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.
June 13th, 2008 at 9:07 pm
People very often fail to realize that one of the reasons real estate appreciates at such a high rate is because there is lots of maintenance and updates that occur along the way. When home owners don’t update their house at all, it doesn’t go up in value like those who do.
July 18th, 2008 at 9:50 pm
Upkeep on a house is expensive, I’m paying for a new roof right now! Electricity and gas rates are on the rise too. There are lots of extra expenses to consider.
July 25th, 2008 at 5:50 am
No doubt older homes can have some very expensive bills for heating, I have heard some unbelieve numbers of $500-1000 bills on those really old turn of the century homes. Improper insulation.
August 20th, 2008 at 5:40 pm
The american dream has become the “American Nightmare” for thousands of people who have purchased real estate in the last 4 years who now are facing foreclosure, or have to move but can’t sell for what they owe. You better believe many of these people wish they never would have bought….
August 21st, 2008 at 10:35 am
Yes you are right people tend to ignore the home maintenance costs and utility costs. To keep check on all these costs budgeting of expenses is one way and people should start thinking on this as it is never too late for anything.
September 2nd, 2008 at 2:38 pm
Thank you so much for the priceless information. I agree with you on what you said about some homeowners fail to recognized about the maintenance costs. That happen to my auncle.
September 10th, 2008 at 12:37 pm
I was always an advocate for ownership!
Until last year… I have put the pencil to the paper on owning vs. renting in my market. I think you’ll be ahead by renting for the next ten years, way ahead. Even with an assumption of 3% per year gain in sales price (which is very optimistic)…
Nope, for now I would tell anyone that knows how to use a calculator to Rent!
September 22nd, 2008 at 6:48 am
Thanks for sharing information about American Dream.
October 10th, 2008 at 9:29 pm
This is sage advice,when people are priced out of the market they should stay out of the market, not try to get in with risky loans. One of the bright spots of the current downturn in the market is that homes are becoming affordable for first-time buyers again…if they could just get loans.
October 13th, 2008 at 4:08 pm
Right now people need to be on their toes and get a good loan and lock in a home loan they can afford, and yes a home they can afford to keep up
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December 1st, 2008 at 2:15 am
Most people don’t realize the effect that keeping your home up to date will have on it’s long term value. As an agent I try to help my clients understand how important this is.
December 1st, 2008 at 5:30 pm
Very nice.. but costs alot
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December 3rd, 2008 at 9:22 pm
It’s true that utility costs for a house are more expensive, but my dream is to buy a small property and make it green and get it off the grid. I’m a renter and there is nothing that I can really do to change my costs or use efficient appliances.