Almost everyone loves the idea of owning their own home or condo; it seems to almost be part of our DNA. When most people consider home ownership they’re thinking almost in a romantic manner driven be emotions rather that practicality. Who doesn’t want to be able to decorate however they want, have back yard BBQs with friends and have a piece of the American Dream. It’s alright and even normal for first time home buyers to get caught up in this “romance” as long as they think through the entire home buying process and realize all the expenses that come with home ownership. These are expenses that most renters don’t even consider and may even be entirely unaware that they exist.
A lot of ads that feature homes for sale list PI (principle and interest) as the monthly mortgage costs but may leave out the TI (taxes and interest). Your total monthly payment will be PITI so be familiar with that term and don’t believe that the payments listed in the paper will be your actual payment. It will depend on your loan, interest rates, and credit; you may not be able to get such a low payment.
In addition to PITI, you will have housing maintenance costs. These are costs that you will have to cover during the term of your home ownership, in most cases they amount to about 1% of your homes value, so if you buy a $225,000 you need to set aside $2,250 a year for expenses. These expenses include long term projects like remodeling the kitchen and baths and putting on a new roof. Short term expenses may be landscaping, a new air conditioner, and plumbing repair. These expenses are an unavoidable part of homeownership that most people are unprepared for. If you try to cut corners and not maintain your house, it can lead to even more problems in the long term – a leaky roof may cause mold or a dated kitchen can make a house unsellable.
If you’re buying a brand new house, appliances may be included in the sale, but sometimes they’re not. If you have to buy a refrigerator, dish washer, microwave, stove, washer and dryer, this is a huge expense. In addition to major appliances you may need to buy window coverings. This may seem like a small expense, but decent widow coverings for a whole house may cost a couple thousand dollars. Of course, you can buy cheap and then upgrade as you go along, but that’s just an added expense down the line.
One of the most fun things to buy is furniture. Most people moving from an apartment already have some furniture but in most cases you’ll need a lot more for a house. This is something you can buy as you go, but in the case of young buyers who have lived with parents or roommates, be prepared for the expense of furnishing a house. Not only sofa, beds, and electronics but all the little things you take for granted like dishes, towels and a vacuum. You’d be amazed how quick these things add up.
You need to pay to get all your utilities turned on – electric, cable, gas, water, and trash. If you have an outstanding bill, guess what, no electricity. Make sure that your accounts are current and that you have no outstanding balances. You’ll also need to have homeowners insurance that covers you for crime and fire. If you need insurance for flood, tornados, and other natural disaster you can expect to pay more.