New homeowners oftentimes stretch themselves financially when having to pay the initial costs that come with purchasing a home. While it is important to focus on these preliminary expenses, homeowners must be aware of the financial requirements that come with maintaining the home.
Enthusiastic new home buyers hopefully have the funds to cover a home’s initial deposit, closing costs and any cosmetic touchups.
However, buyers frequently focus only on those first costs, overlooking the financial requirements of maintaining the home over time.
According to industry standards, homeowners should have 1% of the purchase price of their home in savings for improvements and surprise expenses. While this minimum will help ease through maintenance costs, a 2-3% cushion is even better.
A home inspection will help buyers better understand the condition of the house. They will estimate the age of major structural components and systems, providing the buyer an indication of each item’s anticipated lifespan. Understanding the current age of any particular system will allow buyers to calculate approximately when they’ll be due for major repairs or replacement.
LivingWithMyHome.com offers a list of approximate life expectancies of home components as well as cost estimates, useful as a tool for financial planning of homeownership.
Home buyers should plan for big-ticket costs across a five-year timeline, budgeting for major expenses, such as roof repairs, new air conditioners or plumbing upgrades. The best plan is to sock away those funds, rather than relying on borrowing from banks. As the credit crunch has deepened, banks have nearly stopped offering home equity lines of credit, so counting on a loan for needed repairs is a risky strategy.
Many people, particularly former renters, are accustomed to paying rent and likely utilities, phone, Internet service and cable.
As a homeowner, however, there will be other utility costs such as water, sewer and trash collection. Then there are property taxes, homeowner’s insurance and possible homeowner’s association dues.
(c) Patty Ross, KRXA Radio Show #173 September 10, 2010
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