Planning for Budget Busters: Home Ownership

This video post is the third of a four-part series.

Last week, I introduced the concept of a Budget Buster, which is any irregular expense that I fail to plan for. These are't true emergencies, but rather expenses that pop up to surprise me, even though I should have easily seen them coming.

This week, I'm concentrating on the largest budgeting category for these surprise expenses: home ownership. When looking for housing Budget Busters, those of us making the transition from renting to home ownership need to be especially wary; lack of experience leaves us exposed to a barrage of these expenses in the first few years.

Most of us are familiar with paying a mortgage (including interest), property taxes, and homeowner's insurance. In fact, many times these are lumped into a single monthly payment by your mortgage or processing company. But in addition to these routine costs comes a host of irregular — but nonetheless inevitable — expenses.

In this video, I concentrate on three main areas where Budget Busters strike hardest: routine maintenance, repairs/improvements, and transactions costs.

 

Here's a run-down of the contents:

  • Recap of the definition of a Budget Buster [0:12]
  • Defining routine maintenance vs. repairs/improvements [1:05]
  • Brainstorming examples of routine maintenance [1:45]
  • Brainstorming examples of repairs/improvements [2:20]
  • Hidden expenses related to buying and selling a home [3:25]

The enormous costs associated with the repairs and improvements — remodeling a kitchen, replacing a furnace, tearing out a tree — are apparent. However, the combined costs of routine maintenance — yardwork, cleaning carpets, painting a room — can add up quickly too.

As we talked about in part one, the key to planning for these Budget Busters is embracing the fact that irregular expenses will almost always be more than we expect. It's been my experience that just when I think I have it figured out, something new comes along to bust me! I've learned the best strategy is to overestimate my costs to ensure a cushion.

I know there many of you have owned homes for decades! Which expenses have shocked you most over the years? Which ones should those of us who are new to home ownership watch out for?

Note: We've heard you on the video posts. There's one more scheduled for next week, but after that they'll only be an occasional thing. Thanks for the feedback!

More about...Budgeting, Home & Garden, Planning

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Jason Beck
Jason Beck
9 years ago

Exactly one year after I moved into my house, my heat pump sprung a leak. While I had the option to repair it for several hundred dollars, there was no warranty, no guarantee that it wouldn’t break again. I opted for a brand new, high efficiency heat pump, and spent nearly $6000. What a whopper! It was more than my emergency fund, so I ended up refinancing my car to help cover the cost. (Thankfully my car is paid off now, two years later.) I’m also working on painting my fence and deck, which are overdue! While the cost isn’t… Read more »

chacha1
chacha1
9 years ago

One of my goals, if DH and I ever manage to buy a house for retirement, is to either have it built or remodel it with the most efficient, low-maintenance materials possible – regardless of how it may look (e.g., corrugated metal roofing and siding). Thus, a priority for us in siting our retirement residence is that it must be outside any HOA communities, or neighborhoods having strict covenants about the exterior appearance of a house. I absolutely refuse to let others determine what color I can paint, what trees I can plant, what kind of fencing I must use,… Read more »

Rosa
Rosa
9 years ago

If I’d had any idea of the cost of painting a wood-sided two-full-story Victorian, we would have bought a house with stucco. OMG. My partner did it himself because the lowest estimate we got was nearly $20k (there was a guy who said he’d be cheaper but his actual quote was “you couldn’t pay me enough to paint that house.)

Chris
Chris
9 years ago

Just today I found I have termites… Was hoping to spend that money in savings for my baby due in November, but now, the little buggers get it.

leslie
leslie
9 years ago

We just painted our house and dramatically changed the color (from Creme to DARK green – think hunter green and go a shade or two darker). Not only did the painting cost more because of the huge color change (which we expected) but then we discovered a fair amount of trim rot and the half the gutters needed to be replaced (badly installed gutters are what caused the trim problems in the first place). And don’t get me started on the Heat Pump that had to be replaced 2 years ago. There is always something. And the older a house… Read more »

Justin Grenier
Justin Grenier
9 years ago

I have had the opposite experience from CHACHA1 with my townhome and HOA. I have a fixed payment of $95.00/month that covers all maintenance and repairs to the exterior of our townhome and all lawn care/landscaping. It helps tremendously with budgeting. Of course, the HOA doesn’t handle repairs to internal components such as heat pumps, but we’ve combatted that somewhat by purchasing a townhome that is only about 5 years old. No, I don’t have the freedom to choose my paint colors, plant types, or brand of fencing, but I’m not someone who has an emotional need for the “freedom… Read more »

Chickybeth
Chickybeth
9 years ago

This post and the comments are making me depressed about buying my first home. Please tell me that the work and money you put in pay off…!?!

Keith T.
Keith T.
9 years ago

Stories like these is what made me apprehensive about homeowning in the first place. That being said, I now own a home, but the spectre of possible problems that will now be entirely my problem (not a landlord’s) still bother me.

chacha1
chacha1
9 years ago

Oh Justin, if you live there long enough, you will. Because eventually something big about the exteriors will have to be repaired or updated – and it will be done for ALL of the townhouses. That means an assessment to ALL of the owners.

I’m not an owner at all yet. I have friends who live in condos and it is one thing after another – roofing, siding, painting, landscaping, new sidewalks, new security, money money money. Ugh.

trb
trb
9 years ago

These things are the biggest reason we bought into a housing cooperative. Yep, we have a monthly fee on top of our mortgage, forever, but we can budget for that. And when the tub springs a leak or the sink backs up (both did last week), we call the maintenance guys and they fix it. We don’t get to pick the exterior colors, but we also don’t ever have to paint or worry about rotten trim.
There are no budget busters here, except maybe the appliances – but we’ve got a line item for them. Hooray for co-ops!

pat
pat
9 years ago

In April we had an “update” to the kitchen that we gutted twenty two years ago. So we had the painters for the kitchen – and the living room, and, on the exterior, the stucco and trim. And, of course, some of trim had to be replaced. We have a tudor with steel casement windows. They are lovely, but they all had to be scraped down, and the windows reglazed and painted. We got a good price for the amount of work that was done, but the bill would still take you breath away. Tomorrow, we are having a sprinkler… Read more »

Amanda
Amanda
9 years ago

Chickybeth, you definitely have to consider the cost of maintenance in your monthly housing budget. I think Liz Pulliam Weston at MSN suggests 3% of the value of your home annually should be saved. At the end of your analysis you have to determine if it’s worth it to you! I rented for several years and had no problem with it. When I got married my DH already owned our home. I think he did the right thing but let me tell you why I wouldn’t do it again… He fit into a category of low income minority homeowners and… Read more »

Robert Muir
Robert Muir
9 years ago

Asphalt roofing generally lasts 20-30 years. So start saving for the replacement.

Don’t listen to people who say that renting is throwing your money away. For many folks, renting is exactly the right thing to do.

elena
elena
9 years ago

I’m disappointed this was the day’s second post as I’m guessing fewer will respond as a result. (I normally only check in once a day) And this is one I’d really like to hear more about. We set aside a minimum of $200/month for routine stuff. Bigger stuff we tackle as it comes up or try to anticipate as much as possible. We’ve come to expect the place to need repairs, maintaining,or replacing. It’s an older home. Once we had to take out a home equity loan for a big expected expense, but we paid it off. I like owning… Read more »

Sandy L
Sandy L
9 years ago

I grossly underestimated the weekend home depot trip costs. I think we did alright budgeting the big projects, but the cats and dogs expenses really added up over time.

Another poster also touched on this..when you do embark on a planned maintenance expense, you often find “surprises”. Like doing your roof and then realizing your sub roof is rotted as well.

HollyP
HollyP
9 years ago

If you are considering purchase of an older home, take a good, close look at the foundation. Test it by pointing the business end of a screwdriver towards the wood and tap gently with a hammer. Repeat every 6-12 inches around the foundation if you suspect there may be foundation issues. You don’t want to pay to fix the sill, beams & joists!

Luke
Luke
9 years ago

My GF and I are currently in the lucky position of living rent free with her parents as we just moved 600 miles to change jobs. I’d initially thought that the deposit would be our only problem (we’re about 40% there on a £10,000/$15,000 deposit for a flat). These days, however, it seems like I hear a different horror story every day about home ownership! As well as any internal repairs/upgrades/decoration/appliances, we need to consider the cost of Factors’ bills (in Scotland, the Factor is the firm who manages the shell of a building and arranges for large repairs such… Read more »

lmoot
lmoot
9 years ago

Meh, It differs for each person. It seems like many of the comments here are referring to cosmetic issues. I’ve had my house 1 year and just ordered base cabinets (ripped the old ones out last weekend)Yeah, it was $1300, but I planned for it from the day I purchased the house. As a FTHB I wanted a small house that would be easy to maintain. I do have many things to update as the house is from the 60’s and NOTHING has been updated since the 80’s. There’s electrical that needs to be updated, which I will have done… Read more »

EXS
EXS
9 years ago

I live in NY co-op of about 100 apartments. On top of the mortgage, there’s a monthly maintenance fee that covers expenses of running the building (underlying mortgage and property taxes [of which a percentage is tax-deductible], staff salaries, water, heat, garbage, etc.]. The building underwent a big renovation ($3+ million), of which my portion was almost $20K. If you’re considering buying a co-op, ask the board/read the monthly board minutes to see if the building is planning a renovation and charging an assessment if there is no money in their budget/reserve fund to cover those costs. I’m keeping records… Read more »

Shari
Shari
9 years ago

Our first home was a townhome, and I have to say I will never be part of a Homeowner’s Association again! It was not a good experience. Ours was an older group of townhomes, coming to the age where lots of repairs were needed. The dues owners paid monthly just weren’t enough to cover the repairs to be done. Thus, the HOA either charged special assessments for almost everything or they just plain didn’t do it. Part of the problem was mismanagement of funds in past years, but the end result was that homeowners had to pay the mortgage, the… Read more »

Karen in MN
Karen in MN
9 years ago

I’ve owned my home for 15 years. Yes, there are an infinite amount of costs associated with owning a home! I believe that the only “safe” thing is to try to buy only 1/2 the house you can “afford”, and you should have about $20K in the bank “just in case. Setting aside $200 per month for maintenance starting when you buy your house won’t work because the stuff that comes up does so suddenly and is often very expensive–you’re unlikely to have accumulated enough in your maintenance fund to actually cover it. My house wasn’t even really “old” or… Read more »

Janette
Janette
9 years ago

We lived in an HOA. When we bought single family- we put aside the HOA fee as maintance. It seems to work. We are good about saving from year to year- so when the heater goes ($8000) we hd the money set aside. I use 1% of the value of the house as a rule of thumb.
I love home ownership and won’t trade it until I am in a group home at 90 (come to think of it- my house would make a nice group home!)

Funny about Money
Funny about Money
9 years ago

Karen in MN’s story is hair-raising. No wonder those Minnesotans keep moving to Arizona!!! The city paid to put in the disabled curbs on our sidewalks…the sidewalks and streets belong to the city, and repairing them is not directly charged to homeowners in the form of assessments. Residents are asked if they WANT streetlights before they’re assessed to have them put in. It takes a substantial majority of homeowners to pass an assessment. Xeriscaping does not require fertilizing, watering, or mowing. You do have to go out and dribble a little weedkiller around in the spring, but that’s it. Residents… Read more »

Rosa
Rosa
9 years ago

I think there’s a sweet spot for house age – newer than ours, definitely, I daydream about a house that was built with wires originally instead of adding them all in after the fact. But brand new houses can be lemons, and new subdivisions/condo associations can have hidden financial problems that come out over time. I think somewhere around 30-50 years old is where our friends have had the best experiences – electric and plumbing stuff is either good or easily-updateable, problems of original construction have already been discovered but nothing is so old it’s hard to replace (like the… Read more »

Kevin M
Kevin M
9 years ago

I have to disagree with Karen in MN – I don’t consider outsourcing home maintenance to be a “budget buster”. Fertilizing, raking leaves, mowing and clearing snow are all DIY-able, (and shouldn’t be a surprise when you buy a home with a yard).

I wouldn’t say it shocked me, but whenever I’ve bought a house, no matter how move-in ready it is, there are always things that we want personalized/updated. I would err on the side of over-budgeting for that fact.

chacha1
chacha1
9 years ago

Actually I think Karen M’s tip about buying *half* the house you can afford is great. That’s kind of the way we are looking at it. Technically we could afford a $500K property. But if we buy a $250K property instead, our initial outlay, monthly payments, maintenance, and thus income needs, will ALL be lower. For all those considering buying – whether it’s your first time or no – I heartily recommend the book “How to Inspect a House.” If YOU know what to look for, you will save yourself a lot of time, heartache, and money. It’s my real-estate… Read more »

Will Reggie
Will Reggie
9 years ago

One way I saved money after buying a home was refinancing my car. I went through the process and ended up saving $75 a month on my payment, which basically pays off my insurance. Right now the search process for the best rates is such a pain and dealers try to get the best dollar amount, so use an online tool like MoneyAisle to save time. I def suggest taking a stab at going through the process, you will be shocked when you see what you get as a rate compared to what you are currently paying or what you… Read more »

partgypsy
partgypsy
9 years ago

We have an older house. Good that I have a husband that is handy, but it is true all those home depot visits, hard to remember what they are for. Some of the things least fun to spend for include things like: annual termite inspections, replacing footers/ other foundation issues as well as under the house aging plumbing pipes (stacks), repairing wood (such as around the porch). I’ve known other people spend thousands on trying to improve drainage around the house. The reason they are not fun because they can be expensive but they don’t necessarily increase the enjoyment/value of… Read more »

partgypsy
partgypsy
9 years ago

Also the replacement of “boring” appliances such as water heaters, furnances, stoves, fridges, etc.

questioner
questioner
9 years ago

Our budget buster: $10,000+ to have a new HVAC system installed. Ouch. To those of you considering a condo with its own HVAC system on the roof, know this: It requires a crane to get the unit up on the roof (and the old unit down.) And you need permits for that, and to close the street off while you do it… We were totally unprepared for this to cost 10,000. Fortunately another condo owner decided to replace his unit at the same time, and split the costs of the crane, bringing our total expense to about $8,000. Still, that’s… Read more »

Debbie M
Debbie M
9 years ago

Three percent of the value of the house for annual maintenance costs? That’s $400/month for me! And I live in a small old house! I’ve heard 1-2% in the past. Note that this value can skyrocket. Just after I bought it, 3% of the value annually was only $150/month, and that was only 14 years ago (I plan to live here 50 more years). I’d say 1-2% is fine for maintenance, and then you might want more for renovations. My repairs have been things I could budget for except for the stuff that I had to replace right away (my… Read more »

Sheila
Sheila
9 years ago

So glad to see the video posts are just going to be an occasional thing! I enjoy Adam’s posts, but just don’t like video.

Ross
Ross
9 years ago

Home-ownership Budget Busters not mentioned but Just happened: In the last 2 months: 1 – I got a “Love”letter from the County telling me to get rid of my pile of branches that have accumulate since my wood-chipper crapped-out a few years ago & and get rid of my unlicensed car that I was using as a garage for my tools and automotive chemicals (oil, tranny fluid etc.) or face a $50/day fine…. That meant a few weekends of cleaning out our shed so I could have somewhere to put the stuff and getting what was in the shed hauled… Read more »

Amanda
Amanda
9 years ago

Another thing I wanted to mention regarding decision making to buy or not: don’t take into consideration automatically is “I’ll have a deduction on my taxes”. Not true of everyone. Only the interest paid is deductible. For a single person you’d be paying around $5000/yr interest. A MFJ 11,000. For the avg person that probably means you have a huge mortgage or two properties.

Rosa
Rosa
9 years ago

Ross, doublecheck the escrow thing. We somehow got our escrow payment doubled by a miscalculation from our loan services – I looked at the notification, it looked fine to me, I paid it for a few months and then my more-mathy partner said “wait, that’s not right” and found their error and got it fixed – the overpayment was so high, they cut us a check back for almost an entire mortgage payment.

Dan M
Dan M
9 years ago

As someone that’s about to buy my first home, I can relate to the comments above about how looking at all of this for the first time can be overwhelming. Something I’ve found helpful is to talk to people I know that may have insight into these areas: A friend that worked recently as an administrative assistant at a real-estate office, a Twitter contact that is always talking about real-estate, my parents (though their advice is a bit dated), etc. It’s surprising how many people around you may know quite a bit about real estate and be willing to help,… Read more »

Dan M
Dan M
9 years ago

Oh, also: I really like these video posts from Adam. I find he communicates very well, and they’re a nice break between longer posts.

Financial Samurai
Financial Samurai
9 years ago

Hey Adam!

Didn’t realize you bought a new home. Some good tips you provided.

Perhaps you can write an article on your home buying decision process after traveling the world and being a minimalist?

Cheers,

Sam

Carolyn
Carolyn
9 years ago

My husband and I just bought a 1960 rambler and we love it! Many friends and family warned of the work and expenses related to homeownership, but its all worth it for me because I love our neighborhood, having a yard and not being able to hear the neighbors yell at their kids (which happened in our last apartment situation) As for budget busters, I would recommend finding who you know who has skills that could help you save time and money. We just had a new energy efficient furnace put in by our friend at cost, $1,500 and with… Read more »

Miss Froogle
Miss Froogle
9 years ago

When I bought my condo, I calculated my tax savings for the year and adjusted my federal tax withholding at work to minimize my tax refund. I figured that going from $400/month rent to $700 mortgage + whatever the condo assessments were back then (18 years ago), I needed the tax refund NOW not next April.

Steve
Steve
9 years ago

I have a few questions kind of related to this. I am single, 46 and live in a paid for 1999 singlewide on a rented lot in a park. I have saved 40,000 and can sell the singlewide for 10,000. I have 50,000 in a 401k in a target retirement account and just opened a roth which is also in the same type of target plan. I will contribute 416 a month to it…5,000 a year. From my calculations I will have around 400,000 in today’s dollars by retirement at 67. I have been looking at buying a house and… Read more »

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