Welcome to House Hunting with Direct Energy! In this series, we’ll walk you through the fundamentals of shopping for a house, while also sharing a few crucial insider tips that will increase your knowledge and decrease your stress. We want your home-buying experience a positive one!
The Hidden Costs of Home Ownership
I both love and hate house hunting. There is something thrilling about finding a new home for you and your family, but it can take a while to find “the one.” On top of this, the process of buying a house can be complicated and bumpy, and if you haven’t done it before, there are many expenses you might not be factoring in to your budget.
When my family started looking for our first house, I foolishly thought that the mortgage would be by far the largest expense of owning a house. After all, you think that would make sense – you are buying a house! However, our mortgage is only around 60% of the total “home buying” costs we pay every month. To help you with your house hunting, we want to investigate some key hidden costs to make sure you truly know what to expect with your budget.
1) Property Taxes
This is entirely dependent on the value and geography of your new home You may find that houses of exactly the same value located only 15 minutes apart are assessed drastically different amounts in property taxes. You can look up the value of any property and the corresponding yearly tax in your area online by going to your local appraisal district’s website. Be aware that property prices change and your taxes will change accordingly, so buying something you can barely afford could land you in budgetary trouble quicker than you think.
2) Home Insurance
Do not – let me repeat that – DO NOT set the budget for your home until you have a range of home insurance quotes from several companies. If you are a first-time buyer, this will almost certainly cost far more than you think, and it’s not an optional expense. Often the best prices come from having all your insurance (car, home, life) bundled together with one company, as the discounts increase with every separate coverage.
It’s also important to understand that not all home insurance is created equal. There are many important add-ons to a normal insurance policy that can increase your monthly premium – including coverage for floods, fire, wind, and other “Act of God” type natural disasters.
3) Homeowner’s Association Fees
If your potential home is in an area with a Homeowners Association (HOA), you may be assessed an annual fee. Make sure you know what it is, what it covers, and what protections it offers you. Next, read ALL the HOA documents before you even consider putting in a offer on that home of your dreams so you know what the neighborhood expects of you. Most HOAs have strict rules about home and garden upkeep, and that upkeep can be expensive. Just hiring someone to mow your lawn weekly over the summer can cost several hundred dollars … and not mowing it on a regular basis can cost you HOA fines and lots of ill will in the neighborhood.
4) Unexpected Home Repairs
It is very tempting to stretch your budget to buy the perfect home, but don’t do it if it means leaving nothing in your savings. No matter how amazing that house might seem, something will eventually go wrong, and when things go wrong in a home you own, it’s up to you to pay for them.
For example – in the first two days at our new home, every kitchen cabinet drawer collapsed and my wife’s closet rails came tumbling down in a spectacular fashion. Thankfully, we had some funds in reserves, but it was a stressful time in our world. In fact, I could probably write a whole blog series about what you need to do once you move INTO your new home.
In summary: enter the house hunting process with your eyes wide open with the understanding that the perfect home isn’t perfect if you compromise on your budget.