Owning a home means there's no one to call when something goes wrong with the kitchen sink—and the fact that it's your sink translates into a whole new set of responsibilities.
Home ownership is an integral part of the American dream. Nowhere else in the world do average citizens have as much opportunity to own their own home. But home ownership is more than just a tax deduction and the freedom to put up any kind of wallpaper you want. It's a physical entity that requires care and maintenance, a financial investment that needs monitoring, and a genuine asset—perhaps the first major asset you’ve ever acquired. Take time to consider your new responsibilities as a homeowner, and how you can best live with them.
Annual Home Ownership Costs: If you did your homework before you bought your house, you already know how much you’ll be paying each year to own your home in terms of mortgage payments, home insurance, and property taxes. But there are other costs, too, and if you don't budget for all of them you could find yourself with a cash flow problem. Be prepared for that small weekend project that can escalate into a major renovation.
The following are NON-NEGOTIABLE home ownership costs:
Monthly Principal and Interest Payment: This will not change during the life of the loan unless you have opted for an adjustable rate loan. However, you may opt to refinance to lower your monthly payment.
Property Taxes: Most lenders include monthly property taxes as part of your total monthly payment. If yours does not, divide your annual tax bill by 12 and set aside that amount every month in a savings account. Property taxes will fluctuate according to real estate assessments, so your TOTAL monthly payment may increase or decrease if your taxes go up or down. Your lender will inform you on an annual basis.
Homeowners’ Insurance: Your lender requires basic hazard insurance as part of your loan. You may want to upgrade to guaranteed replacement cost coverage. This is usually included in your TOTAL monthly payment. Homeowners' Insurance will also fluctuate as your coverage increases with the value of your home which will also increase your TOTAL monthly payment.
Private Mortgage Insurance: Required on loans over 80 percent of the value of your home. May be paid monthly as part of your mortgage payment or may be financed into your loan amount. Not applicable to loans of less than 80 percent of the home's value.
Homeowner's Association Dues: These dues are either paid annually or monthly by you directly to the Homeowner's Association and not normally included in your TOTAL monthly mortgage payment. Nonpayment may result in a lien against your home or even a foreclosure.
Utilities: (Non-negotiable but adjustable) This includes power, water, and sewer. You may adjust this by using less power and water. Non-payment can result in termination of service and costly reconnect fees.
City services: (Non-negotiable or non-applicable) The cost of trash collection, for example, may or may not be included in your property tax bill, Homeowner's Association dues, or utilities. Some areas may allow you to choose the company to provide trash collection.
The following are Negotiable Services for your home
Other services: This includes cable television or home security services, for example.
Maintenance: Vital to preserving and/or increasing your property value. One rule of thumb is to budget about 10 percent of your purchase price annually toward home maintenance. Make a plan and budget for your home's maintenance. Remember to factor in the cost of appliance repairs or replacement to include furnace, air conditioner and hot water heater.
Landscaping: If you have purchased a new home on an unplanted lot, your homeowners’ association may require that you install minimum landscaping within a certain period of time.
Decorating: It pays to put aside money for this category, which includes window treatments, floor coverings, and furniture. Set your priorities and budget accordingly.
The Good, the Bad, and Your Equity - A key benefit of owning a home is the option to borrow against the equity you have in it. A second mortgage or a home equity line of credit can finance home improvements, bill consolidation, or other projects. Interest on these loans is almost always tax-deductible. However, be aware that you are using your house as collateral, which does carry risk if you are unable to pay off the loan. Use only recognized lenders and avoid loan programs based on your equity alone, not your ability to pay.
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