Use the leap year to prepare for the hidden costs of homeownership
Whether you’re buying a new home or already own one, there are always unexpected expenses and being prepared can help offset the financial surprise.
Becoming a homeowner is very exciting. But being surprised by unexpected or hidden expenses is neither fun nor exciting. Here we will explore some hidden costs to be aware of and list some strategies for planning for them.
When preparing to purchase a home, there are a number of upfront costs besides just the down payment. A good rule is to expect that two to five percent of the cost of the home will be necessary to purchase a home and that includes the closing costs and up-front fees. For example, for a $100,000 house, the costs would run between $2000 and $5000. This doesn't include the cost of the down payment.
New homebuyers will need cash for:
- Earnest money once you find the home
- Home inspection fee
- Loan application and appraisal fee
- Homeowner’s insurance
- Moving costs
- Deposit it set up utilities ( sometimes required)
Once you’re a homeowner, it’s important to not only plan for surprises but to also plan for regular maintenance, repairs and improvements. New homeowners often want to begin to decorate and furnish right away. Unless there are funds put aside for this, don’t fall into the money pit of fixing up everything immediately. Painting and cleaning aren’t usually major expenditures. However, it may be best to wait for a few months to see what the new expenses are going to be for utilities and other monthly expenses. Now is the time to update your spending plan as many bills change with a new home.
With all of these expenses, both planned and unplanned, how is it possible to save? How much will it take? It takes time and discipline to set aside money each month. Here are some ideas to get started:
- Use some of the money that you’re saving on gas to put away money for the rainy day fund. With gas below $2 per gallon, it is costing less than $30 to fill most gas tanks. When the cost was nearer $4, the price was double. So, put the difference into savings.
- Cut utility costs by turning down the heat, turning off the lights and washing clothes in cold water.
- Start a fix-it jar and fill it with loose change. Once it fills up, deposit it into the home maintenance fund and start again.
- Try the 52 week Savings Challenge. It’s a good way to start small and then build on savings.
- Put your tax refund to work by saving for either a down payment or home maintenance.
- Set up a separate savings account and have money directly deposited into that account.
Starting a new savings habit can be a challenge so give yourself a break if “life happens” and the down payment or emergency fund doesn’t grow as fast as you’d like. Set a goal as to how much to save and when you want to reach that amount. Then simply divide the amount by the time (months) to see what the monthly savings goal will be. Then watch your savings grow.
Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at the MI Money Health website.
Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information about classes in your area, go to either the event webpage or the MI Money Health page. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.