How to plan for your mortgage and and other household costs before you sign.
The only way to enter homeownership without risking a major financial freakout down the road is to be brutally honest from the get-go about what you can and cannot afford.
The money you spend on your home isn’t limited to your down payment or even your monthly mortgage payments, so make sure to copy each of the following eight expenses into your monthly household budget planner.
1. Mortgage payments
Your mortgage should be the most predictable sum in your monthly household budget. So figure out in advance what your monthly payments will be based on the price of the house, how much you’re putting down, and the interest rate you’re paying. A good lender can give you a very close estimation before closing, but it will fluctuate slightly until the day you get the key.
2. Property taxes
These are usually paid twice a year, but property tax laws vary state by state and even by county. Local governments can choose to hike these taxes to cover city or county expenses. And if you renovate your home or make other improvements that increase its value, you’ll also probably see your property taxes rise.
3. Homeowners’ insurance
This varies by state and region as well. Depending on where you live and what kind of coverage you buy, insurance can run from about $500 to $1,500 a year. It helps to bundle your homeowners’ insurance with other types of insurance, such as auto and life, as many companies offer discounts for doing so.
4. Hazard insurance
This entails insurance coverage for earthquakes, floods, or hurricanes, depending on your location. Don’t forget to add these to your budget — and check them all out, even if you think you don’t need them.
5. Condo, co-op, or homeowners’ association fees
If you own a condo, co-op, or townhouse, you’ll pay an annual or monthly fee to maintain the building and grounds. Single-family homes may also have homeowners’ association dues if they’re located in a particular neighborhood or subdivision with common property. If you purchased in a gated community with security guards, a swimming pool, clubhouse, playground, tennis courts, and so on, you’re likely to incur regular expenses for those amenities.
Renting has likely prepared you for this expense, but chances are, you’ll have a few extra bills at your house — including gas, water, sewer, and trash removal, in addition to electric — and they may be a bit more costly now that you’re running an entire home.
7. Routine maintenance
Here’s the wild card: Things break and things wear out. It happens. So keep some emergency money handy for a leaky roof, clogged kitchen sink, or dripping water heater. The best plan of action is to budget a couple of hundred bucks a month for these unexpected costs.
8. Pool and yard care
Depending on how much there is to maintain, you’ll need to earmark extra dollars to cover routine outdoor expenses. Even if you decide to take care of your pool or large backyard yourself, you’ll still need to hire professionals from time to time for heavy-duty tree trimming or the occasional repair of your pool’s filter system.