Wednesday, June 12, 2013

5 hidden costs of an expensive home

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While buying the biggest, most expensive home you can afford has traditionally been a mainstay of the American dream, buying more home than you need can add hundreds of dollars of unexpected expenses to your monthly budget.
Your real estate agent and your mortgage lender will talk to you about monthly principal and interest payments, but they’re probably not going to mention the hits you’ll take in your wallet and on your schedule when you move into a bigger home.
Before you start measuring the windows on your shiny new McMansion, consider these five reasons why bigger isn't necessarily better:

Reason 1. You'll trade your financial freedom for more bedrooms.
If you’re buying with a spouse or partner, the bank will use both your incomes to determine how much house you can afford. This locks both of you into working to pay the mortgage, which can be an issue down the line if one of you wants to stay home with children or switch into a lower-paying career.
Buying a smaller house that you can pay for with one income gives you freedom, says Jay Shafer, an advocate for small homes and owner of the Tumbleweed Tiny House Co., a California-based firm that designs and builds houses between 50 and 750 square feet.
"What you don’t spend in time paying for your house, you can spend doing things that you love," he says. "Instead of spending 30 years paying off a mortgage, you can have a life."

Reason 2. You're going to pay more to heat and cool your house.
A larger home costs means a bigger utility bill.
"A home buyer who doesn’t ask questions about heating and cooling a home could unintentionally stretch their total monthly household budget," says Douglas Robinson, spokesman for NeighborWorks, a network of nonprofit businesses across the country that help consumers make informed housing choices.
Reason 3. It will take longer, cost more to get to work.
Larger homes (or at least the kind that those us of who aren’t Donald Trump can afford to buy) are usually found in a city’s outer suburbs, so you’ll spend more money getting to and from work if your job is in the city core.

Suppose you move 10 miles further away from work to get to your new home. At 20 miles each day or 400 miles a month driving a car that gets 25 mph, you’ll pay $720 more per year per driver for gas — after tax — to live in that larger suburban home, Robinson says.

Reason 4. Homeowners insurance will take a bigger bite out of your budget.
The more your home would cost to replace, the more you’ll pay for a homeowners insurance policy. If you move into a flood zone, you’ll add a cost for that policy as well.

Before you put in an offer on a home, ask your insurance agent to estimate how much you’ll pay for coverage on the new house.

Reason 5. Say goodbye to free time.
A larger home typically comes with more property to maintain. Whether it’s cutting grass year-round in regions where it doesn’t snow or shoveling where it does snow, or raking leaves and trimming bushes and trees, landscape maintenance is a cost that can sneak up on you, whether you spend time to do it yourself or money to contract it out.

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