Getting a mortgage pre-approval is a crucial first step when you’re buying a house. However, it’s only one part of your whole home-buying journey. The price of the property itself isn’t the only expense you should consider and account for. Here, we’ll look at the various expenses that you should plan ahead for when making a budget if you plan to buy a house.
How to Budget for Buying a House
1. Homeowners Insurance
This type of property insurance covers damages and losses to your residence, along with furnishings and assets in it. It also provides liability coverage in cases of accidents that may occur in your home.
This is typically, but not always, included in your monthly mortgage. It can also fluctuate from year to year and may cost hundreds to thousands of dollars at a time. This insurance helps protect you and your property, so it’s essential to plot this out in your budget.
2. Property Taxes
These taxes are based on the value and location of your property and where you live. They are calculated and collected by the local government of your state or county.
In most locations, these include the value of your land and tangible personal properties like vehicles or jewelry. These taxes are generally used to support local communities, schools, infrastructures, and other public programs.
When purchasing a home, you’re responsible for factoring in property taxes as it’s an expense that doesn’t go away. Rather, it can increase over the years as your home appreciates in value.
3. Homeowners Association (HOA) Fees
If you’re eyeing a house in a planned neighborhood, you’re most likely going to be a member of the Homeowners Association. And with that comes fees that can add up to several hundreds of dollars, and sometimes thousands.
HOA fees depend on the type of residential property or community you’re in. Generally, these are used to maintain and improve the common utilities within the association. For instance, if you’re living in a private neighborhood, HOA fees are used to maintain the parks, playground, and pool area.
While HOAs fees are sometimes paid annually, it’s best to allocate this in your monthly budget.
4. Maintenance and Renovations
Taking good care of your home can be costly. Regardless of whether you want to stay in that house forever or you plan to sell it someday, you’ll want to make sure that it’s in good shape at all times. That’s why repairs and updates should be part of your home-buying budget.
Experts recommend that homeowners should dedicate about 2% of the home’s total value for yearly upkeep. If your home is older, it might need more updates, so do plan a higher percentage.
Whether the kitchen drain needs to be cleaned, the lawn trimmed, or the windows tinted, it’s vital to allot a maintenance budget regularly so as not to be overwhelmed when the needs arise.
5. Big Projects
On top of the 2% budget for annual general maintenance, be sure to set aside money for your bigger projects. For example, you might have a 20-year-old deck that needs to be replaced every decade. Another could be 30-year-old roof piping that needs to be changed and requires cleaning every few years.
You’ll also need to account for the construction expert who will do the fixing. If you plan to do it yourself, be sure you have the skillset and time to do the work, or it might cost you more just to fix it afterward.
Essentially, big projects can be costly, so it’s better that you’re prepared. Allocate it in your monthly budget instead of a one-time spend.
6. Emergency Funds
Financial experts recommend that 20% of your monthly income should be for your savings. Likewise, it's ideal that you have sufficient cash to keep you sustained for three to six months of living expenses.
When budgeting for buying a house, don’t forget to set aside money for savings and emergencies. While you don’t want untoward incidents to happen, you never know when miscellaneous expenses or unforeseen events can occur. So, it’s best that you’re ready to cover sudden costs as they come.
It’s also helpful to consider your current retirement contributions early on. Will it cover your household expenses when you leave work? Consider allocating more to this fund if you’re still paying your mortgage when you hit retirement.
7. Life Insurance
It's a bit grim but important nonetheless when considering your home-buying budget.
Life insurance is a legally binding contract between you (or your family members) and the insurance company. This guarantees payment of a death benefit to named beneficiaries when the policyholder passes away.
For a life insurance to cover your mortgage or family’s expenses in the event of your death, you’ll need to purchase a policy of a higher amount. This is usually paid as a single premium upfront or regular premiums over a longer period of time.
Ensure that you’re getting the best value by comparing two different policies – one that would cover only your mortgage and another that covers your house and other liabilities.
When planning your budget for buying a home, you need to look into the size, location, and overall condition of the property. Check of the quality of the roof, plumbing conditions, and ventilation systems as these affect the cost of utilities in the long run.
For instance, if you’re eyeing a large house, you’ll need to prepare for a high budget for cooling and heating systems. Similarly, if you found your dream home in a quaint hillside property or up in the mountains, you might need to factor in the costs for shoveling snow come winter time.
Homeownership comes with a lot of recurring costs. And these expenses can really make your monthly budget spike if they’re not accounted for properly. That’s why it’s essential that you include all of these things, along with other regular expenses, when deciding how much you can afford.
Buying a house is a major step in one’s life. Having an experienced and trustworthy real estate agent can help make your home-buying journey a smooth and successful one. At The Brendan King Group, we stay on top of Las Vegas real estate – businesses, communities, local markets – so we can provide you with the best experience and options.
Looking to move and buy a house in Las Vegas? Contact The Brendan King Group today.