Have you fallen into a similar trap?
- Your mortgage payment could be your largest monthly housing-related expense.
- It’s important to prepare for peripheral housing expenses, too, and a new report reveals that most property owners aren’t.
If you’re in the market to buy a home, you’ll probably run some numbers to figure out how much of a mortgage you can afford. Or, at the very least, your mortgage lender will run those calculations for you and draw its own conclusion.
But owning a home means more than just covering a mortgage payment. It also means having to pay property taxes, homeowners insurance premiums, and, in some cases, extra fees like HOA dues. Plus, homes need to be maintained regularly, the cost of which can vary based on factors like condition and age.
And let’s not forget home repairs. Those can be the trickiest to budget for, because sometimes, they can arise unexpectedly. It’s also not always easy to estimate how much they’ll cost.
It’s for these reasons that potential home buyers need to accept the fact that they’ll likely spend a lot more to own property than what their mortgage payments will cost. But in a recent Hometap report, only about 38% of homeowners say they were prepared for homeownership costs beyond a mortgage payment. That means most homeowners aren’t well-equipped to deal with the aforementioned peripheral expenses.
How to budget properly for homeownership cost
As a general rule, you should aim to keep your predictable housing costs to 30% of your income or less. There’s a little wiggle room in this formula if you’re in a situation where you spend very little on non-housing expenses. But for the most part, sticking to that 30% threshold will help ensure you’re able to pay all of your bills, housing costs included.
Now, when calculating that 30%, you’ll want to include not just your mortgage payment, but also:
Keep in mind that some of these expenses may rise over time. But they shouldn’t change from month to month. For example, if your property taxes increase, that’ll happen on a yearly basis, not a monthly or quarterly one.
Meanwhile, in addition to your predictable monthly housing costs, you should also leave room in your budget for home maintenance. Generally, you can plan on maintenance costing anywhere from 1% to 4% of your home’s value. For a newer property, you can stick to the lower end of that range, while an older home may prompt you to lean toward the higher end.
Finally, you should make sure to have a fully loaded emergency fund for home repairs. You can budget some money each month for home repairs, but most likely, that sum will only cover minor issues. If you encounter a major issue, you’ll probably need savings to dip into.
Don’t get in over your head
It’s not unusual for housing to be your single largest monthly expense. But that doesn’t mean you shouldn’t budget for it accordingly. In addition to your mortgage, be sure to account for the other costs you’ll be liable for as a homeowner. Doing so could save you a world of financial stress — and make it easier to enjoy homeownership rather than regret that decision.
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