Although home ownership comes with some amazing benefits, there are a number of new responsibilities to be aware of and didn’t have to worry about as a renter. Unlike that rental property you were living in for years, there’s exterior and interior maintenance to be concerned with as well as homeowner’s insurance, property taxes, and more. The common misconception among many first-time home buyers is that the cost of it will be covered in their monthly mortgage payment. Unfortunately, that’s not the case.
Have A Budget
In fact, your mortgage payment is just one component of the costs involved with owning a home. Establishing a budget will help you calculate how much you’ll be spending on your home every month and help you avoid situations that result in spending most of your earnings on your new home. There are 3 expenses your home ownership budget should include including:
- emergency funds
- home maintenance expenses
- property taxes
Details of Varied Costs
You can remove property taxes from the list if they’re already included in your mortgage payment. These factors will help you determine what your true cost of living is. This will help you alleviate anxiety and stress prior to buying a home. Let’s take a look at these costs individually to better understand them:
- Emergency funds – granted, we don’t typically plan for them but emergencies are bound to arise at some point in time. Establishing some financial reserves for these unexpected emergencies is essential to the development of a monthly budget. Saving up a 3-month financial cushion will enable you to overcome any crucial life changes such as being too sick to work or getting laid off.
- Home maintenance – maintaining your house and yard is another cost of owning your own home. This includes repairing any damages as well as normal wear and tear. The cost of home maintenance averages about 1.5% of your home’s value every year. For example, you should anticipate spending roughly $3,750 per year on a $250,000 home.
- Property taxes – this is the annual tax you will owe and is typically based on your home’s market value. Based on the loan program you selected when you bought your home, your lender may have required you to establish an escrow account to cover this expense. If that is the case, they’ll collect 1/12th of your total annual property tax each month with your mortgage payment in order to ensure that these taxes are paid.