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I Am Now A Homeowner

As you may know from my last article, my wife and I have successfully saved our down payment and we are now homeowners. Today's article is something I wish I read before we purchased our home. It definitely wouldn't have changed our decision, we had been saving for years and it was time to go for it. However, it would have changed our expectations (and budget) for expenses to come. Today, I'll talk all about our unexpected expenses during our first months as homeowners!

While Saving Your Down Payment, Save A Bit Extra

The heading says it all. As you save up your down payment, try really hard to save a bit extra for unexpected expenses once you own your own home. If there's one thing you take away from this article, please go into homeownership with the understanding that unexpected expenses will come up. No matter what you do, these things happen. Why not prepare a bit while saving your down payment? My advice: Try to save at least an extra 5-10% for these unexpected expenses. Let's say you save up $50,000 for your down payment. 5-10% of $50,000 is $2,500-$5,000 extra saved away for the unexpected. Important Note: This 5-10% I'm recommending is in addition to the reserves your lender will require (typically one year's worth of mortgage payments socked away in savings and liquid assets).

The second most important takeaway from this article: The unexpected expenses will continue to crop up. Make sure to save a little extra money each month once you are a homeowner, knowing that those savings will be used towards these unexpected expenses in the future. As you budget for the type of home you can afford, make sure to buy within your limits so you're able to save money while paying your monthly mortgage bill.

Let's Start With The Good Stuff

First and foremost, I want to encourage you to become a homeowner. Before I even get into some examples of unexpected expenses we faced, I want to highlight the joy we have experienced over the past months as new homeowners (it has been amazing). Overall, homeownership has exceeded our already high expectations. At the end of a hard day's work, we're able to come home to our own sanctuary. We have an extreme sense of pride over our home. Moreover, we have the freedom to decorate how we please, having had a ton of fun with some small painting and home improvement projects that have yielded fantastic results. We now have a sense of permanence which is nice. Last, we view homeownership as our means to financial freedom. Once we pay off our mortgage, our monthly income can go way down! Perhaps we'll even be able to live off interest and dividends at that point. I want to encourage you to pursue the American Dream of homeownership, it has been absolutely amazing for my wife and I so far. Now, let's talk about a few of the unexpected expenses we have faced so far.

Unexpected Expense of Homeownership 1: Our Washer Flooded

Just the other weekend, may wife was walking down the hallway and noticed her foot was wet! Looking down, she realized the washing machine broke and flooded. Luckily, we caught it quickly and were able to capture a lot of the water by using every single towel we own. When we moved in, we knew there was a problem with the 10 year old washer. I just thought it would break and then we'd get a new one. I had no idea it would actually flood! Unfortunately, we had to get an emergency water cleanup guy out here and that cost $800. He had to rip out the baseboards and put a fan on the area (and a humidifier) for three days. The $800 was not covered by our homeowner's insurance because we have a $1,000 deductible. After the cleanup was done, we had to reinstall the baseboards and also decided to repaint the laundry area which was in need (the seller never bothered to paint this area). This cost us another $200 plus about 10 hours of hard (but fun and rewarding) manual labor. Last, we bought new front-loading washer and dryer. This cost us another $3,000 but we were able to get 0 payments and no interest for 1 year. You can really get into trouble with that kind of thing, but I'm confident we can pay it off early and take advantage of the extra time, rather than taking money directly from our savings. At the end of the day, we ended up paying $4,000 for this unexpected expense. This is something we could have never imagined and was a real hit to our personal finances. It definitely gives some perspective that we need to cut costs even more and save even more (we had not been saving enough). Looking at it in a positive light, I am very happy because the new paint looks infinitely better than before and the new front-loading machines will add some serious value to the price of our home should we choose to ever sell (vs. the old cheap top-loading machines).

Unexpected Homeowner Expense 2: Special Assessment

When you live in a condo, things can happen in the common areas that require funds above and beyond the reserves that have been built up. In our particular case, we're in need of paint and some roof work, but our irresponsible HOA spent our $1,000,000 of reserves on other work, going well beyond the anticipated budget without ever consulting the homeowners or putting it to a vote. After the funds were gone, they decided a $7,500 per unit special assessment would solve our problems. Thank goodness, this type of thing has to go to vote and it failed miserably. Thankfully, there's now a unified front of homeowners looking to get a new board of directors in place to replace the current board. Nonetheless, there are legal limits that the HOA can raise fees and levy assessments without a vote. They ended up charging us $300 per unit in special assessments plus an extra $50 each month forever to our regular assessment. It would not surprise me if they did this every year. There's potentially a compounding effect if they raise our monthly fees by $50 each year and levy the $300 special assessment each year. Our fingers are crossed that this is not the case.

Homeownership is all about permanence and equity. Once you own your home, you want to stay there for a very long time and build up some serious equity, perhaps paying a little extra each month above and beyond your regular mortgage payment. To do this, it's very important that you understand special unexpected expenses will come up. Make sure to buy a home that's within your comfort level so you can save a little extra money each month. Moreover, give yourself a head start by saving up for these unexpected expenses while you're saving up your down payment. This extra savings is in addition to the regular reserves your lender requires. Best of luck and I totally recommend buying your own home, it's truly a great thing.