When most people — particularly first-time home buyers — think about the costs associated with purchasing a home, they typically consider the costs related to closing on the deal. These closing costs include mortgage, title and insurance fees.
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What many homeowners don’t plan for are the costs associated with actually owning the home. If you are buying a home that needs work, you would get estimates and build those expenses into the overall cost of owning the home. But there are more expenses, even for homes that are in move-in condition.
Many home buyers focus much of their attention on the purchase price or the interest rate of the loan. In reality, saving $10,000 on the overall purchase price or getting a 1/8-point lower on the loan won’t translate into cash in your pocket. But hidden expenses — those that come with the territory of homeownership — will certainly affect your finances.
Relocating from one part of the country to another?
Someone moving from Northern California to the suburbs of Connecticut will be blown away to learn how expensive it is to own a home. If you live in an area where air conditioning isn’t necessary, and heat comes from gas-fired HVAC systems, your month utility bills and the regular costs associated with homeownership will be relatively low.
But to heat a home in the Northeast through the winter, you’ll need an oil truck to deliver 150 gallons of oil to your home every five weeks — to the tune of $800 per fill up. And don’t be surprised by an extra $100 per month on your electric bill from May to October if you are using air conditioners. The average consumer, without knowledge of these day-to-day realities, will face severe sticker shock.
Similarly, if you move from the suburbs to the country, expect a septic system and well water. Each of these requires regular maintenance and expenses.
Ask for credits instead of a lower purchase price
To manage these maintenance costs, it’s smart to set some money aside, and one way to do that is to get a credit when you buy the home. Most lenders will allow buyers a credit back from the seller at the closing, up to 6 percent. A reduction structured as a credit back cuts your closing cost expenses and keeps money in your pocket to earmark for home improvement.
If you negotiate a $5,000 price reduction, that’s great. But it won’t help for cash flow purposes. That slight reduction, amortized over the life of the loan, may translate into savings of less than $50 per month. Wouldn’t you rather have that money in your pocket at the closing?
Use your inspection to establish a home maintenance plan
Part of becoming a homeowner is performing regular maintenance. You can’t call your landlord to fix problems once you own a home.
As a part of your home buying due diligence, understand from the property inspector what is required to maintain the home. Most buyers think that the inspection is all about finding faults or issues with the property. While poking holes in the home is certainly one aspect of inspecting, what’s just as important is having the opportunity to learn about the home and its systems.
Use the walkthrough with a licensed inspector and the written report to identify what home improvement issues you will face. Budget and plan for a two-, three- or five-year plan to address issues like a leaky water heater, energy-inefficient single pane windows or a boiler near the end of its usable life.
Know before you go
If you are moving to a new area — whether it is only five miles away or five thousand miles — find out at the beginning of the home-buying journey what to expect once you are a homeowner. Do your due diligence on home improvement and maintenance just as you would school districts or housing stock.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.