Before Buying a Home, Consider Your Monthly Cost Of Living
Maybe you’re thinking of buying a house, and you’re trying to get a handle on what your expenses will look like in the future. Or maybe you’re thinking of buying an apartment, and you’re trying to understand that mysterious thing called “maintenance” (or possibly “common charges” or “HOA dues”). Any way you slice it, if you’re thinking about buying property, figuring out your monthly expenses is going to be a top priority.
It may help you to think about expenses in these top six categories:
1. The Mortgage(s)
If you’re buying a house, you’re probably going to have just one mortgage, the personal loan that you take out from the bank to purchase the property. If you’re buying a co-op apartment, you’ll have your personal loan (which you’re technically using to buy shares of the co-op) plus the apartment will have an underlying mortgage as well—to pay for the land that the building sits on. Payments on that underlying mortgage are made by the co-op, and a portion of those payments is charged back to you in your monthly maintenance.
In an apartment building, there is often a staff doorman who greets people and provides security, a porter who takes packages and takes out the trash, and a super who fixes busted sinks. Though tips are extra, staff salaries (and often their vacation and health benefits) go into your monthly charges. That’s why doorman apartments usually have higher monthlies than non-doorman ones. If you own a house, you’re not paying directly for labor—but you’ll want a budget for lawn upkeep, gutter cleaning, snow shoveling, etc., unless you do everything yourself.
3. Property Taxes
With a condo or a house, you pay these separately. You might get billed quarterly by your city or county, or your bank might make the payments and fold them into your mortgage. With a co-op apartment, your share is part of your maintenance. The good news is, property tax payments are usually tax-deductible. You should get a letter from the co-op once a year telling you how to figure your deduction; if you pay your taxes through your mortgage, the bank will send a statement once a year, usually in February. If you pay straight to the city or county, don’t forget to save receipts.
4. Ongoing Maintenance
Every three to five years, you’ll probably want a fresh coat of paint; every ten years, you’re probably going to need a new washer/dryer; every 20 years, you’re probably going to need a new roof. Apartment buildings budget for this kind of thing, and it’s party of their monthly charges. I urge homeowners to try to put away 2% to 3% of their purchase price per year for these kind of expenses. Sometimes homebuyers (especially first-time homebuyers) can’t even find that money, but it’s worth trying to. That budget might seem high one year, when all you do is paint, but for the year you redo the kitchen or fix a sagging porch, you’ll be glad to have the money.
5. Utilities, Including Heat
The easiest way to guess what your utility costs are going to be is to ask the previous owner to show you their bills. In an apartment building, find out what charges are paid for on a building level (often heat and hot water) and what charges you’ll pay for as an individual owner (often cable and gas). Even if you don’t see an individual bill, don’t forget to conserve energy; it’s good for the planet.
You’ll probably get a variety of kinds of insurance: title to protect you from a fraudulent sale; homeowner’s to protect you against property damage, and maybe flood to protect you against heavy rains and leaks. The total cost will probably be a few hundred to a few thousand, depending on how fancy your property is. Don’t forget to review your insurance coverage once or twice a year, as part of your financial check-up.