I thought I was well-prepared for homeownership, but I never saw 2 costly surprises coming my way
Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
- Before my husband and I bought our first home, we saved a down payment, kept our credit scores up, and monitored our debt-to-income ratio. Turns out, that was the easy part.
- Once we owned our home, we were surprised when our monthly payment rose three times in two years because our property taxes were rising.
- We've also spent about 5% of the cost of the house every year on maintenance and upgrades, more than the estimated 1% to 3%.
- Policygenius can help you compare homeowner's insurance policies to find the right coverage for you, at the right price »
Buying a home is a huge financial decision, but it's always been a goal of mine. In 2018, my husband and I were able to buy our first home, a three-bedroom ranch. While we're grateful for our modest home, it's taught us a lot about the unexpected costs, as well as the ongoing costs, of homeownership.
At the start of the homeownership process, we focused on preparing a down payment, watching our debt-to-income ratio, and having good enough credit scores to qualify for a mortgage. As it turns out, that was the easy part.
Owning a home is fun and I do enjoy it for the most part, but there are so many things that have affected our finances since we took ownership of our home.
Our monthly payment has increased 3 times since 2018
Closing on our home was a relatively smooth process. My husband and I were actually away on a cruise the week before, so it was a little hectic going over some last-minute stuff with our realtor — especially when we told everyone involved in the process that we would be out of town. However, closing day went off without a hitch, and we excitedly accepted our keys and started moving in.
Before receiving our first mortgage statement, I was surprised to see that our mortgage had been sold to another bank and our monthly payment had increased slightly. We made our first few payments, then were notified that our payments would be going up again. Then, just a few months ago, I looked at our mortgage statement and saw that our payment had risen once again.
Wondering what was going on, I reviewed our property tax statement and saw that taxes in our area have gone up quite a bit. In fact, property taxes have gone up in our area consistently since we purchased our house. What was saved in our escrow account came up short.
I figured since we had a fixed-rate conventional loan, our payment would be pretty stable throughout the term, which was not the case. I talked to our original loan officer who told me that property taxes can go up or down in any given year. While no one can prevent how property taxes change, I'm glad we didn't buy a home where mortgage payments would be at the very top of our budget.
Paying a slightly higher monthly rate is inconvenient, but it's not detrimental to our finances right now.
The benefits of a fixed-rate mortgage
While our monthly payment has gone up a bit with taxes, I'm still glad we have a fixed-rate conventional mortgage. With an adjustable-rate mortgage, the interest rate can fluctuate with the market, making your monthly payments somewhat unpredictable. I couldn't imagine juggling that along with varying property taxes.
Still, being able to lock in a fixed rate when mortgage rates were low and our credit scores were exceptional was the goal.
Something always needs to be worked on or fixed
Of course, having a home means that something always needs to be fixed, maintained, or improved. While the general rule of thumb is to budget 1% to 3% per year of your home's purchase price on repairs and maintenance, we've spent closer to 5% on various projects.
I've realized that how much you spend on repairs and maintenance depends heavily on factors like:
- The size of your home
- The age and condition of your home when you buy it
- How old certain appliances and systems are
- Whether you have a quality home warranty in place (I've found that many home warranty companies are not worth the price)
- Any improvements or renovations you're personally looking to make
This is why the home inspection process is so important. It's worth it to spend a decent amount on a good inspector and take your time to ask important questions about the current state of the property. When we first bought our home, we knew we'd have to replace the furnace in a few years, but we also knew it had a really good roof.
I wish we would have asked more questions, however, because one of the hidden costs we've endured is a plumbing issue related to some huge trees in our yard. It cost us $1,200 to clear tree roots from a pipe, but the roots just grow back. A company quoted us $9,000 to fix the problem permanently, but right now the initial job is still working so we're sticking with that. It was fun to learn that even after you remove a tree, the roots will still grow underground for up to 10 years, so it's not a quick solution.
Working with quality contractors is key
It was a big adjustment to go from calling a maintenance worker at our apartment to fixing every hiccup on our own. Investing in working with quality contractors and professionals is something I learned to value over the past two and a half years.
Sometimes, hiring the cheapest person to do the work can cause more headaches than it's worth. Now, I make sure I ask for quotes in advance, but also look at references, licenses/certifications, and reviews, and only pay up to a 50% deposit upfront. I always ask for warranty details, and my husband and I will take advantage of payment plan options so we can keep home repairs and improvements in our budget.
Homeownership is what you make of it
In my short experience, owning a home can be a hassle if you rush into it and don't prepare yourself for the reality. I've loved living in my home, decorating all the rooms, and making memories with my family. I definitely experience more freedom and flexibility than I did when we lived in a second-floor apartment, but it does come at a cost.
Owning a home costs us more overall, and property taxes will continue to vary, but our house has increased in value by nearly 15% in less than three years. My husband and I have both learned so many things about DIYing, and enjoy having more space. So at the end of the day, it's a tradeoff I'm willing to make as we continue to learn more about the financial implications of homeownership.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article