Tuesday, July 11, 2006

My Home: Home Price Is One Thing, What About Everything Else?

My Home: A series about the home buying process through the eyes of a first time home buyer.
I've set my budget, but that was just for the price of the home. Just as important as figuring out how much of a house I can afford is figuring out how much I'll need to do everything else associated with a house. Consider home owners insurance, maintenance, upgrades, taxes, etc. I'm going to try and estimate these costs to give me an idea of what it'll really cost me to own a home, and how it'll impact my everyday life. I don't want to own a home but have no money left for food and other necessities. Not to mention, I don't want more debt on top of my mortgage. So what should I expect to really spend per month to be a home owner? Well, let's assume I bought a $550k house...I put $150k down, and financed $400k. Let's also assume the closing costs, fees, etc. that are part of the home buying purchase were included in the loan. So, my monthly mortgage? @ 6.85% 30 yr loan would be $2,621.00/month. Now, to estimate everything else. I'm going to estimate on the high side.
  • Home Owners Insurance - Assuming .5% per $100,000 in home value = $2,750.00/year
  • Property Taxes - Assuming 1% per $100,000 in home value = $5,500.00/year Maintenance - Assuming larger than average maintenance costs for first year = $10,000 for 1st year, $5,000 there after. This includes a lawn that might need some care...or new flooring...things I think I'll probably change out when I move in.
  • Utilities - Cable, Phone, Electricity, Water - Based on how much my friend pays - $3600/year.
  • Initial Purchases: Equipment, furniture, appliances - $5,000 for first year, $2,500 there after.
  • 1st year total without mortgage = $26,850.00 (or $2,237.50 / month) Thereafter = $19,350.00 (or $1,612.50 / month) 1st year monthly costs with mortgage = $4,858.50 per month Monthly thereafter = $4,233.50 per month WOW! If my house were $650k, and I financed $500k. Mortgage would be $3,276.00. Tack on the additional costs, and my first year's monthly costs would become $5,513.50, and $4,888.50 thereafter per month. WOW! Did I already say that? Am I missing something? I know I went high...but dang! Are my estimates way off the mark? So on my next post, I'll tackle the question, can I really afford that?


    D said...

    Holy Toledo, I don't know where you live or what your expectations are, but aren't you thinking a little to far out of the financial box?
    Your not married right? Why not a little cheaper property to start? Say something in the 250K and under area.
    By the way your tax estimate is wrong, unless you live in the backwoods of some southern state. My house is in the 250k range and my taxes are about $4500 - so in your play range you better calculate about $9k per annum.

    Well, I'll say this much for you - when you dream you dream big. Maybe you are trying to talk yourself out of the biggest purchase of your life. Think positively. I didn't spend as much in the 15 years at my old house in repairs as you have calculated for the first 2 years. And my house was under constant rehab.
    Good Luck

    Single Ma said...

    $2,750/yr is a lot of insurance too. Granted, my house is valued at half of your example, but I pay less than $400/yr.

    kassy said...

    I repeat Holy Toledo! Do you really think you'll be spending 2500/year on equipment/furniture/appliances? I would think that after your initial 5k, you'd be good to go on those items for several years. Your utilities sound about right, ours are $3300/yr. I looked on a website and the property tax for Hawaii County is $8.10 per $1000 of house value so your property taxes sound about right too.

    My goodness its expensive to buy a house when you factor in all the extras!

    James L said...

    what area are you in???

    freedumb said...

    Thanks for the feedback folks!!!

    I'm in Hawaii. Real Estate is expensive here.

    D, I've thought about starting out in the 250k arena, but since I have the funds to go a little higher, I thought $500-650k would be okay. Considering my target of having 20% downpayment saved up. This post has really made me think twice about the price of my home though.

    SingleMa, interesting...I didn't do a lot of research into home insurance...I'll ask a couple of my friends to see what they are paying here.

    kassy, I honestly don't know how much I'll be spending...that's kind of why I went high on everything. I think you're right though...It does seem a little high.

    james l, Hawaii...

    D said...

    Wow, I think I will stay in Illinois. Besides paradise everyday couldn't be paradise - right (this is where you make me feel good and agree with me - just a little white lie)?

    Now I understand the price thing. But even if I had the money - I don't know that, that would be the option I would choose. I am a little on the less risky side. Call me crazy but I like the idea of "settling" for less and enjoying other things.

    What do you need with that larger home and more money out? Why not head to the shore and try your hand at surfing or viewing the volcano's I've heard about? Yeah, I said "heard about" - you are spoiled.
    Oh, yeah, leave the smokes at home and take that dog.

    Ok, I feel better now - Hawaii ouch.

    James L said...

    ah.. hawaii. would it be in honolulu??

    i watched national open house on HGTV last night. At 250k, this guy had a 500 sq ft condo. The exterior of the building did not look so good. At 500k, it was a low floor 2 bedroom in a highrise.

    i feel your pain..

    houses in brooklyn in decent neighborhoods are at least 700k

    City Girl said...

    I'm not quite sure about the cost of living in Hawaii, but I'm guessing it can't be much more than in the Bay Area. My property taxes are a little under 1.5% and insurance (not inc. earthquake and flood) is $1050/yr. Utilities sound about right -- I think you forgot garbage but can (*gasp*) nix cable. Maintenance I believe is highly dependent on the person and house. It's definitely a good idea to have an emergency fund for big jobs (exterior painting, roof changes, turning a ranch into a three story house, etc.), but unless you're buying a fixer upper, I don't think you'll be spending that much on maintenance. In addition, our naturally frugal and procastinating selves can always convince us that the gaping hole in the wall can wait until tomorrow. We will use a bookcase or a poster to cover it up, forget about it until months later, and thus save quite a bit over the long run. ;-)

    Single Ma said...

    Aaahhh Hawaii, that explains the estimated homeowner's insurance value. You might be right on. When talking ins and real estate, the key word is location, location, location...

    Madame X said...

    I have posted a home-buying expense spreadsheet (link) that you might want to customize for your own use-- I set it up to calculate monthly costs of housing and other budget items, as well as tax benefits, etc. It's set up for a condo but you could adjust things to make it work for your scenario. I re-read your original post about your budget-- make sure you are taking into account having money for your downpayment, closing costs, attorney fee, moving expenses, etc. and leave a cash cushion beyond that. Leaving yourself only $20k in cash sounded a little tight to me.
    Anyway, interesting post, looking forward to the continuing story!

    freedumb said...

    D-Yeah, Hawaii isn't all paradise ;) Seriously, it does have problems too.

    I understand settling for less, and I would do that in most situations, but as for a home...well, there are certain things I've wanted. I may have over inflated costs, but that's good because I want to know what could happen. Just in case. Instead of settling for less, I will probably wait it out until it makes more sense. I'm not in a rush...I just have to put restraints on myself to not go out there and get myself into something I shouldn't.

    A townhome would be okay...but it would make things difficult with my dog. I'd also like to get a 2nd dog one day...and it just wouldn't work out well.

    James L, Yeah, it's Honolulu. There are some, uhhh, nice places to be had for less than 200K. ;) Oh you could probably fit a bed in there...

    700k!! dang! Makes me feel a little better...

    City Girl, I had no clue on insurance rates, so I just went with the .5% rate...I'll do a revision later with better estimated costs. I hear you on the book case too...I think I may have really overshot the maintenance and appliances/furniture estimate.

    SingleMa, I'll work on getting a better estimate on insurance when I come up with my revised estimates.

    Madame X, I'll definitely take a look at the spreadsheet. 20k is a little tight. I may have to revise more than my estimates...my home requirements may change completely. I need to think about it...it's my future house after all.