 When it comes to buying a house, most Texans are overwhelmed when they write that big check for a down payment. REALTORS® will tell you it’s likely to be the biggest check you’ll write in your life, and it is. It’s a tough number to come up with for many people, and one of the biggest barriers to homeownership.
There are downpayment-assistance programs, such as Texas Cares. But, as intimidating as the down payment might be, some homeowners are surprised by just how much goes into owning a home. There are a lot of hidden costs that go beyond traditional expenses like principal, interest, taxes, and insurance, or PITI. In reality, it’s just the beginning.
Many people overlook such necessities as general maintenance, repairs, insurance, home improvements, and decorating costs. Here’s what you can expect – and how much you should set aside for these expenses – when it comes to buying or selling a home.
General maintenance
Living in a rental property certainly does have its advantages. No gutters to replace, no plumbing repairs – or none that you have to do yourself, anyway. Landlords take care of those things, but now that you’re a bonafide homeowner, it’s your job to keep your house running smoothly.
How much your home will cost you in maintenance and repairs depends on how old it is; how well it was taken care of by previous owners (if applicable); how harsh the weather is where you live; and how much money you want to get out of your home when you sell it.
Experts say you should budget at least 1% of the home’s purchase price for repairs and general maintenance. For example, if you buy a $200,000 home, you should set aside at least $2,000 a year. Don’t be tempted to take that Caribbean vacation if you don’t end up using the cash. A new roof can run $5,000 or more – and you want the money there to cover your costs when you need it.
Protecting your investment – insurance
Everyone who owns a house needs it. It’s a lot like most other types of insurance: you hope you won’t need it, but it’s nice to know it’s there if you do.
Consider the real cost of replacing your home if it’s destroyed. Check with several different home insurance companies to get rate quotes (an independent insurance agent can provide rate quotes from a variety of companies).
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Also consider raising your deductible to save money on monthly premiums. The deductible is the amount of money you have to pay toward a loss before your insurance kicks in. Home insurance deductibles usually start around $250. But, if you increase your deductible to:
- $500, you’ll save up to 12% on your premiums
- $1,000? Save up to 24%
- $2,500? Save up to 30%
- $5,000? Save up to 37%
Home improvements: Make your home your own
Want polka-dotted walls? Now that you own a home, you can go nuts with any color scheme you want. Just be sure you budget for all that paint.
While painting a few rooms won’t seriously dent your improvement budget, it’s easy to go overboard. The good news is that a few projects can add great value to your home and may even help you recover initial costs.
But it will cost you some bucks. According to Remodeling magazine, a major kitchen overall – one of the most popular home improvements – can cost an average of $38,769. Check out the magazine’s Cost vs. Value survey to see which projects will give you the most bang for your buck. Of course, if you’re handy with a hammer and a paintbrush, you can save money by doing some work yourself.
Don’t forget new furniture, otherwise you might be sitting on that ratty college sofa for a few years. When you consider your budget, remember costs for things like window treatments, lighting fixtures, carpet or area rugs and appliances.
Stocking up the tool rack
Owning a home also means investing in the tools to keep it in tip-top condition. If you’re going from an apartment to a house, for example, you’ll probably need a lawnmower and other assorted machines and tools. And they’re not cheap.
Don’t forget closing costs
Lenders estimate that 3% to 6% of the loan amount will be closing costs. On a $150,000 mortgage, that would add up to somewhere between $4,500 and $9,000.
Closing costs might include: loan application fees and credit report; title search and insurance fees; lender’s attorney fees; property appraisal; inspections; survey; recording fees; mortgage origination fees; and escrow account balances/prepaids (for taxes, insurance).
The bottom line is to just keep a little extra aside, and you’ll be well prepared for any costs that come up when buying or maintaining your home.
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