A little while ago we talked about being house poor, and how just being able to afford the sticker price of a home doesn’t always mean you can afford to own it. Regular upkeep, perhaps furniture that still needs to be filled in, and property taxes and insurance are all extra little costs that can quickly add up and end up being not so little. But how do you know how much all of those extra details will end up being? How do you make sure that you’ll still be able to afford it, and not be house poor?
When it comes to the property taxes and utilities, your real estate agent will most likely be your biggest resource. The listing itself should have the property taxes within it, and a good agent will do some digging on how much utilities average in that area. This latter amount they may not check for you unless you ask, so be sure you do so there are no surprises when you move into your new home.
Home renovations and regular maintenance repairs are probably going to be the biggest costs that you’ll put into your home – and they’re also the costs that are the hardest to determine. After all, no one really knows what repairs your home will need over the many years you spend in it, let alone what they’ll cost. Instead, you can use a simple calculation to figure it out for yourself.
That calculation is 3 per cent of the purchase price, for every year that you live in the home. So if you’ve purchased a $200,000 home, that would mean $6,000 in upkeep a year (approximately) will be required. But how does that work? And do all homes really need that much put into them every single year?
Truthfully, no. There will be some years when you need to rip up your entire lawn or do some extensive work in the bathroom or kitchen, but the chances that you’ll need to put that much into your home every year is unlikely. Still, it’s a good idea to make sure that you’re still saving that amount. The first reason for that is because it’s always a good idea to save more than you need (and much more if you can.)
But the second reason is because some repairs you’ll need to make will cost much more than that. Replacing a roof for instance costs about $10,000 so when the time comes, you’ll need almost two years of savings to be able to cover the cost.
Nobody wants to own a home just so that they can become house poor; and in fact, it can really cause you to resent your home if that’s the case. Use this simple formula as you continue on your house hunting path, and you’ll be well on your way to living in your home, and affording it to!
