So you’ve conquered the piles of paperwork, made it through the loan process, breezed through the inspection and now you finally have the keys to your brand new home.
These past thirty to sixty days have probably felt like you’ve been bleeding cash, and while the outward flow of funds will sputter off in the weeks ahead, ensure that you and your budget are prepared for what your home will truly cost you each month by accounting for these expenses:
1. Mortgage & Interest
At this point, you should be well aware of what your monthly principal and interest payments will be and understand the terms and type of rate you locked in. Adjustable or fixed? Five, 15, or 30 years?
If you’re still in the shopping phase, use a calculator that will give you an estimate of payments. A good rule of thumb to consider is that no more than 28 percent of your gross monthly income should be used to pay for PITI (principal, interest, taxes, and insurance).
2. Private Mortgage Insurance (PMI)
If you put a down payment of less than 20 percent towards your new home, your lender will require you to obtain private mortgage insurance, which is a policy that protects your lender in case you default on your payments.
As the borrower, you’re responsible for paying the premiums on the policy and your lender is the beneficiary. The fees for your PMI can range from 0.3 percent to 1.15 percent of your total loan value, so ensure you understand what costs you’ll be responsible for and walk through the details with your lender (there are no stupid questions when it comes to the amount of money involved with this large of a transaction).
3. Property Tax
As a homeowner, property tax (or millage tax) is something you’re going to be faced with no matter what city, county, or state you live in. It’s a tax levied as a percentage of the assessed value of your property.
This calculator will help you estimate your bill. The good news that comes with this bill is that it’s tax-deductible.
Pro Tip: This bill may come semi-annually, but ensure you’re factoring it into your budget on a monthly basis and setting aside funds so that you’re not left scrambling when the bill arrives.
4. Homeowner’s Insurance
If you’ve been a renter until now, you’re likely used to paying less than $30 per month for renter’s insurance, which is focused solely on replacing your personal property. Homeowner’s insurance, however, goes a step beyond protecting just your personal property and also protects the dwelling in case of loss by providing coverage based upon the cost to rebuild.
The average annual premium for homeowner’s insurance is $952 and varies by state, size of the dwelling, and year it was built. Shop around for the best rate and consider bundling this coverage with your already existing auto insurance for a discounted rate.
5. Homeowner’s Association Dues
A homeowner’s association is an organization of property owners that manages and upholds the rules of a condo building, subdivision, or development. If you’re buying in a community with a homeowner’s association, make sure you understand what you’re paying for.
Monthly fees can range from $100 to north of $600 depending on the community you live in, the building, and what the fees cover. Items typically included are landscaping, swimming pools, building maintenance, tennis courts, security, garages, fitness centers, and more.
Ensure you look into the average for your city and read the agreement to understand when and how often fees are increased. Remember, the amount you’re paying towards HOA dues is not adding to your equity value in your home, so make sure you’re comfortable with this “bill” for the long term. If the cost seems to steep for you to stomach, consider a different community.
6. Landscaping & Maintenance
If you’ve always pictured your home with a yard, white picket fence, and swimming pool in the back, be sure to consider how these things will translate into your monthly budget.
Along with grass comes increased costs for watering, landscaping, and gardening if you don’t plan to maintain on your own. A pool brings increased costs for maintenance and servicing, increased electricity bill for running the pump and heater, and an uptick in your homeowner’s insurance premium due to the risks involved with pools and damage that could occur. Chemicals for a pool can range from $500 to $800 per year, while the costs to electricity can be up to $100 month.
7. Increased Utilities
Whether you’ve been renting or are a previous owner, chances are you’re used to paying utility bills by now. What’s important to factor in are any changes that may occur to gas and electric bills due to a move to a different climate and/or an upgrade to bigger space (which takes longer and more energy to cool, heat, and brighten up).
Depending on the size of your new home, you may want to add a cushion of an extra $50 to $100 per month into your budget for increased utility costs.
8. Home Upgrades
Chances are that even if you move into your ideal home, there are still going to be some fixes, upgrades, and routine maintenance that needs to be done in order to get the place to the shape you prefer. If you haven’t set aside a pot of money from your existing savings to tackle these projects, then you’ll need to begin saving on a monthly basis to build up funds to make changes in phases.
Sit down and list out the goals you have for your new home and the costs associated with each. Open a separate savings account for home upgrades and begin stashing away cash on a monthly and automatic basis.
