Hidden Costs of Homeownership
Are you planning to buy a new home? If you are making the move from renter to homebuyer, you are likely to find that there are some hidden costs to ownership — costs that you probably never thought about when you were renting. Starting at your closing, additional housing expenses that you hadn’t considered might cost you money you were never expecting to spend.
- Home insurance
At closing, you may have been required to pre-purchase a year of homeowner's insurance. Homeowner’s insurance often costs quite a bit more than renter’s insurance, because it covers the home, in addition to your personal property. Depending upon where you live, you may also need to purchase supplemental insurance for hurricanes, floors, tornados, earthquakes, and other natural disasters that are not covered under your standard policy. In addition, if you own any valuable items, such as sports memorabilia or jewelry, you may want to add coverage specifically for those items.
- Maintenance and repairs
Owning a home also means that you are responsible for all maintenance and repairs. These costs can add up quickly, especially in an older home with older systems. These expenses can include the cost to repair or replace appliances, heating and cooling systems, exteriors, and anything else that needs to be fixed. Every year, you should expect to spend some money on routine maintenance, and always keep an emergency fund with money available for emergency repairs. Keeping up with routine maintenance, although expensive in the short-term, will ultimately save you money in the long-term.
- Home utilities
Also prepare to spend some additional money on utilities, including water, garbage collection, heat, and electricity. With more space, it’s likely that even the bills you paid when you rented will be higher in your new home.
- Homeowners’ association fees
Many communities have a homeowners’ association, commonly called an HOA. An HOA is typically tasked with maintaining common areas and enforcing deed restrictions. Membership in a community HOA is often mandatory and members are charged a monthly or annual fee.
- Home furnishings
Finally, keep in mind that you’ll need to purchase furniture and décor items for your new home. Most people, when purchasing a new home, decide to paint, upgrade the décor, purchase new furniture, and buy new linens.
When purchasing a new home, factor in these items to your total budget to make sure that you are completely financially prepared for homeownership. By doing this, you’ll know that you are purchasing a home that you can afford. Money Management International offers a first-time homebuyer class in local communities to help consumers prepare for homeownership.