Wondering about the expenses after the mortgage? We’ll talk about the expenses you may have to bear when buying a home and how to create a budget for a house.
Becoming a homeowner is a big step forward in your life. From being a tenant and always looking towards your landlord, you now have full control over your home.
You might think, “I have to pay my mortgage on time and keep on increasing my home equity.” Yes, that’s right. Timely payment of your mortgage will ensure you keep homeownership intact and avoid home foreclosure, but there’s more.
That’s one of the homeownership expenses you have to deal with. After ascending to being a homeowner, you’ll have various other costs that you need to budget for as well. Some of them can be recurring costs, while others are one-time or optional costs.
Before we talk about how to create the budget for a house, let’s look at some of the common homeownership expenses.
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One of the major reasons you bought a home would’ve been to make your life easier and reduce your stress. You don’t want to worry about things like gas access, electricity supply, or hot and cold water availability. And how will you ensure you get uninterrupted facilities? By paying your bills on time.
You can ask the question, “I haven’t yet closed the deal” or “I’ve newly moved into this house”, or “How I will know about the cost of these facilities?” That’s a good question.
You can do your research about the common facilities providers in the area. If that wasn’t convincing enough, here’s another option. You can ask for the utility bills from the former homeowner. How much are they paying?
That can be useful in managing your homeownership expense and creating your budget for a house.
When you leave your home, do you see the clean roads, lush grass, and greenery all around, in addition to the facilities like swimming, parks, and clubhouses? That all may come at a cost and it’s called the Homeowner Association (HOA) fees.
If you live in a location that is part of a homeowner association, you’ll have to pay this monthly fee to manage these facilities.
Usually, the HOA covers emergency expenses for you. If the HOA doesn’t have enough money, they can ask you to pay an extra amount in addition to the fee and deal with your expense. This is called the special assessment.
Yes, the homeowner association fee may seem like an additional burden for you. But look at how many benefits you’re getting in return. So before closing the deal and moving into your new home, check whether the area is a part of the homeowner association.
If it is, account for it in your budget for a house.
This is a homeownership expense that’s imposed by your local government to fund public services and facilities. These may include schools, roads, infrastructure, and more. The property tax depends on various factors like your home value, size, location, and more.
Usually, property tax is an expense that’s paid annually.
If you’re reading this, you’ve probably bought your house on a mortgage, since you want to know the homeownership expenses apart from the mortgage. If so, here’s something you’d want to know.
Your loan lender might require you to create an escrow account. That means when you pay your mortgage, a portion of it will be set aside in your escrow account. When your property tax is due, it’s paid by the lender on your behalf.
When buying your home on a mortgage, do remember paying a down payment? If it was 20% of the total purchase price or more, and you have a good credit score, you’ve saved yourself from paying private mortgage insurance.
But if it was less than 20% of the total purchase price, you’ll have to make room in your budget for a home for private mortgage insurance.
You may ask, “Why should I pay private mortgage insurance?” This is collateral by your lender in case you default. Paying private mortgage insurance can save your home from foreclosure.
The lender may ask you to pay private mortgage insurance, even if you’ve paid a 20% down payment to buy the house. This usually happens if your credit score is low, or you have multiple foreclosures and bankruptcies on your credit history.
Private mortgage insurance is commonly 0.5 to 1% of your total loan amount, which you need to pay every year.
When you buy a house, you’re responsible for all fixes and repairs in your property, and the cost that comes with it.
These can be the regular or occasional maintenance that you need to account for in the budget for a house. The regular repairs might include plumbing, air conditioning, gutters, and much more. Your occasion or emergency homeowner expenses for maintenance might include roof repairs, electricity issues, or pest control.
In the home industry, the general rule of thumb suggests having 1% of your home purchase as your home maintenance budget.
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One of the biggest attractions to moving away from renting to buying a home is that you can personalize it according to your preferences. That includes things like repainting the walls, upgrading the furniture, and rearranging the appliances. When you’re renting, you need your landlord’s approval before making these changes.
Of course, all this home remodeling comes at a cost, which adds to your homeownership expenses.
If your home is insured, you might want to hold on to your home improvements. Before you make major improvements, make sure to contact your home insurance. Some home improvements may require you to upgrade your coverage which can cost you an additional premium.
Another reason to invest in your home improvement is it can increase your home value and resale potential. This allows you to sell your house for a profit.
When you make a list of your homeowner expenses, you’ll find that not all of them require your immediate attention. Yes, there are some necessary payments like your taxes and urgent home maintenance.
But things like home improvements and others may not always be as important as the other homeownership expenses. So, when developing the budget for a house, we suggest keeping the high-priority expenses at the top.
This can give you better visibility about the crucial expenses, along with low-priority expenses that can wait.
The economy and the cost of products and services are rapidly changing. That’s one reason you should regularly revisit your budget for a house, along with the monthly expenses. By doing so, you can optimize your budget according to the fluctuating prices.
Analyzing your budget at month’s end also helps you identify your spending pattern and extra expenses that can be avoided.
Another reason to review your monthly budget for a house is that there must’ve been various emergency expenses throughout the month which you didn’t account for. Knowing about them may ensure you are better prepared to deal with them in the times to come.
There will usually be unexpected and emergency homeowner expenses that are not part of your budget for a house. So, how do you plan for an expense you don’t know about? You have an additional cushion as an emergency budget.
This is to deal with expenses that exceed your original budget. We suggest having an emergency budget, which is 20% of your original budget for a house. This means if your monthly budget is $2,000, have an additional $800 to deal with any unforeseen expenses.
You can avoid a lot of stress and headache by having emergency funds ready. This will ensure you don’t compromise on the necessary homeownership expenses, as you’ll have enough backup finances to deal with it.
Some expenses fluctuate on certain occasions. For example, your electricity bill may spike up in summers and winters, as you’ll need cold and hot water. Or, lawn maintenance and landscaping in summer might be more expensive, as opposed to in autumn and winter.
These were just a few homeowner expenses that you need to account for in your budget for a house.
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The mortgage payment is just a start for a long list of homeownership expenses. But they don’t necessarily have to surprise you if you budget and plan accordingly.
Now that you know the potential items homeownership expenses that may come your way and how to create your budget for a house, you can deal with them in a better way.
If you have questions about the real estate industry or want to buy a home, HAR will be happy to assist you.
Homeowner Association (HOA) fees are monthly expenses paid by homeowners living in communities that belong to a homeowner association. These fees cover the maintenance and management of common facilities and services like landscaping, security, and recreational areas. HOA fees are typically mandatory if you live in such a community.
Private mortgage insurance (PMI) is a type of insurance that homeowners may need to pay if their down payment is less than 20% of the total purchase price. PMI serves as collateral for lenders in case homeowners default on their mortgage. It is generally required if you have a lower down payment or a low credit score.
Seasonal expenses, such as fluctuations in electricity bills or landscaping costs, can be accounted for in a homeowner's budget. To manage these expenses, homeowners should anticipate the seasonal changes, create a budget that considers these fluctuations, and prioritize savings for the appropriate seasons.
Yes, homeowners can make energy-efficient improvements to their homes, such as installing energy-efficient appliances, insulation, or solar panels. These improvements can help reduce utility costs over time and provide potential tax benefits.
An escrow account is set up by your loan lender when you pay your mortgage. A portion of your monthly mortgage payment is allocated to this account. When your property tax is due, the lender uses the funds from the escrow account to pay it on your behalf. This helps ensure that property taxes are paid on time.
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