Achieving the American dream has always included owning a home. With the recent decline in mortgage rates and housing prices, the opportunity for many people to enter the housing market has opened up. But the excitement and adventure of your first home will need to be balanced by the reality of home ownership.
This is serious business; especially since your financial future depends on how well you manage your household budget. Once you’ve cleared the hurdles of closing costs, legal charges, realtor fees and moving expenses, these are some of the expenses associated with home ownership that may be less than obvious.
Insurance Policies for Home Owners
- Homeowner’s Insurance – If you borrow to buy their home, you will be required to purchase homeowner insurance. It not only protects the homeowner from unforeseen catastrophes like fire, but insures that the collateral that backs the loan is secure. The cost is based on the value of the property and can often be rolled into the mortgage payment, eliminating the need to remember to make the payment. The average annual premium for an owner-occupied home in 2006 was $804, reports the National Association of Insurance Commissioners (NAIC).
- Mortgage Insurance – Another optional coverage to consider is mortgage insurance. This will protect the mortgage holder in case of death, disability or involuntary unemployment. Your monthly mortgage payment will be made during your recovery or in full upon your death.
- Utilities Hook-ups – Electricity and natural gas services may require a visit by a service rep. Connection or transfer fees may apply. The U.S. Energy Information Administration reports that the average American household will spend $990 in 2011 on heating fuels. Households paid a record $1,419 on average for electricity in 2010, the fifth consecutive yearly increase above the inflation rate.
- Cable & Internet Connections – Many communities have more than one company contracted to provide local service, compare your options before choosing cable and Internet services.
Necessary Home Improvements
Many new homeowners fail to plan for the eventual cost of maintenance. While paint and wallpaper are nice, they can be set aside until the budget allows. But a burst pipe or a malfunctioning furnace in the middle of winter will require immediate attention. Begin setting aside an emergency fund, adding to it whenever you can, to be used when the inevitable, unpredictable emergencies arise that every homeowner experiences. It’s been suggested that homeowners set aside a minimum of 5% of the total home price each year for upkeep and repairs.
Don’t be surprised when you enter your new home and find that there are no window coverings. On top of that are the needs that many of us take for granted – dishes, linens, hangers, lighting fixtures, trash cans, cleaning supplies, etc.
Be sure to factor your home’s property taxes into your annual budget. Many new homeowners are surprised to see how much they will pay in property taxes, usually as a percentage of the home’s assessed value. The national average for states that impose a property tax is $1,917.
Lawn and Property Maintenance
This is an area that is often overlooked. Lawn service and snow plow contract costs quickly add up. If these expenses aren’t included in your budget, you’ll need to do the work yourself. Buying the equipment and tools to do the job will set you back a chunk. Many communities charge a fee for garbage pick-up; be sure to check. The bottom line is that a detailed budget needs to be constructed BEFORE you buy a home. You need to be willing to revise it, and revise it again until it covers as many expenses as you can imagine so as not to be surprised by unexpected costs.