What are the hidden costs of homeownership?

My husband and I are likely going to put in an offer to buy our first home tomorrow and I am very anxious over it because my husband's job is ending in 2-3 months.  I think we can comfortably afford the house on my salary alone and we have a fair amount of savings (plus a supportive family to fall on if a bail out is needed).  I'm not concerned about the buying process - we get the VA loan,  I know to have an inspection, put in contingencies and am willing to walk away if the deal doesn't go our way.

BUT, what I am wondering is, what are the hidden costs of homeownership?  I have drawn up a budget for us but can't help but feel like I am missing things.  I've never owned a home, have only lived in apartments for the past 10 years (since I was 18 living with mom and dad).  So, any homeowners out there that have info to share or lessons you've learned, please do - I want to calm my nerves!

its a lot more expensive than I realized, beyond my mortgage.... will you  have PMI?  will you escrow for home owner's insurance?  flood insurance?  property taxes?  what comes with the house-- from appliances to window treatments?  remodeling?  nail pops and strange shifting leading to cracks in the paint or bulges?  water marks? painting?  landscaping... oh so expensive!  furnace maintenance, a/c maintenance, exterior maintenance, heck, mail boxes!  for the first while, a dip on your credit report as your debt to income ratio stabilizes, and then improves with time based on payments... paying down pts, closing costs, initial funding of the escrow acct.  furniture! increases in sewer, water, trash, stuff a landlord usually picks up, extra water for a lawn, the cost of mowing or doing it yourself, keeping the yard decent, treated appropriately, etc.  neighbor's shingles flying at my house during a windstorm, buying salt and a shovel (i knew about the shovel business, never thought about salt until I couldnt get up my driveway-- and it is barely inclined!)  water softners...  I could go on and on but

really for me it is the line between things that have to be done and things that i want to do.  its a little money rough but i LOVE owning my house.  I walked around for the first few months just saying "mine."  What I am worried is if something major breaks and if I can afford to fix it-- am I keeping enough in savings should something go wrong.  Its a brand new house so I "should" be ok but... still worries me.

(also, i figured out by paying just a bit more on my loan each m onth I can significantly reduce the term of years on my mortgage, and save my self up to 100K in interest.  That is amazing... its sort of like a savings acct that is "earning" the interest I am not paying...)

well, other than the obvious things like property taxes, utilities, and repairs (how's the roof, the furnace, the electrical system, etc.) there are a lot of things that are basically optional but can seem really important.  you'll find yourself wanting to paint and buy new furniture and decor.  if you're moving into a bigger space, you'll want to fill it with stuff.  you might decide you want new flooring.  you also might get in and find out the appliances aren't up to snuff. 

landscaping can also be a money pit.  oh - and if you've been in apartments, you'll be wanting to buy outdoor furniture, barbecue, lawnmower, shovels and rakes, etc.  that can add up.  and fencing is expensive, if you think you need that.  for my two homes i've probably spent $3000 just on lumber for sundecks ;)

oh yeah - tools!  if you don' t already have them, you'll probably decide you need a good selection of hand and power tools.

also, make sure your inspector isn't associated with either the listing or selling realtor.  you don't want someone with a vested interest.

Thanks for your quick input!

I haven't gotten a formal home owner's insurance quote yet.  My car insurance company just said based on the size of house we want and in the area we're looking for it will be around $500-900/year (I've been budgeting $900).  The property taxes are rolled into the mortgage payment.  I can't wait to have that feeling of homeownership!

We want to do a lot of remodeling but it will all be on hold until he lands a new job.  The place is liveable now (and that will be verified by the inspection!), otherwise I would probably spend all of our money on upgrades :)

We will need a lawnmower, shovels, etc.  I didn't think of that - thank you!

Dumb question probably but what are the typical utilities?  All I can think of is water, trash, sewer, natural gas, and electricity...

I also include under umbrella utilities: phone and cable/internet.  We replaced a home phone with a cell last year and I am a happy camper, saved me 40 bucks a month.  Other people dont include those as they are more of a want than a necessity.

utilities vary based on your municipality.  the sellers should be able to provide statements from the service providers to give you an idea what the cost will be (my monthly natural gas and electricity bills have monthly averages and even comparisons to the same period the previous year).

but yeah, you're looking at gas and electricity (which will vary depending on rates and on which your appliances use), whatever the municipality provides (water, sewer, trash, maybe recycling.  those should be predictable), and then your regular stuff like cable, internet, phone, etc.

just an aside, i don't recommend an internet phone.  i have one and i hate it.  first, it's unreliable.  second, it's a wireless phone, so i can't use my laptop when i'm on the phone because they argue over the wifi signal.  but the biggest thing is that when the internet goes out (and it's my cable, too), i can't call to complain!  and of course when the power goes out i have no phone, which means i can't report it to the power company.  i don't worry about it, but it's probably not very safe.

American Home Shield membership.  Seriously.  You don't want to have an appliance go bump (if it's older or came with the home and has no warranty) and then have to 1 call the repair guy, and then find out it's got to be replaced.  I now pay $50 a service call and if they can't fix it then it's replaced. My home warranty that was offered by the seller didn't include appliances or the toilets so my membership was a huge save when one of the bathrooms backed up our 2nd week here.

I have the option to "upgrade" but literally when my dryer went out 2 years ago I paid a $35 or $40 service call, they came and I had my new dryer the next day.  I didn't upgrade, so I didn't pay a dime.

Had friends in the same boat that wasted money (not sure how much) on the service call and then had to pay for the new dryer and wait a week for it to get there.  No thanks!

Lucky you with the VA loan! 

Hopefully, you had a realtor and one that is proactive.  For my home, she required that the seller provide a one-year paid home warantee.  This allows you to just pay a small deductible for some potential appliance repairs.

If youre very responsible with money, push to do your own escrow for taxes and insurance.  Its convenient for the mortgage company to do it but it ties up your money.  If you escrow monthly for year tax/ins, youve the freedom to accommodate your if other expenses arise allowing you to catch up. This is extremely helpful if you were to be layed off. You could use escrow money now to help with bills and make up escrow money before needing to pay tax or ins. 

My seller provided prior electric bill amounts. Quite a switch from apartment living.  Maybe you can get this info.

As mortgage banker for 10 yrs, my biggest advice is pay extra principal. VA loans can not charge a pre=payment penalty fee for doing this.  People dont seem to realize how small the percentage of their principal and interest amount goes towards interest through the most the term until the end.  Years into paying, they'd be surprised to see their balance still so high.

Paying extra principal has two benefits. You reduce the term of your loan. You also immediately adjust the portion of P&I going to principal instead of interest with each extra payment made to prinicpal.  

Emphasis on what Sun123 wrote. People just don't get how money prepayments save over the life of a loan.

The point on "own escrow" is a bit confused, though. Basically, the point is that it's cheaper to do your own work. The problem is that it requires extra responsibilty on your part, which may or may not be a good thing.

Additionally, most lenders have a serious case of the stupids, even in the best of times, so it's hard to say whether or not it'd be amicable.

But, to speak to your real question, the answer is time.

I was up until 2AM last night, either hacking away at an ice flow with a pick or using a roofing torch as a blowtorch to warm a downspout, frequently while on a ladder, all trying to keep my roof from caving in. That is, admittedly, an extreme scenario.

However, if you were to ask me what the hidden cost of home ownership was, it's time. It's not the money you have to spend fixing the problems, it's the time you spend, regardless of whether you do it yourself or hunt someone to do it for you. Regardless, you're responsible.

And a lot of people, even if they're otherwise great people, aren't really responsible enough to deal.

I think the expensive things are the unexpected ones.  I'd also support having some kind of cover agreement on plumbing, electrics and appliances if you can afford it.  Having once had a gas boiler condemned as unsafe and having to find £2000 to replace it, it's not something I recommend.

When it comes to decor and furnishings, frankly, the sky's the limit.  You can spend a small fortune on 'stuff'.  Budgeting is vital because otherwise it's tempting to replace everything!   Gardens have already been mentioned but they're another sink-hole for cash if you're not careful.

Finally you've got the big capital projects... building extensions, replacing windows, landscaping, new bathrooms etc. ...  Important to plan for one of those every three or four years in my experience and have a savings account ready with the cash.    

Don't forget to ask about Homeowner's Association fees if the house is part of a subdivision - those can be up to several hundred dollars a month in some areas.

Thanks again!  It's a foreclosure so, unfortunately, I cannot get any information from the seller.  I'm going to ask the relator today if he has any ideas - just because he'd have the best guess of anyone at this point.

I've never heard of American Home Shield - thanks for that tip!

I would have never thought about paying extra principal either.  It's a very obvious thing to do once you say it, but it probably never would have dawned on me on my own :)  Maybe once the hubby gets a job we can put more towards the principal.

I'm happy to spend time on the house (I say this now, as an apt dweller!).  I definitely need a hobby - it's one of the things I'm looking forward to.  Usually when I am home and I don't have homework to do, I am bored.

I'm really hoping the inspection finds the unexpected immediate things.  If not, we do have a fair amount in savings for emergencies.  All the decor and the upgrades we want to do will wait until he has job.  

Thankfully, not part of a subdivision.  I wouldn't even look at those because I think those fees are a waste (considering I WANT to mow, shovel, etc).

Does anyone know how many gallons of water and/or sewage they use per month?  I found quotes on the price of water and sewage per 1000 gallons - but I have no idea how much we'd need.  (It sounds like I want to buy sewage - ha!)

According to my last water bill I used 24.  I have no idea what I use 24 of but I doubt that it is gallons.

The best thing to do with the water sewage is to call and ask what the averages are for a family your size. It will be pretty accurate. There is usually a range before you're facing a much larger bill.

With water and sewage, make sure all of your toilets work properly a toilet that runs constantly is a huge money drainer. All fawcets should shut off completely as well. You'd be amazed at how much money can be wasted by leaky fawcets and toilets.

Oh and that extra amount to principle can be even a small amount on any type of loan. I have always rounded up on my payments to make them easier to budget. My first car loan was $76.XX per month. I paid $80.00 every month just because it was easier without knowing I was paying down my balance much quicker (I was 19). My car got stolen and I had to call to get a payoff and I was shocked at how much extra my balance had gone down just by paying $3.XX extra per month.

You could start off by paying just a little bit more per month and then bump that up when your husband gets another job.

The banks certainly dont want it to occur to you to prepay principal.

Your mortgage loan on a graph would show that far past the halfway point the balance has barely moved from the original amount owed until almost the loan's end when those final payments drop it dramatically.

This is significant because most homeowners sell their home prior to paying off their mortgage so without prepaid principal and despite the loan being paid on for more than the majority of the loan term, the homeowner still owes the bank an amount surprisingly close to the original balance at payoff.  

Not so when those prepaid principal payments are made and the balance drops from the onset of the loan and steadily throughout. The amounts you prepay and frequency is at your discretion because its voluntary. 

This applies mostly to 30 year mortgages as 15 year balance do drop more steadily. My recommendation, though, is get that 30 yr mortgage. Pay addtnl principal to pay it off in 15 yrs. This both gives you the dramatic savings of the 15 yr mortgage along with the financial security of the low required 30 yr payment in case unforeseen financial hardship hits and you need to make that lower payment.

if your water is metered (and even if it isn't), low-flow toilets and shower heads are are a good investment.  or you can just put a brick or two in the toilet tank to cut down the amount of water used ;)

my low-flow toilets are really cheap ones, but they're just fine. 

is it an older house, alle?  if so, you might want to budget for efficiency upgrades.  i don't know if you have a program like this in your state, but here we can pay for an efficiency audit with the power company.  it's a few bucks, but then then the provincial government gives rebates for some of the recommended upgrades. 

my first house was a foreclosure.  the only problem i ran into was that it had been empty for awhile (over a year) and the water had been turned off.  turned out that some heat tape had been left on the empty PVC pipes, and a spot melted, so when we had the water turned on, the pipe burst.  it was in the crawl space, so no damage, but a pain in the butt.  in the place where i am now, the only unplanned repair was when the igniter went out on the furnace.  in the dead of winter, of course.  but both of mine have been relatively new homes (not brand new; brand new can be a gamble, too!).

there will be unexpected things.  try to be prepared for that mentally as well as financially ;)

Original Post by alle0299:

I would have never thought about paying extra principal either.  It's a very obvious thing to do once you say it, but it probably never would have dawned on me on my own :)  Maybe once the hubby gets a job we can put more towards the principal.

One easy way to do this, is to set up your payments to coincide with your paychecks. I'm paid on a 26wk pay schedule, every 2 wks, so I set up to have 1/2 my mortgage payment withdrawn from my account on each payday.

This has helped so much! 1. It's easier to budget, and I don't feel the pain of one lump sum...and 2. It works out to be an extra payment toward principal a year.  I'm saving around 60K in interest over the life of the loan by doing this....I highly recommend it :)

Original Post by rachd:

Original Post by alle0299:

I would have never thought about paying extra principal either.  It's a very obvious thing to do once you say it, but it probably never would have dawned on me on my own :)  Maybe once the hubby gets a job we can put more towards the principal.

One easy way to do this, is to set up your payments to coincide with your paychecks. I'm paid on a 26wk pay schedule, every 2 wks, so I set up to have 1/2 my mortgage payment withdrawn from my account on each payday.

This has helped so much! 1. It's easier to budget, and I don't feel the pain of one lump sum...and 2. It works out to be an extra payment toward principal a year.  I'm saving around 60K in interest over the life of the loan by doing this....I highly recommend it :)

What youve described rachd is not bi-monthly but bi-weekly and the savings are drastically different.

Bi-weekly is every 2 weeks.
Bi- monthly is on the 1st and the 15th.
Sounds similar but not even close.

With bi-monthly, the double half payments are applied simply as a full pmt which means on a 30 year mortgage, of 360 pmts you only save about one month interest.  With bi-weekly you pay an extra payment every year so instead of a few hundred bucks you typically save tens of thousands of dollars of interest.  Check the chart HERE.  Not many understand the difference but cash wise, its dramatic so critical to get the term correctly.

Original Post by sun123:

Original Post by rachd:

Original Post by alle0299:

One easy way to do this, is to set up your payments to coincide with your paychecks. I'm paid on a 26wk pay schedule, every 2 wks, so I set up to have 1/2 my mortgage payment withdrawn from my account on each payday.

What youve described rachd is not bi-monthly but bi-weekly and the savings are drastically different.

Bi-weekly is every 2 weeks.
Bi- monthly is on the 1st and the 15th.
Sounds similar but not even close.

With bi-monthly, the double half payments are applied simply as a full pmt which means on a 30 year mortgage, of 360 pmts you only save about one month interest.  With bi-weekly you pay an extra payment every year so instead of a few hundred bucks you typically save tens of thousands of dollars of interest.  Check the chart HERE.  Not many understand the difference but cash wise, its dramatic so critical to get the term correctly.

Yes, I realize this :) I could have been more clear...

I'm paid on a bi-weekly schedule, or 26 pay periods a year... and as you pointed out, this works out to one extra payment a year, and saves a nice chunk in interest.

You're absolutely correct....It wouldn't work out to be an extra payment a year if you pay on a 24 wk cycle (or twice a month...example 1st and 15th) but it's still easier to budget, imo....instead of a large payment, it's two smaller payments that coincide with your paycheck.

One more note...it's worth it to check with your bank, some will try to make you pay a fee to set it up like this.

If you're doing the bi-weekly or bi-monthly, try rounding the payment up to the nearest even dollar mark. My payment is $436 and I always pay $450. You don't even notice the extra. In my mind my payment is $450.