Bottom line: Buying a home should include plans to build an emergency fund for the hidden costs of ownership.
by Lee Nelson
Finding a house to buy has become your quest. You want to find that perfect place to live, entertain in and grow old in. But remember that owning a home is so much more than just paying a mortgage. Ask anyone who has purchased a home, and you’ll shortly find out what it all entails when it comes to maintenance, insurance and making your place pretty and comfortable.
A home inspection should be able to tell you if the house will have any major repairs like plumbing or roof replacement in the next few years. But no one can tell you exactly when something will stop working or need to be replaced. And many times, homeowners find that several things break at once as they repeat Murphy’s Law — anything that can go wrong will go wrong.
A study of the Life Expectancy of Home Components by the National Association of Home Builders and Bank of America Home Equity shows how many years certain items in the home will last. For instance, a gas water heater only lasts 10 years; gas furnaces, 18 years; dishwashers, 9 years; washing machines, 10 years; and electric ranges, 13 years.
And what if you need to buy new appliances because the home you chose didn’t come with them? That could add up to a few thousand dollars just to put a refrigerator, stove and dishwasher into your dream kitchen.
“There are a lot of hidden costs when it comes to owning a home. Are you ready for all those responsibilities?” asks Jo Albert, housing counselor for DuPage County, Ill. She’s been counseling potential and current homeowners for 16 years.
She offers an 8-hour homebuyer education program for first-time homebuyers.
“It is quite comprehensive, and talks about everything from home repairs to financial fitness,” she says.
Homebuyers learn about all the expenses they will have when closing on the house including property taxes, insurance, homeowners’ association fees, Private Mortgage Insurance, utilities, installation of phones, cable, and everything else that it takes to run a home.
But there are so many initial expenses that many people overlook. Whether they cost just $100 or $10,000, it all adds up.
“For instance, you are advised to rekey all the locks in the house. You don’t know who would have keys to the home,” she says. “Plus, you have to make sure all the safety equipment is new and working such as fire extinguishers, carbon monoxide and smoke detectors, garage door opener, outdoor lighting to deter burglars. You also might have to invest in a lawn mower or snow blower, and garbage cans. There are upfront costs that people just don’t think about.”
You might have to replace window treatments which can be thousands of dollars if you are doing every window. You need to weather strip doors and windows if there are leaks, paint the rooms if they need it, or repaint the outside if can’t handle another day of that bright turquoise color that apparently was the former homeowners’ favorite color. Fixing minor problems such as a hole in the screen door or broken gutters can keep chipping away at your savings account.
Julie Rains of the Greensboro, N.C., area, says that when she and her husband bought an older home in the 1990s, they ended up having to change the entire heating system a few years later. The couple had a child suffering from eczema. Their current electric heating system at the time, which made the air very dry, only worsened the child’s condition.
“We had to get a natural gas heater with a humidifier, plus they had to cut all new duct work,” she says. “There just always going to be things you wouldn’t anticipate. You aren’t sure what will happen in the future. So you need to be prepared financially.”
She suggests setting aside 10 percent of the value of the house for a rainy day.
“That may seem like an awful lot. But when you have a big home repair that might cost $5,000, it is hard to come up with it right away,” she says.
Rains, a business finance major, writes about personal finances on her blog WorkingToLive.com.
“My approach is that there are things that you would like to fix like getting new carpet, and things that are must-haves. Sometimes, that can be hard to differentiate for some people,” she says. “But you need to set some money aside for the home. There has to be an emergency fund.”
The first couple of years of home ownership can be tough financially especially when you don’t know what might break down or need replaced. Some homeowners buy home warranties. They can range from a few hundred dollars to more. A warranty policy help lower out-of-pocket costs for repairs or replacement of air conditioners, furnaces, plumbing and electrical repairs, and home appliances such as refrigerators, Rains says.
“One thing you will notice as you become a homeowner and have repairs to make, that prices vary by contractors. For instance, we got estimate to surface our gravel driveway. We got estimates from $1,000 to $10,000,” Rains says. “You just have to be aware of what you want, check references of your contractors and understand what they actually will be doing.”