Buying your first home is a major milestone. There's nothing quite like the giddy rush that comes from knowing you could paint a wall fluorescent pink and no one could legally stop you.
Since you've just come up with a down payment, you might think your biggest hurdle of financial responsibility is over. However, that's not the case.
Check out these common homeowner situations to help you best prepare for them.
1. Something major breaks
As a renter, if the refrigerator stopped running, you only had to concern yourself with keeping your food cold until the landlord fixed it or bought a new one. If a major plumbing problem struck your building, it was easily survivable.
As a homeowner, the first time something major, like an appliance, structural element, or major system breaks, you can be in for a staggering amount of work and stress.
If you're counting on homeowner's insurance or a home warranty to cover you, check your policies carefully. Most home warranties end at the walls of your house, and depending on your insurance choices, you could find yourself in a situation that isn’t covered.
Events like these will happen sooner or later. The only way to be prepared is to practice self-insurance. Start building a home repair and renovation fund, and build major expenses into your regular monthly budget. When you spread these expenses out over the course of months, rather than trying to pay for them all at once, they'll be much more manageable.
As a guideline, expect to spend 1-4% of the value of your home in repairs and maintenance every year.
2. Costs increase
When considering a budget in your new home, it's tempting just to move the money you were spending on rent into a mortgage payment. However, your housing costs aren't the only thing that's likely to go up.
- If you're moving from a smaller apartment into a larger house, utility costs will increase.
- If you're going from a relatively new apartment building into an older house, appliances won't run as efficiently, and seals around doors and windows won't fit as snugly.
- Transportation costs may increase if you've moved further away from work or friends.
- Lawn maintenance and landscaping costs will become part of the budget for the first time.
A lot of costs will go up as you transition to a new lifestyle. Spend your first month in your new neighborhood documenting your expenses. This is the best way to build expectations for what your new living expenses and monthly budget might look like.
3. Tax bills
Property taxes are a once or twice a year expense that can wreak havoc on your budget. While many mortgage companies maintain an escrow account for these costs and include them in your regular mortgage payment, many homeowners are on their own when it comes to tax time. If that's the case for you, start doing research to determine what your tax bill might look like.
This is another expense that becomes manageable if you break it into a monthly cost. The US average property tax bill is just under $3,000. That's about $250 per month. That might be a challenge to set aside, but it's still better than being blindsided with the full amount.
4. Maintenance requirements increase
There are dozens of things around the house that most people don't think twice about. Items like water hoses, smoke alarms, and garage doors. Seals to sinks, toilets and windows wear out with time. Many of these things can cause damage to your house if they don't work properly.
Start making a list of chores to be done monthly, weekly or less frequently. Keep a spreadsheet or some other document, so you know the last time maintenance was performed on major items in your home. Remember, fix little problems before they turn into big ones, and you will save a lot of time, money and stress!
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