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New Home, New Expenses

Written by Laura Martinez - 30 Comments

After less than a month in our new home, we’re still adjusting to being home owners (or ‘home loaners’ as my husband likes to say). Among many other changes, we have some new expenses that we didn’t have as renters.

Mortgage payments

For example, our first mortgage payment is due in March. Along with our mortgage payment, we’re also putting money into an escrow account to cover our property tax bill and home insurance premiums. While we budgeted for it and anticipated paying these costs, it still feels odd to have our housing bills mapped out for the next 30 years.

The mortgage payment itself (considering principle and interest) is much lower than the rent we were paying for our two bedroom apartments. The discrepancy between the cost to own and rent in our city is one of the big reasons we considered buying a house. If it was much cheaper to rent, we would’ve continue renting, either saving for a huge down payment (making the mortgage much smaller) or investing the difference for other goals.

Our goal is to pay an extra $150/month starting with our first payment for 2010 payments to help pay off our mortgage early and greatly reduce the amount of interest we pay over the life of the loan. If and when we can afford more, we’ll add to this amount accordingly, but we want to make sure we build up our emergency fund first.

Homeowners’ association fees

This is a new bill that I’m not too crazy about, but membership is mandatory with in our development. Our HOA fees covers water and sewage, pool and clubhouse access, lawn maintenance, and condo area upkeep. When we were looking at some older homes in the area, we found that the HOA dues were often higher and sometimes came with fewer amenities.

After reading some horror stories on HOAs, we asked some friends who live in a development by the same builder and with the same company running the HOA for their opinion. It turns out that they’ve been happy with their experience thus far, and the fees have remained consistent so far.

Property taxes

As I noted above, we’re paying into an escrow account every month to cover our property taxes (as well as our homeowner’s insurance). Property taxes are an unavoidable expense of being a home owner.

My best advice is to look at your city or county’s tax records online to get an idea of what you might expect to pay in taxes before you buy. While we were shopping around, I looked at different neighborhoods and researched the property taxes. As a result of this additional information, we actually ended up reducing the amount we were willing to spend on a new home just so we could stay within our budget.

Once you’ve bought your home, don’t let your guard down. Keep an eye on your property tax assessment, and don’t be afraid to appeal your home’s assessed value.

Your take

I’m curious to hear how you guys made the transition when you went from being renters to owners. What was the biggest financial adjustment you had to make as a home owner? If renting is a better option for you, I’d like to hear about that, too.

Published on February 9th, 2010 - 30 Comments
Filed under: Mortgages, Real Estate, Taxes

About the author: helps families achieve financial freedom by sharing tips for reducing debt and building freelance income over at Couple Money.

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30 Responses to “New Home, New Expenses”

  1. 1
    DJ Says:

    We bought a home in November 2008 and we feel like we got a “post-bubble price”….if such a things truly exists. Our HOA fees were due in January, and right off the bat we had to spend money on yard care equipment (so our neighbors would not shame us into keeping our yard up), landscaping materials, home repair tools (since our landlord took care of all of this before), and then repair an existing fence in the backyard. We also had a property line border dispute with our neighbor to the rear which included an additional survey ($400) and legal fees ($300). So all in all, a very pricey transition (and that was just the first 6 months!)

  2. 2
    Caro Says:

    Like DJ, we experienced some immediate costs that we hadn’t anticipated just after we moved in (before our first mortgage payment even!). Our sewer line backed up into the house…it was covered by insurance, but a big deductible and it happened to back up into the room we were using for staging our boxes. We were pretty lucky about what we lost, but it was an expensive hassle.

    Very quickly we realized that the added expenses of owning a home were going to become really difficult if we didn’t do something, so we started a separate “fix our house” fund. While we’ve had some emergency type things that have maxed out the fund, putting money away each month has made these unexpected things less of a financial surprise/burden for us.

    Oh, and one “trick” about paying off a house faster is to pay twice the principle on the house each month. Because you pay relatively little principle at the beginning of a loan, this allows you to start small and keep getting bigger…and eventually pay the house off in 15 years. We did opt not to pay our house off early (for a variety of reasons) but this strategy always appealed to me.

  3. 3
    Kyle Says:

    For us it wasn’t that big of a transition from renting to owning. When we bought our first house we went from a $750 rental to a $800 mortgage payment (PI&E). The biggest leap was going from having to maintain nothing to having to maintain everything. When you house is 50 years old there is a lot of maintaining to be done.

    Now the transition from our first home to our second was a bigger leap. We almost doubled our mortgage, and more than doubled our square footage. We are settled in the groove now though and it was all worth it.

  4. 4
    Peter Says:

    Home ownership is a lot more expensive than most people realize it will be. Mortgage payments are only the beginning, as you mention. There are also often HOA fees, taxes, home maintenance and repairs, utilities, and more! Make sure you’re going in with eyes wide open!

  5. 5
    SkiSpeaks Says:

    Nickel, have you looked at an amortization schedule of the loan? If so, I’m curious if $150 is the average principal over the life of the loan (if so, that’s a great deal! congrats!). In other words, how much time will this cut off your mortgage’s term?

    We’ve been doing this ourselves since we bought a house last summer, and plan to knock about 13 years off our 30-year mortgage.

    As for new expenses, we were very careful about not buying a single piece of furniture or other big items until we’d spent a couple of months making the mortgage payment. To this day, most of our stuff is hand-me-down or garage sale vintage.

    Aside from that, we’ve managed to save money over renting by installing efficient appliances (not an option in our apartment) and cooking meals at home vs. going out (our old place had a tiny, poorly-equipped kitchen).

  6. 6
    BG Says:

    Homes are not good deals until you pay them off. When you have a mortgage you usually pay more than if you were renting an apartment (something smaller). But once the house is paid off, that is when the real return kicks in.

    Imagine living in you paid-for house, and only having a property tax bill, HOA fees, and maintenance — likely to be half of what a renter pays.

  7. 7
    Nickel Says:

    We’ve been in our current house for nearly four years, and my wife commented last night that she considers it a victory every time she drives by a home improvement store without needing to go in. When you move, there are tons of hidden expenses, especially when you buy new construction — building shelves, changing out light fixtures, covering the windows, and so on. It tapers off over time, but these sorts of “startup” expenses can go on for a year or more.

  8. 8
    Lillie Says:

    As a more seasoned homeowner, I experienced some of the same concerns, especially with start up expenses. I have seen property tax increased, my mortgage being transitioned to another company and now I am dealing with agents in another country who have problems addressing my concerns. At this time, the company’s website has been down for almost a year, but it is still offering online payments as an option. Even so, home ownership has its rewards and definitely beats renting as a choice.

  9. 9
    Vishal Says:

    As a 5-yr old homeowner, nothing beats the feeling of waking up each morning under a roof that you actually own on this planet. That gives me a smile each time.
    however, with joy comes responsibility and some ‘pain’.
    As you progress with home ownership, you will find that for every little thing you buy, you will not like the cheap or the ‘value’ option anymore. you will feel attracted to the most expensive option, be it the couch, the cfl bulbs, appliances, rugs, etc…etc…
    This is true…

    Also, do not underestimate the unforeseen expenses and always always have a fund for it……
    apart from that, my only advice is to not get too caught up in your house and all the ‘fixes’ that it needs.
    for the 1st yr, I put too much stress on myself worrying about every little thing I had to fix or upgrade or buy and it just ate me up ( can’t say for sure if my wife felt this).
    you Own the house, not the other way around, make sure you remember this.
    once again, congrats!

  10. 10
    KC Says:

    I think a lot of people don’t fully consider what home ownership entails. We bought our first home in 2000 (age 27). We moved 500 miles from where we were living (and from family). We easily could handle the fixed expenses of owning a home. But what we didn’t plan on was the 2% (of home cost) a year you spend on maintenance – painting the house, replacing appliances, roofing, small repairs, big repairs, etc. So make sure you have a good emergency fund – probably bigger then the one you had as a renter.

    In late 2008 we moved back closer to family and into our “forever” home (much bigger than our initial home). I’m glad our first home was smaller and we could control it – big homes are not for learning! But I came into this purchase with a lot more knowledge. I (and I’m female) wasn’t looking at coutertops and colors. I looked at the age of the roof, looked for any noticeable water damage on the exterior. I looked at the lay of the house and quality of materials used to build the home. But I went in the attic, the basement, and any area I could fit my head in for a look. I even checked the gutter to make sure it was clog free and had been maintained. I’m no contractor, but I knew when something didn’t look right. I also knew what was fixable and what might present a bigger problem. All of this was gained from having previously owned a home.

    So I guess what I learned most was the 2% expense rule (you’ll spend on average 2% of the cost of your home on repairs/maintenance each year. And I learned that through home ownership you can learn a lot about owning a home (so don’t start with a big house, or an old house if you can help it).

  11. 11
    KC Says:

    After reading all the responses I’m really surprised at all the HOA fees. What do those go to? Some people sound like they are doing their own yardwork. Seems like that would be the main thing HOA fees would go to.

  12. 12
    sara l Says:

    The home improvement store was our biggest shock. We were ready for the payments and the escrows. We were ready for the jump in utilities associated with a bigger house. But the amount of money we gave H*me Dep*t in our first year was shocking. It’s slowed down some in our second year, but is still pretty ridiculous.

  13. 13
    Nickel Says:

    KC: In our current house, we don’t pay HOA fees. At our old house, the fees mostly covered upkeep of the common areas (including a pool and small playground). I’m sure that a decent amount of that went to pay for liability insurance on these amenities, as well.

  14. 14
    Courtney Says:

    @ KC – In our condo neighborhood, HOA fees go towards ‘yardwork’ (that is to say, there are no ‘yards’ but the grass is mowed, leaves are raked, the common areas are landscaped, etc), trash pickup, water and sewer, pool and tennis court maintenance, and SNOW REMOVAL (which I have never appreciated so much until this freak winter season). It also includes insurance and upkeep on the building structure, like siding, exterior doors, roofs and the like. Our condo insurance policy for the contents and interior of our place (personal property + appliances, cabinets, etc) is only $15/month.

  15. 15
    Jo Says:

    Being new homeowners ourselves, the last thing we wanted to do is find ourselves in the midst of the “herd” mindset. Don’t get me wrong. I am not anti-social by any stretch; it’s the NEED to have to do this or do that in order to conform that I am very much against.

    In our “neighborhood,” there are no association dues, it’s rural but still has an unspoken rule of cleanliness and keeping one’s lawn mowed; our trash pickup is free because we are within the borough, snow removal is paid through county taxes (Read that: property taxes); we’re in an ideal school district; criminal activity is virtually non-existent; we still get Fire and Rescue services, no water bill (well and electric pump)and our property isn’t zoned. So, if I want to have chickens on my 1.5-acre lot, I will do the respectful thing by asking my neighbors (who ae close by but aren’t able to look into my backyard) how they feel about this. I’ve met them all; they are wonderful and don’t make everyone else’s business their own.

    As for the maintenance on upkeep of the house itself, it’s part and parcel of being a homeowner. You don’t go jumping into that sort of thing without seeing what home ownership entails.

    I respect those who choose to live in subdivision-types of neighborhoods; I did this for many, many years. It was simply too expensive, what with fees for this, dues for that, it was taking a toll on our budget. So, hubby and I made the decision to live simply in order to keep our expenses down. We pay $2600 in property taxes on a house we bought for $111k (over 2000sf and almost two acres). Where else can one do this?

    My best wishes to everyone; what matters is that you are all happy and content, because if this is what works for you, then go for it. And I DO genuinely apologize for sounding as if I come across as arrogant; it isn’t my intention to do so.

  16. 16
    Floridian Says:

    “my only advice is to not get too caught up in your house and all the ‘fixes’ that it needs.”

    Good advice! I am afraid to admit that I have been guilty of doing just this over the past 18 months – in a house we’ve lived in for over 10 years. What changed in my head 18 months ago? It started when we found ourselves with extra time & money – then the house became a “hobby.” But then as I looked a lot closer at all the nooks & crannies of the house, I found a lot that “needed” to be done on top of what I “wanted” to do! And I had to do it all ASAP! The husband told me to slow down – the house won’t fall down if the bathroom doesn’t get repainted or the kitchen remodeled ;) He asked what I plan to do when I get all the “fixes” done. I would think I will be able to just enjoy the house…but the truth is, I will probably find more that “needs” to be done. So I have to learn how to slow down…but first, I have some painting to finish…and I really want new paint and tile (and tub!) in the master bathroom…but that will have to wait until after we put in all new window treatments/blinds that will look oh-so-good with the new windows that will be installed later this month…oh heaven help me!

  17. 17
    John Says:

    Other than one $900 trip to Sutherlands I haven’t had to put all that much money into my home yet since I bought it in October. I have a push mower which will not suffice for a 1-acre lot, but I got in at the end of the mowing season so that hasn’t hit yet. The Sutherlands trip included a wood-burning stove for my garage and a few towel bars and such for the master bath that were apparently taken by the previous owner.

    I waited for Christmas before buying anything large in hopes that I would get some items I needed as gifts. There are still some furniture items I’ll need but I’m doing without for now. I’m just a bachelor so I can live without a few things for a few months or a year.

    Utility costs have been much lower in my new house despite it’s larger size compared to my rental home. The new house is at least 50 years newer and has ground-source heat pump and cooling. My sewer is handled by an on-site lagoon so my water bill is about 70% of my previous water/sewer bill.

    I’ll keep the 2% rule in mind. That sounds pretty reasonable and shouldn’t hurt my budget too much if I expect it.

  18. 18
    H Lee D Says:

    Biggest difference from Day 1 was utility bills. Much higher in our house than anywhere else I’ve lived.

    Less than two years into living in this house, “expansive soils” were causing the back room (with no footers) and porch to separate from the house (repair plus preventative maintenance: $45K and counting). We had “the worst sewer leak I’ve ever seen,” the neighbor’s landscaping was pushing over the 6-foot block fence, and the pool turned out to have 2-inch-thick walls (instead of the standard 6-to-8).

    So we pretty much had issues I didn’t even know were available as issues :(

  19. 19
    TTFK Says:

    The issue people have with HOAs isn’t when the HOA is young; it is when control has been transferred to the local owners, the artificially low HOA fees start getting jacked up, you receive a massive ’special assessment’ the first time the road, sewer lines, etc. need repair… and if the busybody neighbors that always end up in control of an HOA don’t like anything about you or how you keep your house, they can start fining you endlessly while holding the threat of TAKING your house if you don’t pay.

    Oh, and once a property is part of an HOA, there is NO way to EVER get it out, even if you are on the very edge of the subdivision.

  20. 20
    LeanLifeCoach Says:

    @KC – 2% might be a good “average” but some years can be much more expensive than others. Be prepared for the volatility!

    Personally when we had HOA fees by problem wasn’t the cost as much as it was the “politics.” After buying the most expensive thing every in my life I had a problem with someone else trying to tell my what color paint I could use or what type of window covering was allowed. Never again!

  21. 21
    Dollars Not Debt Says:

    I highly recommend that you send as much extra principle to your mortgage as you possibly can. Use the debt snowball (Dave Ramsey) to pay at least $500 extra each month. The first 5 years of the loan are spent paying nothing but interest. In my blog I write about my path to debt freedom. Trust me, make your 30yr loan last about 13 years.

    Dollars Not Debt

  22. 22
    Rosa Says:

    We were 25 and 21 when we bought our house. The mortgage was a few hundred dollars a month lower than our old apartment (2 blocks away), we had savings to cover the needed repairs as long as we did the work ourselves, and we’d already been paying utilities & doing lots of small repairs as renters.

    What kills us and we didn’t really think about was time. Time rebuilding the garage & painting the place ourselves (we saved $20K by not paying someone to paint our 2-story-and-full-attic wooden Victorian, but it took all freakin’ summer). Time rewiring the second floor and replumbing the bathroom.

    It’s replaced most of our other hobbies (though that’s at least half because we had a kid after we bought the house.) If I had it to do over we’d have kept renting until my son was school-aged. But when we bought, rents had been going up and up and up – housing prices hadn’t caught up yet.

  23. 23
    Floridian Says:

    Hey Rosa – since you’re experienced at it, will you come help paint my house? heheee! ;) I’ve already got all the supplies – just having trouble finding time! Our house is currently a hodgepodge of colors – some areas recently painted, other areas not. The areas that are not freshly painted have faded at different rates thanks to cheap paint the previous owners used (we removed a bunch of trees and shubbery that exposed totally different shades of paint on areas of the house that never got direct sunlight!) Thank goodness we don’t have an HOA to get onto us for taking so long to finish ;)

    Maybe I should do like my neighbor – take 3 days off work, enlist a BUNCH of friends and relatives, and then supply a LOT of beer ;) Despite all the beer, their house looks GREAT!

  24. 24
    Andrew Says:

    In my opinion:
    Since Paying extra principle (150/mo) does not lower your monthly mortgage payment, It would be better to put that 150 a month into your emergency fund first, so you’ll have your emergency fund fully stocked sooner, then start putting extra money to pay down principle.

    We also just closed on our first Co-Op in Jan. It’s not exactly like owning property, It’s like owning a condo, but owning shares in a cooperation rather than the dirt. Instead of paying for taxes, HOA fees, heat, etc, separately, it’s all rolled into 1 maintenance fee paid to the cooperation.

  25. 25
    Rosa Says:

    Floridian – I’d be tempted, just by your weather. Right now I’m spending a half hour or an hour every day shoveling (we’re in Minnesota). That wasn’t in the story because we had to shovel when we rented, too, and having offstreet parking saves us about $500/year in snow emergency tow fees.

    But actually we have a contractor (a contractor! A person who is not us!) drywalling our kitchen right this very instant – we’re selling this place as soon as the market picks up. The next house will be single story or at most a story and a half, with stucco instead of wood siding, and have been built after 1920 so the plumbing and electricity were part of the original layout instead of added later. If we can’t find that, we’ll rent near a community garden.

    Oh, and it will have a first floor bathroom so if either of us is laid up (like I was when I was pregnant – 5 weeks on bed rest) we can be on the ground floor where the kitchen, front door, & TV are.

    What I Learned From Our Lovely Old House, pt 2 :)

  26. 26
    Floridian Says:

    well it is nice & sunny out now – even if only 43 degrees :( I don’t think I could live anywhere it snows! I get cold way too easily!

    Yeah, there are a lot of different things I would look for in a house if I were to buy another. Although reading horror stories like H Lee D’s makes me feel very fortunate that we haven’t had to deal with anything major *knock on wood* (nothing over $3K anyway – and insurance paid for that, so we only had to pay the deductible).

    Lee – how old was your house when you bought it? your experience sounds horrible! I’m so sorry :(

  27. 27
    H Lee D Says:

    Floridian- it was 27 or 28 years old when we bought it, I think. We were pleased with our home inspector – he was very thorough, and I don’t think he could have known what was to come. We knew the A/C was old (and recently replaced it). We knew the roof was getting there. But all the floors had just been redone- as well as both bathrooms- within the previous 6 months. It looked great…

    We knew the back room had been a porch at one time and two owners previous enclosed it into a room. We found the plans for it in a pile of stuff the owners left. Because the load-bearing points didn’t change, under code, they didn’t have to add footers … so they didn’t.

    Apparently the whole neighborhood has issues with shifting and cracking. We were talking to our neighbors about all the garbage going on, and they said, “Heh, yeah, this is Crack Alley. We use a planar on the front door every spring so that it opens.”

    I didn’t think to ask if the house was stable before we bought it, and there weren’t significant or red-flad-raising cracks…

    Adding insult to injury, this all came out while I was in the midst of treatment for lymphoma :P

    Fortunately, the condo I had lived in prior to moving into this house had just sold – right at the beginning of the downturn – and we had almost enough money from that to cover the repairs and rebuilding our pool.

    But yes, a disaster indeed. This house may have made a renter out of me, should we ever get out of it…

  28. 28
    SteveKang Says:

    As a former HOA president, HOA dues are solely based on the expenses that the HOA has to incur. Other have listed those in previous comments. The main thing that each homeowner should keep on eye is the daily operations and the finances. I can’t tell you how many times, HOA’s get ripped off by the property management company that works for the HOA. If you have a solid group of HOA board members, there shouldn’t be much to worry about, but that’s the minority.

    Before I took over, all the required maintenance issues, were all deferred for 10 years. When I took over, I got those all fixed and it was expensive. Ironically, all those people that voted to defer the maintenance because they didn’t want to pay, ended up paying anyway because they were still living there. Replacement roof was $43,000, Replacement windows and sliders were $23,000.

    Homeowners should also make sure that there are enough reserves in the budget to pay for major expenses. Maintaining a “reasonable” reserve account should help reduce special assessments.

    So get involved in your HOA so that you don’t get left out of the loop.

  29. 29
    Andy Says:

    For me, the last week taught me one of the unexpected expenses with being a home owner compared to a renter! SNOW! The cost of shovels, salt, people to do the shovelling and the cost of a broken gutter! As a renter, just had to call the landlord. Now, everything comes from my pocket. Ouch!

  30. 30
    Lannie Says:

    I don’t get it – you were paying all of these when you were renting, it just went via the landlord.
    Whats the difference?

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