There are lots of unplanned expenses when buying a home
So, you’ve passed the hurdles involved in purchasing your first home. You’ve got your monthly bills figured out. You can relax, right? Wrong.
Now you have ongoing costs which you may not have anticipated, and which you certainly didn’t have when you were a renter or living at Chez Parentals.
Before buying you home, you had to sign all kinds of forms regarding insurance, mortgages, fees and taxes. But unexpected expenses can quickly put you in the hole if you don’t plan ahead or aren’t an experienced do-it -yourselfer.
“I always recommend before a client buys a new home to talk to a tax advisor, not only to discuss the costs involved, but to find out the benefits it may entail” advised Barry Herr, a Las Vegas certified public accountant. “They need to sit down and figure out what their costs will be.”
There are two general rules commonly used to calculate annual home maintenance costs. The first is the “1 percent rule,” based on the purchase price of the home. If you paid $350,000 for your home, you should set aside $3,500 every year for the upkeep of it.
The other option is the “square footage rule,” which dictates that you save $1 per square foot of home per year to spend on repairs such as new roof, water heater, appliances, etc.
Or you can do a combination of the two, and split the difference. You may not need to spend the full amount each year, and some years you will probably exceed these amounts, but on average over a decade, you can use this rule of thumb to guesstimate upkeep expenses.
Variable contributing factors would include whether you bought new construction or a much older home, and if you’re part of a homeowners association, how much of the assessment goes to covering things like roofs and landscaping, which are commonly covered for condominiums.
Ultimately said Herr, “the prices of homes may go up and down, and interest may change, but you still have to pay maintenance costs.”
The Neighborhood Housing Services of Southern Nevada, Inc. offers buyer education classes for buyers in all income brackets said Lenny Chide, the group’s president and executive director. “We’re teaching them to stay on budget, to save for a rainy day,” he said.
One of the main examples they discuss in class is what happens if a water heater goes out.
“Those in the room who are renters always say ‘we call our landlord’. Well, when you’re a homeowner, that’s no longer the case,” Chide said. “When that water heater goes out, unless you know (how to fix it) plumbers aren’t cheap. The material to buy a water heater is not cheap. “
The organization helps low-income buyers prepare for their first home purchase with an eight hour Homebuyer Education course that covers the basics of how to purchase a home. After the class, each attendee receives a completion certificate that is valid for one year and is a requirement for those individuals wishing to apply for down payment assistance (in any form) or other government programs.
After completing the class, each participant is paired with a staff member who assists them in obtaining a home mortgage, and then follows up post-purchase to ensure they are making their payments on time. Chide asks,
“Did you have your funds set aside? We discuss this in the budgeting process. So, post-purchase, we make sure they’re still sticking to their budget, and that those reserves are being set aside.”
Some things to consider are interior improvements, painting and maintenance; exterior repairs and upkeep like pools, yardwork and periodic replacements. Do you have the tools and skills necessary to tackle these areas?
Part of the class is devoted to ” who to contract with and how to vette who they’re hiring,” said Michelle Villero, NHSSN’s vice president. “We think that’s really important (because they can be) easily taken advantage of by door-to-door “contractors” offering services, who might not be legitimate. Some of our low-to-moderate income buyers might not know the difference … there’s so many things we discuss in post-purchase counseling.”
Another consideration, said Villero, is estate planning. Should anything happen to the homeowner, who would step in and settle the estate? “One year, one of our homeowners passed away in a motorcycle accident, and she didn’t give any direction to her family as far as what to do with the house.” Now this is included as part of the counseling.
“We highly recommend anyone and everyone take the homebuyer education class. During the recession, you had a lot of very wealthy people default on their homes,” Chide said.
Aside from any other savings, plan to set aside a fixed amount every month for unexpected repairs, advises Darius Totston, Regional Diverse Segments consultant with Well Fargo Home Mortgage. He also recommends taking a hard look at your total monthly expenses and not buying a more expensive home than you can comfortably afford.
