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I can’t believe the number of people who leap into home ownership without a clue about the financial responsibility they’re undertaking.
Home ownership is NOTHING like renting. If you figure you can afford a home because the mortgage payment is almost like rent, you’re going into this with your eyes shut tight. You’ll have utility costs. You’ll have taxes. You’ll have insurance. And then there’s maintenance… the cost everyone likes to ignore. When the roof leaks, the furnace gives up the ghost or a window breaks, you’re tapping your savings and whining about “if only you’d known.”
Resist the urge to guestimate what these costs will be. Find out. Ask friends and family in the area what they pay for heating, electricity, water, oil, whatever your house consumes.
Look at real estate listings to see what the taxes on comparable homes in the area are running at.
Call your insurance broker to get a quote on what it’ll cost to insure your new nest.
Calculate your maintenance budget. Use the rule of thumb of between 3% (for a newer home) and 5% (for an older home) of the value of the home for maintenance every year. Don’t wimp out on this. If your property values are horrendously high because land costs are way up in your area, use the home’s replacement value for your calculation.
If you aren’t prepared for the costs associated with home ownership, you’ll end up filling the gap in your cash flow by using credit, and your savings will go to hell in a hand-basket. If you want to have a home and be able to save too, you’ve got to have a plan that is both realistic and achievable. There’s nothing warm and fuzzy about being house poor.
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