Owning your own home has been a part of the American Dream for years. Signing your name on the dotted line (4,693 times to be exact) comes with a great deal of pride and a sense of accomplishment. You want to scream from the rooftop that you’ve finally made it and have become a homeowner.
However, being able to pay your monthly mortgage is just the start of the expenses you’ll face each month as a homeowner. Owning a home, and taking care of your investment, means paying for a lot of hidden costs that you may not realize you’ll owe until it is too late. Here are a few hidden costs of homeownership that you may not have thought about and some tips on how you can minimize those liabilities.
If you own property, your local government is going to want a little cut of money for providing services to that property. Yep, you have just been introduced to the property tax. It doesn’t matter whether or not you agree with the idea of a property tax, the fact is that you still have to pay them or face the consequences. If you aren’t prepared to pay them twice a year, you could find yourself in some tight financial straits come tax time.
- Savings Tip #1: Make sure to check with your local government about receiving a discount on your property taxes, often called an exemption. Many counties or municipalities may reduce your tax bill through a “mortgage exemption” if you are carrying a mortgage on the property. You may also be eligible, in some areas, for a “homestead exemption” if you are actually living at the residence. These exemptions can save you thousands of dollars a year in property taxes. Finally, be sure that you are taking the “mortgage interest deduction” on your personal income taxes, if you are eligible.
Maintaining proper insurance coverage on your house is just good financial planning. If you are carrying a mortgage on the property, you will almost certainly be required to carry it. Like your property tax bill, your insurance bill may be wrapped into your mortgage payment. If it isn’t, you need to make sure to have funds set aside to pay your insurance and protect your finances should your home be destroyed.
- Savings Tip #2: Shop around and compare property insurance quotes before committing to an insurance policy. Make sure that the quotes are comparable and that both their coverage exclusions and limits are similar. You may be able to get a discounted rate if you keep multiple insurance needs with one carrier (ie: both your home and auto policies).
While your taxes and insurance are probably are more likely to go unnoticed, your utility bills are not. You are definitely going to need to budget for your utilities each and every month. In addition to your electricity bill, you’ll likely have both a water/sewage and a gas bill. Then there are additional extras like your monthly ADT payment for home security monitoring. Make sure that you don’t forget to estimate these costs when you are deciding how much house you can afford.
- Savings Tip #3: One of the best things that you can do for your utility bills is, simply, to use less energy. Turn off the air conditioning when you don’t need to use it, and open the windows to cool yourself off instead. In the winter time, keep your furnace set at a few degrees lower than you might otherwise prefer. Then, find a sweatshirt and a blanket to keep warm. Make sure that your house is well insulated and try using weather stripping and plastic sheeting to seal leaky doors and windows.
Maintenance and Repairs
The cool part about owning vs. renting is that everything in your house is yours. The bad part is, that when something breaks, it is yours to fix. For most people, their house is by far the biggest investment that they have – which means that maintaining your home is ginormously important. Neglecting to repair what seems like a minor problem could end up costing you big money down the road.
- Savings Tip #4: Hiring a contractor to fix every last issue can get extremely expensive. That is why it is best if you can learn to fix minor issues on your own. Learning basic plumbing and electrical skills can save you hundreds of dollars a year. Buying a lawn mower and a hedge clippers can save you thousands on yard maintenance. Learn some basic skills, and keep your emergency fund fully stocked to deal with repairs and maintenance outside of your knowledge base.
Homeownership is a great way to start building long-term wealth. However, you need to make sure that you are prepared for the hidden costs of homeownership that are outside of your mortgage payment. Hopefully, these tips will help you save some money so that you can relax and enjoy the benefits of owning your own home.