Three Unexpected Costs with Owning Your First Home

There is nothing more thrilling than owning your first home. No one really enjoys the process of getting it bought, however. At least, if you are negative person. Here are some thoughts that many glass half-empty folks have about buying their first house.

First, you have to save up enough money for the down payment. Sure, there are strategies to follow to complete this first task, but it still is not easy to sacrifice Starbucks for a couple of years.

You then had to find a lender and a Realtor to use for your house hunt. Most likely, you had to interview several lenders and Realtors before making a decision on one.

House hunting had to be fun. Of course, the inventory is low so you had to look at several and make several offers before you were able to get one under contract.

The inspection had to be a tough chore to get through as it is for most buyers (and sellers). The inspection report saves first time home buyers from buying a dud of a house. Thankfully, you had a good Realtor so the repair request had to go smoothly.

Don’t forget the appraisal process. You had to have the lender confirm the value of the house. The lender had to be fine with the appraisal amount so you skip the chore of negotiating a new sales price with the seller.

Lender had to ask you for several additional items for their consideration. It seems lenders don’t care how much time it takes you to dig up a bill from two years ago showing one purchase made while on vacation in Hawaii. They just want the information.

Closing had to be relief. Your hands still cramp from all the signing of documents, but it went smoothly. Time to move into the new house!

One way to beat these negative thoughts is to hire a Realtor. I know that many people think all Realtors are crooks, who only look out for themselves (not true!). Realtors do make a difference! You need to get one on board as soon as you decide a house is worth buying for yourself. You won’t regret it.

Now, you are in the house. The stress will lighten up a bit. Or will it? Many first time home buyers report regrets with buying a house because of the unexpected costs the first year. One way to combat these regrets is to get educated on home ownership. So, here are three costs for you to consider as you shop for that first home.

Maintenance Cost – Guess what? When you own a home, you have to fix everything on your own, or at least call a service person to come fix it for you. No more landloards to call to complain. You are now your own landlord. How much will you spend on maintenance your first year? Good question as it depends on your house. However, you can budget that your cost will be about 1% of your sales price annually. You can try different techniques for budgeting for maintenance costs, but is always best to put some money aside for repairs.

What kind of repairs will you have to do the first year? Once again, it depends on your home. Older homes will require more repair work than new homes (we hope!). You might find yourself doing work on plumbing, electrical or even putting new insulation in the attic. The big expenses are structural like roof or foundation. Your cooling/heating equipment can also be expensive. Hopefully, these large expenses will only occur every decade or two.

Home Owner Association (HOA) DuesWhat is a Home Owners Association? You may be surprised to find out that some communities are governed by two sets of rules when it comes to your property. First, you are obligated to follow the rules of your local city. The city will have laws, or ordinances, in place dictating what you are allow to do with your property. For example, many city ordinances ban the raising of farm animals if the property is within the city limits (with exceptions). Another example is that homeowners can’t fix their cars in their driveways, or have the cars on supports without wheels. These ordinances are in place with the best intentions of keeping the community safe for all residents.

The second set of rules you must follow are dictated by you and your fellow home owners through the HOA. HOA’s main purpose is to keep properties looking fresh and conforming to protect the property values of all the homes in the HOA. Why is this even necessary? Property valuations depend on a lot of factors, one being how well kept the property has been, and if it conforms with the appearance of the rest of the subdivision. If neither of these occur, you will see a drop in the property values (most likely).

HOAs also have certain amenities as well. Many subdivisions will have community parks and swimming pools for your use as a HOA member. In other words, the monthly cost might seem extreme but it does help you by keeping property values high and allowing you to enjoy some community benefits.

What does it cost? It depends, but most HOA will range from $50 a month up to a couple of hundred. Just ask your Realtor about the monthly costs.

Property Taxes and Home Insurance – The final unexpected costs of first time home buyers is the annual taxes and home insurance. Local cities and counties do not charge you an income tax(your federal and state government does). They derive their tax revenue from sales tax and property taxes. Many of these local municipalities rely heavily on property taxes so sometimes the property taxes you pay can seem excessive. Just remember that the taxes go to help pay for services you glean from the local governments like good schools, roads, library service and trash pickup. The cost varies widely on where you live. Be sure to ask your Realtor how much your annual taxes will be.

You might have had Renter’s Insurance to protect your belongings in case of theft or disaster. When you own a home, you also have to get insurance to protect the structure itself and against accidents happening in the home. This cost can be hundreds of dollars more than what you paid in rentals insurance, because the insurance company is giving you enough coverage to rebuild your home in case it comes crashing down. With more risk the insurance company takes on, the more you pay for the insurance policy.

The nice thing about taxes and insurance is that you can have these costs added to your mortgage payment every month. It does add quite a bit to your mortgage payment, but you won’t have to worry about paying the bills as the lender will pay them for you. In fact, most likely, you won’t even notice how much this is costing you unless you dive deep into the documents sent to you by the government and insurance company.