The Hidden Costs of Home Ownership

I’m going to write a few posts about important things first time home buyers should know before they take the leap into buying a home.  If you are considering purchasing a home in the Twin Cities area, there are things to understand or do which can make transitioning into home ownership much easier.  Additionally, simply having as much helpful information as possible could help you keep your first home once you have it.

First, as the title of this post suggests, I’m going to talk about the hidden costs of home ownership which a first time home buyer may not   Owning a home has been touted as the American dream for generations.  Because dreams are supposed to be perfect, the liabilities of owning a home don’t tend to be talked about.  Though buying a home offers advantages like housing security, tax advantages, and ultimately, no more housing payments after it’s paid off, if you are considering buying a home for the very first time there are some things you should consider first.  It is a mistake to believe that a mortgage equal to how much you pay for rent is all that is needed to become a homeowner.  Here are some costs of home ownership you might not have thought of which may impact the size of your mortgage, and the size of your home!

Appliances Most rental units have basic, necessary appliance like refrigerators and stoves installed.  Lucky renters may even have a dishwasher, clothes washer, and dryer.  When you buy a home, unless the previous owner agreed to leave their appliances in the home, it is your responsibility to buy these items.  Some new homes have appliances installed, but even if you buy new construction, you will most likely need to purchase the necessary large appliance.  That being said, if the home you buy comes with all the needed appliances, they will break down eventually.   When they need repairing or replacing, home owners can’t call the landlord. The money will have to come out of your wallet.

Utilities As a renter, some of the utilities you use may be included in your rent.  Your rent agreement could include electric, heat, water, sewage, garbage disposal, maybe even cable or other expenses.  When you buy a home, these utilities will not be included in your monthly mortgage payment.  You will have to pay for those utilities separately.  But how will you know what the bills are like before you move in? When you find a home that you think you want to buy, ask the owner for estimates or copies of the utility bills for the past few months.  Doing this may give you a good idea of how much you will have to pay monthly for utilities in a specific home.  Remember that the size of a home will have a great impact how much electricity it utilizes and the price of heating or cooling it.  Additionally, you may want to pay for satellite, cable, phone service, or internet services.

Landscaping For many first time home buyers, having a yard could be a great selling point for a home.  You could even be anticipating planting shrubs and trees, growing vegetables in a garden, or adding color with some beautiful flowers.  All those landscaping costs are going to ad up. As a potential first time home buyer, you may not have a few landscaping necessities like a lawnmower, weed eater, pruning shears, a snow shovel or blower, and other similar items.  Many landlords tend to the landscaping, lawn mowing, leaf raking, and snow removal without the renter ever lifting a finger.  Whether you plan is to take care of the yard on your own or hire someone else to do it, landscaping and yard duties will have its price.

General Maintenance Observation, time, money, and manual labor are all required in order to keep any home in good condition. Landlords make sure air conditioning systems, furnaces, sump pumps, plumbing, and electrical systems are all working properly and are well maintained.  As you might have guessed, as a first time home buyer, this will be your responsibility.  You should observe of what is “normal” for your home and the working parts within it.  This way, you’re more likely to be tipped off problems early and prevent more costly repairs later on.  It’s also an excellent idea to keep a record of any maintenance you do for future reference.  It may be advisable to hire a professional inspector to evaluate your heating and cooling systems to make sure there are no safety concerns.

Repairs Even if you expect maintenance, the need for repairs are hard to anticipate.  New homes tend to need less maintenance and fewer repairs while older homes will most likely need more attention.  Either way, every home will eventually need something fixed.  It could be a relatively simple fix, like installing tile in the bathroom, replacing shoddy carpeting, or repainting.  Conversely, it could be more involved, expensive, and immediate need of attention like a leaky roof, a flooded basement, or buckling floors.  Whatever needs repairing, as a home owner, you will have to cover the expenses.  Homeowners should be prepared for needed repairs by having a few thousand dollars saved in an emergency repair fund for just such an occasion.

Taxes As a renter, you’re probably not concerned about property taxes.  As a Minnesota renter, you may even qualify for a renter’s credit at tax filing time.  Though it is true that as a homeowner, some of the interest you pay on your mortgage can be written off of your taxes, real estate and property taxes must be paid.  The taxes you must pay will depend on where you live and the value of your property. Taxes vary by state, county, and city.  For the most part, the larger the lot and home, the higher your property tax payment will be.  Don’t be surprised: When you decide to buy your first home, research the property, school, state, and local tax rates for the specific places you seek to live.

Insurance As a renter, you may have renter’s insurance already, but when you buy your first home, you will absolutely need several types of insurance.  There is insurance to cover the property itself, insurance to cover the personal possessions inside, and in many cases, mortgage insurance to cover the lender’s loss in case you default on the loan.  All of adds up.  When you buy insurance, make sure your buying the coverage you need.  Shop around and explore different insurance options until you find the plan that fits your needs.  One thing which is important to note for first time home buyers in Minnesota, where lakes, rivers, and streams may flood:  Your homeowner’s policy does not cover flood damage.

Disaster You’re probably aware as a first time home buyer in Minnesota that there is the potential for natural disasters here.  In the winter, the weight of snow can collapse roofs.  During the spring, melting snow and rains cause overrun rivers and flood houses.  In the summer, tornados can reduce a home to toothpicks.  If a disaster like this occurs, it’s up to you, the homeowner, to determine rebuilding or repairing plans for a destroyed or damaged home.  As I said before, insurance can be bought to cover a lot of disasters.  If you have good homeowners insurance, not all damages will be covered in full but the cost to a home owner will be much less than if you had no insurance.

By mentioning these expenses, I am by no means trying to discourage anyone from buying a home.  In fact, just the opposite.  It’s important for first time home buyers to know as much as possible before they make the home ownership plunge.  The more you know, the less likely you are to bite off more house than you can afford.  By knowing what types of expenses to expect, first time home buyers can more accurately determine how much they can afford to spend on buying a house.

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