage. If you have a mortgage where you are responsible for paying your property taxes separately, you’ll need to add the taxes into your monthly or annual bills. The property taxes on residential property are available to the public, and are often on the descriptions of homes for sale. If not, check with your REALTOR, they can find out for you. Bear in mind, that the tax cost may increase if the sale proves the value of the home has increases significantly since it was last purchased or assessed.
Lawn care and snow removal. Are you planning to mow, seed, and feed your lawn yourself? Do you enjoy shovelling snow and raking leaves? If you know you don’t have the time or patience to do these chores yourself, consider budgeting for professionals to do the work. Lawn care in Central Ohio runs from $60-300 per month, depending on the size of your lawn, and snow and leaf removal can be similar, depending on weather and the number of trees or length of the driveway on your property. Many contractors offer fast, accurate estimates that let you plan your budget before you buy your home.
Utility bills. Some costs, such as water, electricity, natural gas, and security systems are mostly the same from owner to owner, so asking about utility costs during the search and buying process will give you an accurate idea of the costs for those items. Others, such as cable, phone, and internet, are based on your preferences and product choices. You may be able to estimate those now, by what you already pay.
Home maintenance. It’s wise to budget savings for home maintenance and repairs. Some expenses, such as furnace filters, are a quarterly and regular expense. Others, such as replacing a broken water heater, are once in ten years, but are predictable based on a good home inspection. Planning ahead to have savings available for those planned maintenance and emergency repairs is smart, and saves you money over the long run.
Home Costs, Non-recurring
Closing costs. These are the fees you pay when you close on your home. They cover various services such as credit reports, appraisals, surveyors, and more. Closing costs are usually between 1-5% of the cost of your home. You can negotiate to have your seller pay them, but if they won’t, you’ll need to budget for them.
Utility fees. Most utilities charge a fee for starting service for a new customer, or switching that customer from one address to another. They tend to be small fees, but can add up when you have 5 or more. Check with local utility companies to see what their fees are and if there are ways you can reduce or avoid those fees.
Homeowner purchases. Most homeowners discover the need for purchases to customize or maintain their home to make it functional for them. Blinds and window treatments, paint, and even medicine cabinets and mirrors may need to be purchased to make your home comfortable. A lawn mower, snow blower, gardent tools, and a tool kit are useful for maintaining your home, and you may end up adding a stepladder and other hardware store purchases to your list. You also might be surprised at how many trash cans, storage bins, light bulbs, and other supplies a new home will need as well. Some of these purchases can wait, such as a snow blower if you close in June. Others will be needed even before the move, such as paint to convert an office to a baby’s room, so add these expenses to your budget as needed for your new home and your schedule.
Home repair or alteration. If your purchase of your new home includes the plan to remodel the kitchen, repair a porch, add a fence, or change from electric to gas for heating or cooking, make sure that you include the cost of that change (or saving for that change) in your budget, especially if the change to the home is necessary to safety or basic comfort. DO consider having your prospective home inspected during the buying process by a licensed, professional home inspector so that you know exactly what repairs or changes you need to plan on budgeting. If the needed repairs are too large for your budget, you can begin your home search again.
Furniture and appliances. If the seller is planning to take their major appliances with them, you’ll need to budget for replacements. Are there more bedrooms or is there more space in the new house than your old one? Budget for furniture purchases to make those spaces useful and comfortable. While some rooms (a baby’s room) can remain empty until later use, you’ll want to make most of your new home usable right away. Your current furniture may not fit the spaces in your new home, this can create an urge to shop. Plan ahead, thoughtfully, so you are prepared for those expenses.