You’re ready to be a homeowner. With the 2008 housing crisis still fresh in our country’s history, you’ll learn from history and be the best homeowner. You’ll go into this clear-headed, well-read, and money-smart.
You’ve researched homeowner expenses and know the horror stories of furnaces kicking it in the dead of winter and air conditioners going cold in August. You’ve budgeted for these and other surprise expenses, such as closing costs, inspections, and taxes.
But have you properly planned for the one-time upfront costs, or hidden costs that most realtors, banks and even other homeowners rarely mention? These costs can easily be overlooked and could cause some serious budget strain if you ignore them until the last minute. But, if you include these expenses in your homeowner budget now, you’ll save yourself patience and money you didn’t know you could lose.
Turning your new house into your home
Buying a house is one thing. Turning a house into a home is another.
While you may love your current furniture and home decorations in your current place, you may not in your new place. Your floor plan will be different. The lighting will change. You may not find the same shade of paint from your current place that perfectly matches that loveseat you love.
Depending on where you live and the size of your new home , expect to pay between $3,723 to $7,842 on average annual homemaking improvements, according to HomeAdvisor’s 2016 True Cost Report. A "homemaking" line item should be included in your budget like any other expense, and it’s an expense many new homeowners forget or let emotions dictate.
Your time is money
When a new homeowner learns that time-intensive services like landscaping average $3,538, they often assume the responsibility of these household chores to save on homeowner expenses. The problem is that even at night and on weekends your time is money.
What will you give up to manicure your yard and then maintain your landscaping? With the few hours you have to spare each week, how long will it take you to replace the old wiring in your new house? Even if you do some projects, what will you pay to have a professional fix your mistakes?
Many homeowners are capable of doing and enjoy doing such projects, but many aren’t and don’t. The questions to ask yourself is what kind of lifestyle do you want, and will this new house give it to you?
A rule of thumb is to set aside 1% to 3% of your home’s value for annual maintenance. The less capable or willing you are of doing maintenance yourself, the closer to 3% you should be setting aside.
Homeowner’s insurance deductible
We recommend homeowners buy homeowner’s insurance. Insurance protection doesn’t stop, though, with the purchase of insurance. Most homeowner’s insurance has a deductible between $500 or $1,000. As the homeowner and policyholder, you’re responsible for that deductible.
This is why it’s critical to have between $500 to $1,000 minimum in an emergency savings account. The problem is, 47 percent of Americans can’t afford a $400 emergency of any kind and this puts many American homeowners at risk. Don’t be that homeowner.
Should an accident occur, such as hail damage or someone driving into your garage door, you’ll want homeowner’s insurance to cover the bulk of your expenses. Be sure you can fund your end of your coverage so you’re not responsible for all of the damage.
Create a plan to save between three to six month’s worth of living expenses that include everything from homeowner expenses to grocery and auto expenses. Aggressively save your emergency fund, then set up regular, automatic payments into a savings account.
Whether you can save $20 a month of $200 a month, you’ll reach your goal sooner than you think. If you need it, you’ll have the peace of mind you have it.
As a protective measure, it’s best to save your $500 to $1,000 deductible before you buy your new house. This will reduce your risk should an incident occur between your purchase date and the time you save your deductible. Likewise, obtain a homeowner’s insurance estimate from your insurance agent before you purchase your new home. You’ll want to be sure your budget can withstand the expense.
Increased property taxes (even in recessions)
Property tax assessments and calculations vary by state. After an assessment, it can take up to three years for newly assessed values to be calculated into your property tax.
This means that if your property’s value is assessed at the peak of a housing bubble, it may not be reflected in your taxes for up to three years. If a recession happens during those three years, you should still expect your property taxes to increase.
Therefore, don’t see an opportunity where one doesn’t exist. Always plan on your property taxes increasing until and unless you receive written notice otherwise from your state.
Condominium liability insurance
Everything you think you know about liability goes out the window for condominiums in most states. Usually when someone or their property damages another property, they’re responsible. This is not always the case with condos.
Many states make condo owners liable for all damage within their walls. Therefore, if a sink in the condo above you leaks into your unit below, your neighbor is responsible for the damage in their condo and you’re responsible for the damage in yours.
It doesn’t seem fair, and most people would assume that you wouldn’t be liable for all the damage, but this isn’t always the case. Without enough savings or the appropriate insurance coverage, you could be out of luck even though you or your condo isn’t at fault.
Homeowners association special assessments
While we’re discussing condos, we should discuss ubiquitous homeowners associations (HOA) special assessments. Special assessments are additional fees charged to homeowners in HOA in addition to and above monthly or annual HOA dues.
Special assessments are charged when maintenance – often, but not always, emergency maintenance – is needed and the HOA is underfunded to cover the expense. Just as we all need an emergency savings account to cover unexpected emergencies, HOAs need reserve accounts for similar funding. Some states, in fact, have minimum monthly or annual contribution requirements.
Some insurance companies sell HOA homeowners a "loss-assessment rider" to insure homeowners in case their HOA institutes a special assessment. If you buy a condo, talk with your insurance agent about a loss-assessment rider and get appropriate coverage based on your and your HOA’s financial condition and maintenance needs of your condo building.
People often move into condos because they can’t or don’t want to deal with the homeowner expenses and work of maintaining a house. Regardless, maintenance on condo buildings must be done and are paid for by condo owners.
These are some homeowner expenses that many homeowners tend to skip over in their initial budgets. Now that you know to include them in yours, you’ll be the money-smart homeowner you know you can be.