What Homeownership Costs

Starting off on the right foot as a homeowner requires you to monitor your financial situation carefully. One of your biggest obligations is making your mortgage payment. Depending on factors such as your mortgage product and whether your lender set up an escrow account, your monthly payment may include your Principal or amount you borrowed, the Interest you’re paying on the loan, plus a monthly share of your property Taxes and homeowners Insurance. Together, they’re called PITI.

But it doesn’t stop there. Among the other costs of being a homeowner — which you’ll have to identify and plan for — are regular monthly expenses such as:

• Utilities, including gas, water, and electric
• Municipal services, such as garbage removal
• Monthly assessments or association dues (if they apply)

In addition, in order to keep your home and property in the best possible condition, some experts recommend setting aside 1% to 3% of your home’s value each year for maintenance and improvements. If you take care of things before they become problems, you can avoid unnecessary or unplanned expenses. Some examples of the ways you might use the amount you budget for maintenance include:

• Upgrading roof and gutters
• Replacing an old furnace
• Painting windows and siding
• Repairing a fireplace chimney
• Updating the bathrooms or kitchen

You’ll also want to keep up with more routine items, including:

• Installing fire and carbon monoxide detectors
• Checking fire extinguishers
• Scheduling annual cleaning and maintenance of heating and cooling systems
• Doing seasonal yard clean-up

By keeping your property visually appealing as you’re paying off your mortgage, you can help maintain and perhaps increase the value of your home and the community in which you live.

Tips for managing your mortgage

Making sure your mortgage payments are on time should be a primary focus even if it requires a few sacrifices to keep other spending in check.

Be sure you know the payment’s due date. If you’re using regular mail to send a check, be sure it arrives in time to be processed and credited to your loan account on time. You might want to arrange a direct debit from your checking account or use automatic bill pay. These electronic transfers can reduce delays and help prevent late payments. Paying late is known as being delinquent, and it hurts your credit score. Paying on time helps you build a strong credit history and can help increase your credit score.

It’s also important that you’re aware of things that could increase the amount that’s due with each payment. These changes are usually made once a year, but they could happen more often.

Property taxes. If local property taxes go up, as they often do, the monthly amount you pay to cover them will increase.

Insurance. Your homeowners insurance premiums may increase, if you modify your coverage or the insurance company raises its rates.

If you have an adjustable rate mortgage (ARM) product be sure you know exactly when and by how much your mortgage payment may increase at each adjustment. Plan for possible increases ahead of time to make sure you can continue to make your full payments on time.