Consider This Before Buying a House
Can you guess what the number one asset for families in the United States is? Answer = Home ownership. Home equity accounts for 43% of net worth for the average household. Homeowners are 40x wealthier than renters, with an average net worth of $400,000 compared to just $10,000 for renters. I do believe however that owning a home is a great idea for most people. Having structured monthly payments, pride of ownership, and in many cases solid property appreciation over the long-term. With that said there are major items often overlooked when shopping for a new home.
#1 Property and School Taxes
Taxes vary quite a bit state to state but are a major line item when calculating what you can afford. When banks preapprove you, they do not take into account taxes. Many homeowners shit when they get their first school tax bill September 1st and gulp at having to work more overtime to make ends meet. When researching what the school and property taxes are, you should take into account what the property is assessed for. Assessment is what the towns tax appraiser deems the home to be worth and the taxes you pay are based on that. Many times, homes are assessed much lower than their sale price. If a home is reassessed whether due to the recent purchase or townwide reassessment, families are sometimes crippled with the new tax burden. One of our neighboring properties just sold for $769,000. A beautiful 5000 sq foot custom home with a barn on 10 acres. The new couple moved in, excited and full of energy. January 1st the property tax bill arrived. January 20th the house was relisted. The annual property/school taxes on this property were $21,000 per year ($1750/month) That's a hefty chunk of change on top of your monthly mortgage payment. This couple should have done their due diligence on what the current tax amounts were. This would have saved them thousands of dollars lost on realtor fees and closing costs.
#2 Utility Costs
Electric bills keep increasing due to the demand on an outdated grid. Propane, fuel oil and natural gas fluctuate. Buyers should request to see one years' worth of electric bills and all fuel bills for the property prior to buying. Do not believe the numbers listed on the property disclosure. Homes vary with efficiency. Some homes have an $800/month fuel oil bill because they are not well insulated, others $155/month. Some homes have a $700 electric bill, others $255. These are big and important numbers you cannot overlook.
#3 Maintenance costs
Plowing, lawn care, and upkeep. Lawn care and plowing can cost upwards of $3000+ per year for a 2-acre lot in our neck of the woods. Add on the occasional roof leak, broken hot water heater or rotted porch, you can be looking at $5000+ per year on maintenance costs, this averages out to be $400+ per month. Often times I see a new homeowner purchase a $40,000 compact tractor and $10,000 Ferris mower for their new property. They believe these purchases are saving them money long-term. Maybe so, maybe not, it's hard to say. Either way adding a monthly tractor and lawn mower payment to the mix is not a wise use of money for most people.
#4 Water
Does the property sit below or above the road? Does the basement have exterior drainage, or does it rely on a sump pump? Is the property in a flood plain? Does it require flood insurance? How deep is the well? Does it have sulfur water? Does the well ever run dry? Is it a drilled or dug well? My father always said buy a property that sits above the road. Water runs downhill and downhill into your basement and settling on your lawn is not good. One of the homes I purchased in 2008 sat below the road, not by much but enough to where there were cattails growing in the ditch and on the back of the property. The house showed beautifully. In the basement was a sump pump and dehumidifier. As a 25-year-old I thought nothing of it.... until the first heavy rainfall. Water was literally shooting through the concrete walls, and the sump pump could not keep up with the volume of water coming in. Needless to say, the basement had a water issue. When a house sits below the road and in a dip, additional drainage is difficult to install. We installed gutters and a more powerful sump pump which solved the issue before we sold it 2 years later.
Homeownership can be exciting but remember your monthly mortgage payment is not the only payment. Renters make one payment per month (maybe 2 if utilities are not included). Homeowners make multiple payments. Be honest with what you can afford and stick to it. Being house rich and cash poor never leads to long-term wealth.