The first year of homeownership brings a myriad of changes large and small. Some alterations are to your finances and some are to your lifestyle. As with any change, an idea of what’s to come can put you in the best position to react and prepare. In this piece, we’ll highlight some of the more significant shifts the first year of owning your first home can bring.
Unless you opted for a condominium or townhome, your first year of homeownership will bring a new set of responsibilities a rental did not require. Even with an HOA and shared costs for exterior projects, you’ll likely stumble across small fixes and appliance issues you may not have foreseen. You’ve probably heard homeowners grouse about fixing a bathroom sink and mowing a lawn on the weekend. You’ve now entered the same phase of life, and it’s a little more time-consuming and expensive than some homeowners estimate.
The National Home Builders Association (NAHB) reports that home maintenance accounts for 10% of a homeowner’s annual property operating cost. If this seems more expensive than you expected, you are not the only one. According to a recent Cinch survey, 45% of homeowners underestimate the cost of home maintenance, and one in two homeowners surveyed put a new appliance or home improvement project on a credit card. Financial experts recommend saving three to six months of living expenses for emergencies that can arise. You don’t want to fall into debt for lack of preparation, especially with the new obligation of a mortgage.
The jump to homeownership often brings an uptick in utility costs you may not have budgeted for. A bigger house means a bigger bill. In the U.S., people who rent apartments should plan to spend at least $240 per month for utilities, while homeowners should budget closer to $400 a month. Utility costs also vary by state. In California, you can expect to around $326 a month in utilities, but there are ways to lower this bill.
A great way to start is to evaluate any trouble spots in your home’s energy usage by getting a home energy audit. “A home energy audit [helps] assess how much energy your home consumes and to evaluate what measures you can take to make your home more energy-efficient. An assessment will show you problems that may, when corrected, save you significant amounts of money over time,” says Energy.gov.
Many power companies will also offer discounts if you run appliances after a certain time of day. You can save 5% to 25% on your bill if you run your laundry and dishwasher after dinner as opposed to before. Contact your local power company to find out time specifics.
The same Cinch survey cited above found that 36% of homeowners found their property taxes to be higher than expected. According to taxrate.org, the average property tax in California is $2,839.00 per year for a home worth the median value of $384,200.00. Counties in California collect an average of 0.74% of a property’s assessed fair market value as property tax per year. While it’s one of the most beautiful states to live in, California has one of the highest average property tax rates in the country, with only nine states levying higher property taxes.
Those that choose to live in Orange County can expect to pay a little more than the state median due to high property values. The median property tax in Orange County, California is $3,404 per year for a home worth the median value of $607,900. On average, Orange County collects 0.56% of a property’s assessed fair market value as property tax. It’s not all bad news when it comes to homeownership and taxes though.
One of the good surprises about homeownership for some is a new tax deduction. If your mortgage is secured by your home, then you may be able to deduct the interest you pay on mortgage debt. There is a limit to how much you can deduct, though. You can only deduct the interest paid on $750,000 (joint filing) or $375,000 for married but filing separately.
Homeownership can be scary, but it doesn't have to be. When you work with an Art of Homeownership partner, they'll make sure you're confident years after the loan closes. If you're in the market to buy, sell or refinance, find an Art of Homeownership partner near you.