If you're gearing up to buy a home, you're no doubt aware that you'll need to pay your mortgage each month. Your payment will depend on your loan amount, its length, and the mortgage rate you lock in. You'll also need to pay property taxes and homeowners insurance, which you'll either pay directly or by giving extra to your mortgage lender so it can cover those costs. But all told, you'll know what your monthly payment will be so you can work it into your budget.
But that monthly mortgage payment isn't the only expense you'll need to grapple with as a homeowner. Here are some other items you'll need to gear up for.
Homes need to be maintained -- there's no getting around that. Your grass will need to be cut, your gutters will need to be cleared, and your vents will need to be cleaned every so often to avoid air quality issues. All of this maintenance will cost money, even if you're willing to do some of it yourself, so be sure to factor that into your budget.
In general, you can expect to spend anywhere from 1% to 4% of your home's value on annual maintenance. So if you own a $200,000 home, you could spend anywhere from $2,000 to $8,000 a year to keep it standing.
Home maintenance is something you can budget for, at least to some degree, because it's relatively predictable -- there are certain upkeep items you know you'll need to tackle on an ongoing basis. Home repairs, on the other hand, can really sneak up on you, and while you should have some money earmarked in your budget to pay for them, that's not always a possibility.
For example, you may be able to spend $100 to $200 in a month on smaller fixes like leaky plumbing fixtures, but what if your heating system goes and you're looking at a $7,000 repair? Clearly, setting aside $7,000 a month is unreasonable and, unless you're making a fortune, not doable. But what you can do is build a strong emergency fund so there's money available when larger repair items arise. Generally speaking, it's good to have enough money in emergency savings to cover three to six months of bills, but as a homeowner, it pays to pad that account by at least a few thousand dollars in case costly repairs sneak up on you.
Another thing: Don't assume that you won't face costly repairs just because your home inspection doesn't reveal major issues. It's possible for even an experienced inspector to miss something, or something could degrade shortly after you move in. You should always set aside funds for home repairs -- even if you're buying a newly built home.
If you're moving from an apartment to a house, or a smaller home to a larger one, you'll eventually need to furnish it. And that will cost money.
It's a good idea to make a list of the rooms you want to furnish in order of priority, and then tackle them one by one as your finances allow. For example, if your new home has a dining room, you'll need a table and chairs to enjoy it. And that will likely take priority over putting furniture in your guest room.
4. Home improvements
There are some renovations that make your home look nicer, and then that are those that are necessary to make it livable. It's the latter you'll really need to account for when buying a home, because chances are, those are the ones you won't want to put off.
Say you're buying a home with a basement because you've run out of space in your current home and are desperate for somewhere for your children to play. If that basement isn't finished, you'll need to have that space worked on before it's actually usable, and that's an expense you may need to bear immediately.
Get quotes to see what it will cost to make those improvements you can't really delay, and then figure out the most cost-effective way to pay for them. It could, for example, make sense to borrow against your home -- which, if you start out with at least 20% equity, is something you may be eligible to do immediately after signing your mortgage. (Of course, another option is to take out a higher mortgage in the first place to cover your improvements. But if you've missed that boat, a home equity loan or line of credit is a good alternative.)
Your mortgage payment is only one of the expenses you'll need to cover in the course of owning a home. Prepare for the other costs you might face to avoid unwanted stress -- or, worse yet, debt.
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