PLEASANT PRAIRIE, WI - JANUARY 25: A sign sits in the front yard of a home being offered for sale January 25, 2010 in Pleasant Prairie, Wisconsin. Sales of previously occupied homes in the U.S. plunged an unexpected 16.7 percent last month, their largest drop in more than 40 years. Over the past year home prices dropped more than 12 percent, the largest decline since the Great Depression. (Image credit: Getty Images via @daylife)
For a century, new homeowners have learned about the surprising costs associated with homeownership by opening up their mail and dropping their jaws. I’m here to introduce a new method; tell you what you don’t know about what you don’t know. Homeownership comes with a barrage of new bills, many of which you know little about and could spend hundreds of dollars and wasted hours learning the hard way.
I’ve learned about many of these homeownership nuances myself, the hard way and now I’m here to save you from some of my misery.
Electric Bill
Yes, you probably paid an electric bill if you’d rented previously. However, an electric bill for a 3,200 square foot home with an attic, basement and full of appliances is quite a bit more complicated than a 525 square foot apartment.
What You Need to Know:
Out of all of your appliances, your central air and furnace, takes up the most energy; about 50%. This means you should expect your electric bills to fluctuate based on your climate. If you move in during the fall and live in a frigid climate in the winter, be ready to pay much more in the cold months. You’ll also have to deal with a number of power eating appliances that were previously included in your rent: water heater – 13% of electric bill, washers and dryers – 6% of electric bill, and dishwasher 2% of electric bill.
What You Should Do:
Program your thermostat or install a programmable thermostat so that you are minimizing your use of your furnace/central air. Also, if you have ceiling fans, learn to love them. They take far less energy than your heating/cooling system and help out with both. When ceiling fan airflow points down, it can make a room feel several degrees cooler, when it points up, it mixes cold air on the ground with warm air on the ceiling to help a room become warmer.
For your hot water heater, dial down the temperature to 120. No one is going to enjoy a shower at 140 degrees (temp for a medium rare steak). Don’t use the dry feature on your dishwasher, air-dry them over night by leaving the door open. Your refrigerator operates better if you keep the floor and walls around it clean.
Property Tax Bill
According to the American Enterprise Institute, Americans hate property taxes the most (even more than income taxes). Now that you are a homeowner, you get to learn why.
What You Need to Know:
Just bought a house, well it is the perfect time to fight your property tax assessment. Assessments are supposed to be based on the value of your home and given local taxing authority’s propensity to increase tax assessments more than market value, there’s a good chance your assessment is too high. Also, since you just bought your home, you have plenty of evidence to prove market worth; the price you paid for your home and a new, unbiased home appraisal.
What You Should Do:
Call your local county or town assessor and ask to see your property card. Verify the information on the card is correct (if a remodel has occurred in the past, the assessor may not have been aware of the change). Compare your assessment to what you paid and what the house was worth. Keep in mind that by law your assessor may be able to assess higher than market value. However, if your home is over assessed, it is worth the fight, because you will be paying for that over-assessment every year that you live on the property and it only gets harder to fight.
If you want some information on how to fight an assessment, please see my article at eHow Business and Personal Finance.
Mortgage Payment
Seemed easy enough right? You borrowed a buh-gillion dollars and now you spend the rest of your life paying it back. On a more enlightened note, you are aware that there is something called principal and interest; of which, principal is good and interest is aligned with the forces of evil. Clearly, you have about 80% of your mortgage payment figured out, but that other 20% is very fussy and may requires some attention.
What You Need To Know:
If your loan-to-value is below 20% your bank will probably require an escrow and pay your property taxes for you. While, your bank is “supposed” to pay your property tax bill, you should never let yourself become disconnected with the bills.
First of all, your tax bills are connected to your mortgage payment. This means that if there is a problem, regardless of who’s fault, your mortgage payment could be effected dramatically. Second, understand that the wages of delinquency on property taxes is your local government seizing your home (again, no regard to who’s at fault).
Be especially attentive of your property tax situation and escrow account the first year of homeownership. If your mortgage company is going to make and error and miss one of your property tax payments, it will be the very first one due. Usually it occurs because the tax installment is close to your closing and the bank needs time to convert your mortgage from paper to a computer system.
Also, be aware that former homeowner’s may have qualified for property tax exemptions that you don’t. This often results in a special assessment bill that you, not your escrow/mortgage company is responsible for. This is also true if you add square footage or structures like a garage to your home.
If you are a new homeowner, odds are you will also be making PMI payments. PMI is insurance you pay to protect the bank against your possible default. Translation? PMI is for the bank’s benefit, not yours.
What You Should Do:
Find out when your first property tax payment is due and call your tax collector after the due date to see if the bank has paid remitted for your tax bill. If not, notify them of their error, they will be responsible for paying any penalties or interest. However, it is best to notify them as soon as possible before they send you a refund.
Check your property tax bill or call your assessor and ask about any exemptions like an enhanced homestead for seniors or veterans that former homeowner’s had. If so, find out if a special bill or assessment will be issued to you. If one will, you will need to pay it out of pocket. Once paid, you need to notify your mortgage company so they can recalculate your escrow. This will mean your mortgage payment will go up, but it will be spread out and won’t be as bad as it would be if you don’t contact them.
For PMI, be mindful of the housing market, remodeling that you complete or principle payments that you’ve made. If you believe your home value has exceeded the 20% loan-to-value threshold sooner than your original amortization table, request to have PMI discontinued. This will probably require you to pay for a new appraisal. However, there is no benefit to you having PMI, so take advantage of dropping this portion of your mortgage payment as soon as possible.
Water/Sewer Bill
Water is the earth’s most abundant resources. 78% of the planet is covered in water. Yet, it is the one item you have to pay for twice when you own a home.
What You Need to Know:
Water comes in the house and then flows out of the house giving you two bills for one item.
What You Should Do:
Beware of leaky faucets, because you get charged twice for each drip. If a large amount of your water usage is not going down the drain, you might want a waste water meter. A good example would be arid climates where you might spend a lot of water usage on your lawn.
There are plenty other bills that come with homeownership, so stay tuned and I’ll be sure to cover more of them in future posts.
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Also watch out for root penetration near pipes and the sewers (um, do it when you buy). Here in the Bay Area you have to plan on 6 months of drought every year so you can expect a bunch of roots to head towards your sewer. We caught the massive pine scheming when we bought and haven’t had a problem yet with our 70s home.
Pk, You mean that the root cause seepage or that they literally get into your underground pipes?
Root intrusion into the pipe – especially the sewer pipe. From what I’ve read, it’s usually sewer lines on houses which are ~30+ years old that have to worry.
Don’t forget about the never ending repairs and maintainence costs.
Unfortunately, you never really get to avoid those. You either pay them directly or implicitly in your rent cost.