More than half the families who have purchased homes for the first time within the past 12 months found out — some probably the hard way — that the cost of ownership was more than what they had planned for. Many first-time buyers are unprepared for the financial burdens that come with homeownership. The expenses associated with owning a home can be surprising. A recent poll found that many of those who were caught off guard had to change their lifestyles to meet their new financial responsibilities. While it didn’t ask how many had lost their homes because they couldn’t handle their mortgage payments plus the unforeseen costs, it’s a safe bet to say a fair percentage did. So the study should serve as a big warning to future first-timers: Be absolutely certain that you have accounted for all the costs that ownership entails.
One reason buyers are unprepared for what lies ahead is that lenders tend to tell them the maximum they can afford based on their incomes, with little regard for the “extras” such as utilities, upkeep and improvements. You’re told what your monthly nut for principal, interest, taxes and insurance — the all-important PITI — will be. But likely because you won’t know exactly what the other costs will be until you actually move into your new castle, they are rarely mentioned. And as a result, many borrowers who mortgage themselves to the hilt often find themselves “house poor.” They own a home, all right, but they can’t afford anything else.
Rookies who are transitioning from an apartment are usually better prepared than those who are making the move from the family nest. Renters probably paid at least something for their utilities, whereas those who are leaving the friendly confines of Mom and Dad’s house have probably never had to dig into their own pockets for food, let alone electricity. As owners, though, they, not their landlords, are responsible for electricity and/or gas, water and sewer and trash removal. Then there’s propane if you have a gas fireplace, the phone bill if you want a landline, and cable if you expect to watch television. Utilities are a big add-on. According to the U.S. Department of Energy, the typical family spends $1,900 a year — $158 a month — on home utilities.
Another significant expense all buyers, not just first-timers, tend to forget is what they’ll spend for furnishings, appliances and property alterations. A recent 2007 study by the Harvard’s Joint Center for Housing Studies shows that consumers spent an average of $14,206 on home improvements during their first two years of ownership. But according to NAHB’s research, most of the extra spending — 60 percent — occurs within the first three months after taking occupancy. The spending doesn’t stop there, though, especially if you’re buying a previously occupied house. There’s also the cost of upkeep.
Whether you are moving into a new or old home, you need to be aware of the ongoing maintenance any home requires.
Obviously, a new house will take less to maintain than an existing one, at least initially. But even new houses have minor issues that need to be addressed. And it’s best to take care of them early, before they become major headaches. It’s impossible to tell when something is going to go bad, but something always does. Maybe the water heater will die or the roof will spring a leak.
A home inspection before you buy should provide you with an idea about what, if anything, is on its last legs. And a good inspector should be able to estimate the age of the home’s components and systems. Compare that to the life-cycle list at the NAHB website — and you’ll have a rough idea of when you can expect a major outlay.
For example, furnaces typically last between 12 and 15 years. So if you are moving into a 10-year-old house, you can figure on having to replace the furnace in two to five years. New or used, buyers should figure on spending 1 percent of the home’s value per year for maintenance. Consequently, if you are moving into a $200,000 house, figure on spending $2,000 annually to keep the place in good operating condition.
Reggie Russell - Owner.
