More than 60% of Americans own their homes, and while there are certain benefits to ownership, there’s also a downside: the cost.
You may have thought that coming up with a down payment was the greatest financial hurdle you’d face, but as you’ll soon come to learn, there are numerous expenses associated with owning a home. Here’s how to handle them.
1. Create a new budget
Given that your monthly mortgage payment is bound to differ from your previous rent payment, it might seem like a no-brainer that you’ll need to adjust your budget accordingly. Rather than just substituting your new mortgage payment for your previous rent payment, spend a few months tracking all of your expenses and update your budget to reflect the actual costs of living in your new home. You may come to find that you’re spending more than expected, in which case you’ll need to adjust your flexible expense categories, like leisure, to compensate.
2. Prepare to spend money on repairs and maintenance
You’re probably aware that you’ll spend some money on maintenance and repairs for your home, but you may not realize just how much you may end up parting with. Most homeowners spend 1% to 4% of their homes’ value each year on repairs and maintenance.
So if your home is worth $300,000, expect to shell out anywhere from $3,000 to $12,000 a year on upkeep. And if you need to do something major, like replace a faulty heating system or roof, your costs could climb even higher.
3. Expect your property taxes to go up
Your property taxes are based on the assessed value of your home coupled with local tax rates. When you buy a new home, you’ll be advised of your current property tax liability — but don’t get too comfortable with that number.
Property taxes have a tendency to rise, even when home values drop. Back in 2000, localities across the U.S. collected an estimated $247 billion in property taxes, but by 2010, that number almost doubled to $476 billion despite the decline in home prices from the infamous housing bubble implosion.
4. Don’t get caught off guard when big payments come due
The average U.S. household spends $2,127 on property taxes each year, but in many states, that number is much higher. Take New Jersey, for example, whose average annual property taxes exceed $7,000 and, in some counties, can easily top the $15,000 mark.
Most homeowners pay property taxes quarterly, and if yours are $4,000 a year, that’s an extra $1,000 check you’ll need to write every three months. Rather than scramble to come up with that money, be sure to budget $333 a month for property taxes. Along these lines, the average annual homeowners’ insurance premium in the U.S. is $952. If you’re required to make that payment all at once, you’ll need to set aside money each month in anticipation.