If you are a first time home buyer, it can be helpful to “expect the unexpected” when it comes to your housing costs.
Even though saving for these contingencies might take a bite out of your budget now, it hurts a lot less than scrambling to cover these costs if and when they arise.
The following are the top 5 most common unexpected housing costs that many homeowners find themselves unprepared for:
- Closing costs. Congratulations – your offer on a new home was accepted! Unfortunately, an accepted offer can come with closing costs. Typically, closing costs add an additional 4% to the purchase price of your new home. These costs include various inspections, legal fees, taxes, and insurance. We strongly recommend you factor these into your total budget when you get your mortgage pre-approval.
- Higher utilities. This is particularly true if you are moving from a smaller property like a condo to a detached house. The price of heat, electricity, and water can increase up to 10x and this can definitely present a shock to the budget. Many jurisdictions provide a way to look up the prior utilities cost at a given property so that you are prepared for the increased price.
- Cosmetic/functional renovations. Even if you have prepared for routine maintenance costs like roofing or repairs, you might find that there is something about the new property that you just can’t tolerate or adjust to. Maybe you find you can’t stand the layout of the kitchen, or the lack of storage space. And of course, the aesthetic might be really dated or simply not to your liking. The best way to prepare for this is by visiting the property multiple times and really considering how it fits your current lifestyle and routine. If there is a drastic difference, then think about purchasing a different property, or budget for those potential renovations.
- Pest control. If you have been a renter up to this point, you have always been able to call the landlord to deal with these issues. The cost can be shocking if you aren’t used to paying for it. Pests are usually more problematic around a landfills, rivers, forests, or other potential sources of pests. It’s best to nip pest problems in the bud and you might want to consider having a professional evaluate the property before you even buy. They will check for potential points of entry and signs of major infestations to make sure your future home doesn’t come with unexpected guests.
- Interest rate appreciation. regardless of whether you are on a fixed or variable rate mortgage, rising interest rates will affect the price of property taxes, the purchasing power of the market, and the value of your home. Ensure there is room in your budget to accommodate reasonable increases in the interest rate.
Regardless of why you are purchasing a new property, it’s important to remember that the overall goal is to improve your quality of life. At no point should your mortgage payment and home expenses exceed 32% of your take home pay. The point is to enjoy your new home and not be house poor, and accounting for these potential expenses in your budget can greatly improve your enjoyment of your property in the long run.
As always, a professional mortgage broker can help you evaluate your mortgage, so that you can find the perfect home that fits your budget and your lifestyle.