Successful Home Ownership II – Know the Real Cost of Owning that Home
by Evan Vanderwey on 16/06/10 at 3:17 pm
From time to time we see a home on the market that is completely ‘gutted’ and listed for sale by a bank. As we look into it, we find that a different bank, not long before, had foreclosed on a different borrower. It is very likely that the buyer who purchased it from the first bank did not add things up before they got into the deal. They got half way through the remodel project and were unable to finish it. It’s likely they didn’t know what they were getting into until it was too late.
By doing some simple number crunching in five key areas, you can avoid getting into a scenario like this…
1. Next year’s taxes. This can be tricky. Make sure you have computed the actual tax rates and estimated correctly what the taxable value is and will likely be next year. Future tax bills on the home you are buying could go up or down based on many variables.
2. Utility bills have more to do with the particular home you own than with you. How many lights come on when you flip the switch, and how much electricity is used when you forget to turn it back off? How well insulated is the home, and how many windows does it have? How old is the furnace? Many of these variables contribute more to the amount of the bills you will pay than you do. Either make a very high estimate going into the deal until you’ve seen the real bills or get some past data on the home from the utility companies. And with past data, be sure you’re comparing apples to apples. Was the previous owner the sole occupant or did he share the space with a wife and eight kids?
3. Water, sewage and trash are different in many different neighborhoods. Be aware ahead of time of the kinds of bills that will be coming to the house.
4. Yard, mulch, mowing, and the outdoor appearance of the home will all look either very nice if you are buying a home from a private party or very bad if you are buying from a bank. Either way these items will generally cost you more than you think in money and time. When I talk with clients a year or two after they’ve purchased a home, they often talk about the outside issues as the ones that caught them off-guard the most.
5. Deferred maintenance items like rebuilding a deck, replacing an old furnace, redoing a roof, new carpet and paint, appliances, electrical and plumbing are all things that need to be understood well ahead of time. As you go into any home you’re considering buying, make three lists:
First, what can I get the seller to fix before closing if anything? Make sure these are items that you are not concerned about being done correctly – a furnace that you choose for example is a good one for this list where as new kitchen layout is something you want to have more involvement in and would need to wait until after closing.
Second, what will the lender require to be repaired prior to closing? This one is important because it could mean your loan approval is in jeopardy if items required by the lender cannot be done prior to closing. A new roof is sometimes a good example here. The roof is a major repair so sellers are often leery of having it done before the home is sold, yet lenders might require it based on the remaining life of the roof remaining.
Lastly, what will you want to do once you take possession? Make sure you do a good job with this one in advance. It’s easy to assume that once you’re in the home you can begin the improvements, but these can get out of control if you don’t have a prioritized list in advance. Make sure you understand the cost of the remodeling you plan to embark on it so that you don’t end up putting the improvements on a credit card just to finish them.
So count the cost in each of these five areas before you dive in. You’ll have a better idea of what’s ahead, and be able to write a more informed offer on the home up front. You’ll also be more likely to hang onto that home once it’s yours.
