There's more to a home's cost than just the mortgage
First-time buyers may forget to budget for monthly expenses they didn't have as renters, as well as home-maintenance costs.
On his road to homeownership, Scott Leibfried has learned one thing: Expect the unexpected.
He and his wife had an offer accepted on a home, only to find out later that foreclosure proceedings were about to begin on it. That’s after they considered another home that was aesthetically pleasing but had major issues that came to light upon closer inspection.
In the meantime, they’re trying to estimate the money they will need for closing costs and any future expenses, hoping that they won’t eat too much into their financial cushion. (Bing: What are closing costs?)
“There are always going to be things that come up,” Leibfried said.
That statement could describe homeownership in general.
Allan Glass, a Los Angeles-based real-estate agent who works with the couple, says that “the biggest mistake buyers make is underestimating the costs” of buying a house and maintaining it over time.
Homeowners should have 1% of the purchase price of their home in savings for improvements and surprise expenses, he said. “That is the absolute minimum. It’s better to have 2% to 3% socked away somewhere.”
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The cushion often isn’t easy for first-time homebuyers to have — especially after they’ve scrimped and saved for their down payment. And many first-time buyers are in the market now because of affordable prices and low interest rates.
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“Some people walk away from closing with a nickel and a stick of gum, and that’s probably not going to be a good idea,” says Dale Robyn Siegel, president of Circle Mortgage Group, in Harrison, N.Y. She recommends having at least six months of mortgage payments in the bank after closing on a house, “especially now, with such an iffy job market.”
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A five-year budget
To get a better handle on where the house stands, buyers should attend a home inspection and ask questions, says Bill Richardson, a home inspector in New Mexico and president of the American Society of Home Inspectors. That way, they can get tips and recommendations from the inspector as he or she is working. They should keep the inspection report handy for reference.
For existing homes, an inspector will estimate the age of major components, giving the homebuyer a sense of when they will need replacing. A furnace, for example, often lasts between 12 and 15 years; a water heater from 10 to 12 years, he says.
A list of approximate life expectancies of home components — as well as cost estimates — can be found at LivingWithMyHome.com, a website sponsored by home-inspection company Pillar to Post. Click on the “Repair & Remodel Estimates” tab.
Once you know what you’re dealing with — and perhaps what the sellers will repair or pay for before the sale is final -- look five years out and make a list of big-ticket home issues that you’ll need to address, says Kelly Rogers, director of education for the Consumer Credit Counseling Service of Orange County, based in Santa Ana, Calif. Make a time line for those expenses.
And don’t count on borrowing money needed for repairs. “The banks have really tightened up, so it’s harder and harder to get a home-equity line of credit,” Richardson said. “If you don’t budget for repairs, you will never get the repairs done when you need it.”
When small problems pop up, it’s important to address them before they become large-scale projects. Consider the tile in the bathroom: As soon as there’s deterioration or cracking, address it, Richardson said.
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“If the toilet is loose to the floor ... it doesn’t seem like a big deal, but it can leak and rot the floor,” he said. “What could be a $15 repair could (end up being) a $700 repair or more.”
Richardson suggests planning for a $500 to $1,000 annual general maintenance budget for most starter homes, which would cover everything from painting a room to caulking the bathtub.
“Buying a home is one of the largest investments you’re going to make,” he said. “If it’s done wisely and with lots of thought, it can be a huge asset. If it’s not well thought out, it can become a huge burden to you.”
Estimating monthly expenses can often trip up new homebuyers as well.
As renters, people are accustomed to paying rent and some utilities, such as phone, Internet service and cable.
Homeowners, however, also face other utility costs, such as water, sewer and trash collection. Then there are property taxes, homeowners insurance and perhaps homeowners association dues.
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There also can be expenses unique to your location. In Los Angeles, for example, water restrictions are such that if you go over a certain cap of usage, you face a penalty, Glass said.
Remember, you also can have miscellaneous expenses such as snow removal and lawn service, if you don’t plan on doing them yourself, Siegel said.
No one ever came to check on it. I got a phone call from a girl in the assessor's office asking if I did work, and I replied honestly.
There's some good stuff in the article about keeping up with repairs when you first notice signs of problems and would rate the article a 7 out of 10 overall. Some people don't have any business venturing off and pouring thousands of dollars into buying a home because they lack the fortitude and insight to keep the property looking good and many don't have the basic skill set to repair a leaky roof or fix a hole in the sheetrock without it looking like a muck of putty. On the backlash, I wouldn't have had the properties that I owned if I would have followed all the financial guidelines put forth by this article either! Different strokes for different folks.....
Give me a break! Most home owners don't want to pay a good contractor for good work. They want the cheapest cost as often as possible. People will pay the computer tech $65-85/hr to fix a computer that in reality we REALLY don't need. But, will nickel and dime a contractor who has to fight to make $25 an hour, for work done on their most valuable asset, THEIR HOME! Most people in this country are completely mixed up with their thinking now a days. To many shows on TV that say, "You can do it yourself." So, they think a trained monkey can do the work US CONTRACTORS WHO HAVE SPENT A LIFETIME TRAINING AND LEARNING OUR CRAFT! I refuse to back down on what I charge for a job. And if I lose a job once in awhile because of it, so be it. I know when I do something it's done right and I don't cut corners. I don't put band aids on top of problems. I give them my opinion on what needs done to make it correct. And I never add on things that don't need do just to make more money.
And to the guy who suggests buying your AC unit online. You'd better know your facts before buying. The unit needs to meet several criteria for you home and particular application. Before you buy you might want to ask the MONKEY!
Just a FYI, I've owned several older homes and have had great success in finding people to help with maintenance work who have some knowledge, but aren't professionals. You can save a lot of money that way. The key is that you must know a fair amount about the work yourself, so you can evaluate whether they know what they're doing, and can help manage the job and perhaps do some of the work yourself or as a team.
One great place to look is the local AA community. There are typically lots of folks in AA who are down on their luck, have lost jobs, but have a lot of skill and experience, and strong incentive to get their lives back on track. Other places to look are Craigslist, local job services (state or whatever), churches and word of mouth. One time I got a really good carpenter for cheap, paid cash and had him replace windows, siding, painting and redo my bathroom, all very good quality work and much, much cheaper than getting a pro.
Lots of times you have to buy the materials for them and provide everything, many of these folks don't have the purchasing judgement and aren't comfortable with the decisions... but have no trouble doing the work. You have to keep checking on them, at least twice a day, and best to pay nearly every day unless you think they're not going to show up if you pay.
BUT, don't use amateurs for plumbing and electrical, also roofing and especially structural. Go pro all the way on that stuff. Use amateurs for stuff you could do yourself but don't have the time or skills, like painting, minor wood replacement, etc.
Sweet so what is the attraction of owning your own home. At least renting you can move rather than repair. Job market sucks.
What happens when you save save save and then don't enjoy life. Was owning a home really all that great.
This is right on. I wish we had waited longer and put money away first. We've been in our home about 9 years. We got a sort of grant for our down payment bc we had nothing in savings. Every dime we had went to closing. We still haven't been able to gain any ground on a savings. But by the grace of God have managed to stay current on the mortgage. But that's all we can do. We are hitting the point in the age of the home that things are starting to go wrong and need repair or replacing and we just can't afford it. (Plus, we had to replace the AC unit right after our warranty expired and when the city calulated taxes on our second year of living here they calculated off of our first years taxes which were not a full years worth. We almost lost our home bc we had no savings.)
You can't save enough in my mind before you purchase. Save save save.....
Please, please don't buy a home unless you can afford the mortgage, insurance, utilities, taxes and maintenance costs. Home needs a new roof, floor, air conditioner, patio, landscaping, lawn and hedge maintenance. I suggest having an xtra three grand set aside per year just for upkeep. Do you have a college degree? No? Then, if you loose your job you are unlikely to get another one anytime soon and unlikely within the same pay range. Say goodbye to your home.
Sounds like you walked in to a real mess. I know that you will want to slap me because this is probably the thousandth time you heard this but just in case it might help someone else Always hire a certified inspector to inspect the property. Check with friends or coworkers that have bought a house recently and get recommendations from them. Don't use one recommended by a real estate agent. I do all my of my own home repairs and remodeling only hiring something done if I do not have the time. I still would never by a house with out a third party inspection.
One thing that you did not mention is if the former provided you with a disclosure statement. I he did and misrepresented the condition of the property you should be able to pursue the matter in civil court. I would advise consulting a lawyer to see if this is feasible. If you bought the property "as is" you are out of luck.
Just keep doing maintenance as necessary addressing things like water problems and freezing pipes first of course. There are a lot of things that you could probably learn to do yourself if you are so inclined. I wouldn't recommend plumbing or electrical if you have no experience but things like plaster work or flooring are not that difficult. Besides if it is already screwed up what are you going to hurt?
I hope that things work out for you and don't worry you will eventually get it under control. Besides worrying is not going to make things better. Use your time and energy to develop a plan and do your best.