Taking a Reality Check on the American Dream
The cornerstone to the American dream has always been home ownership. However, the mess caused by subprime mortgages and unconventional loans has highlighted the need to be grounded in some financial common sense before casting off from the apartment or home rental shores. Many people who jumped too quickly into an overheated market, didn’t realize that on top of the mortgage payments, they would also have to pay for maintenance and utility costs for their new homes. These expenses can quickly add up and when gas, food, and utility costs rose substantially, many homeowners were forced to turn to credit cards or payday loans to keep from falling behind. While these strategies can help in the short run, long-term additional costs that eat into your income can quickly land you in foreclosure proceedings. To avoid that, it’s wise to take stock of your finances and budget for additional expenses that you currently avoid by renting.
Maintenance Costs
By far, the one cost that most new homeowners fail to recognize is home maintenance costs. These can include costs to obtain equipment necessary to maintain the home to monies spent to have others do the work that’s required, like cleaning gutters and pest control. Another part of maintenance costs includes the breakdown of important house systems like the plumbing or the major appliances, which can quickly wallop a homeowner unexpectedly with several extra hundreds of dollars worth of bills in any single month. It is advised that people budget at least 1% of the total value of the home as potential annual home maintenance costs. That means, if you buy a $120,000 home, you can expect to pay $1200 in maintenance costs a year. That’s an extra $100/month. Buying an older home will typically require more monies budgeted.
Utility Costs
Some rentals include utilities and others do not. However, the cost of heating and cooling your own home is usually much more because you have a larger space to heat or cool. You may end up paying additional monies to insulate or update old systems, or convert from oil to gas. The type of system also determines how costly it is to heat or cool a place. Ask the old homeowners to provide some old bills showing what it might cost to heat or cool a place and add that on top of your monthly mortgage payment.