When you begin the process of buying a home the first step is to analyze your finances and figure out how much you can afford. The problem is when you get a pre-approval letter from a lender (which is highly recommended), it only takes the basic financials of buying a home into account.
If you truly want to know if a home will be affordable, you have to look beyond the mortgage payments. You have also to consider the monthly costs associated with owning and operating the home.
Potential Changes to the Insurance and Taxes
Unlike a fixed mortgage rate, the insurance and taxes can change. Typically insurance and taxes are rolled into your mortgage payments. However, they are completely separate charges. The insurance is likely to remain relatively the same as long as you don’t increase the amount of coverage you need.
A good way to determine if the taxes are likely to go up is to look at the tax rates and appraisals over the last five years. The property taxes set by the city/county as well as how often they appraise homes will affect the amount paid annually. If homes in the area are rapidly appreciating there’s a good chance that you’ll pay slightly higher property taxes in the coming years.
After the mortgage payment itself, the most expensive part of owning any home is the utilities. Depending on where you are buying a home, you can use resources like TexasElectricRates.com to compare the current electricity rates and get a better idea of what the monthly costs will be.
In addition to the rate, the cost of utilities will depend on your energy use, the condition of the home and the efficiency of the home’s systems. Two things that use the most energy in homes are the HVAC system and the water heater. The older they are, the less energy efficient they will be.
Another thing to consider is the age and condition of the appliances that are transferring with the home. Like the systems noted above, the older they are, the less energy efficient they are likely to be. No matter what age the appliances are, look for the Energy Star seal. Energy Star appliances are going to use less energy compared to standard models.
Repairs and Maintenance
Energy waste can sometimes be avoided with certain repairs and annual maintenance. Some fixes, like weatherizing around the windows and doors, are cheap while others are extremely expensive.
But repairs and maintenance can extend well beyond energy efficiency. Cosmetic fixes can be made over time after you’ve saved up the funds, so they are less of a budgetary concern. However, homes that need electrical work, plumbing fixes, roof repairs and/or foundation corrections will require attention almost immediately. In most cases these are not quick and easy repairs. They can cost thousands, and if they aren’t fixed, they could potentially cause even more damage.
It’s important to always get a home inspection during the contingency period, even if the home is new. The inspector will go through the home from top to bottom and outline any issues that they see. From there you can decide if you’re willing to make the repairs that need to be made now, negotiate to have the seller fix them or decide not to move forward with the sale. Regardless, the inspection will give you a better idea of the home’s condition and how much maintenance will be needed in the future.
Xeriscaping may not be the first choice for some buyers, but it is certainly the cheapest to maintain. When you are considering the maintenance costs of a home turn your attention to the exterior after you take a look inside.
Is there a lot of grass to water? Is there a programmable sprinkler system? Are there large trees near the home? All of these things will influence how much it costs to maintain the landscaping. If the landscaping needs work, this should also be factored into the overall cost.
Homeowner Association Fees
Virtually all townhomes and condos as well as some single-family homes require that homeowner association (HOA) dues be paid. They can be monthly, semi-monthly, quarterly, semi-annual or annual. Depending on the amount this can easily push an “affordable” home out of your price range.
If HOA dues are required, the seller will have to disclose that information. However, you want to make sure you understand the associated costs before putting in an offer. You can use this as a bargaining chip to get the price down or request that the seller pays the dues for the first year.
Another consideration is the bylaws of the HOA. Most HOAs will outline mandatory home and yard maintenance. If a homeowner doesn’t comply, they may be charged fees on top of the regular dues and special assessments.