Are You Prepared for the Unexpected Expenses of Maintaining a Home?

Ralph Estep Jr.:
00:00

You finally found your dream home. The mortgage approval went through, you signed the dotted line, and the keys are in your hand. But wait, is buying a house really as simple as making those monthly mortgage payments? What other costs might creep up that you didn't account for? If you're like me, you've been through this process. You thought the mortgage process was hard? Well, how about those extra expenses you weren't planning on? Well, that's what we're going to cover in today's show.

Ralph Estep Jr.:
00:29

Welcome to the show where we explore financial topics from a Christian perspective. Today, we're shining the light on some hidden costs of homeownership that can take new buyers by surprise. They certainly took me by surprise when I bought my first house. But more on that later. You know, after the excitement of moving in wears off, the realities of maintenance, repairs, utilities, and more really start to add up. While it's wise to budget for these inevitable expenses, many homeowners underestimate the true cost. I knew when I was going through it, I had no clue what I was getting into.

Ralph Estep Jr.:
01:03

So, coming up, we'll break down the sneaky home costs that no one warned you about, how to create a budget that covers them, and easy ways to reduce the financial stress. And this can be a mighty stressful situation. So, stick around to the end, we'll recap the key takeaways, and I'll even share a Bible verse that keeps me grounded through life's financial storms.

Ralph Estep Jr.:
01:22

But first, let's review yesterday's episode on FDIC insurance. I know that was about as interesting as watching paint dry, but if you listened to the episode—and if you haven't, I encourage you to do so—it really does provide a safety net for your hard-earned money in the bank, up to $250,000 per depositor per insured bank. So, make sure your accounts are FDIC insured, know what it is, and know what's not covered. Spread any excess funds across multiple banks to maximize your protection. Again, if you didn't hear that episode, I encourage you to go back and listen to it.

Ralph Estep Jr.:
01:54

And tomorrow, you don't want to miss this one. We're going to be covering five ways you may actually be cheating on your taxes. Yes, you heard me right. You might actually be cheating on your taxes. Tax rules are convoluted and even honest taxpayers can make costly mistakes without even realizing it. In tomorrow's lesson, we're going to explore common oversights so you can avoid penalties and sleep better at night.

Ralph Estep Jr.:
02:20

Well, let's dive right into our Bible verse. It comes to us from the book of Hebrews, chapter 13, verse 5, and reminds us of this: "Keep your life free from the love of money and be content with what you have, for he has said, 'I will never leave you nor forsake you.'" That is a powerful verse, and if we take it to heart, it can really help us in life’s struggles as we evaluate our financial decisions, like buying a home. We've got to make sure we don't get consumed by money or possessions. God promises to provide for our needs when we trust in him.

Ralph Estep Jr.:
02:56

Now let's explore those hidden costs of homeownership that can truly ambush your bank account if you're not prepared. The first step is maintenance and repairs. From leaky roofs to faulty furnaces, things will break and require fixing. I recommend you budget 1 to 4% of your home's value annually. Yes, you heard me right, each year, for these inevitable expenses. It can be things like cracks in the driveway, or maybe a tree fell in the storm. You've got to plan ahead so sudden issues don't destroy your budget.

Ralph Estep Jr.:
03:25

Here's a personal story. I remember when I bought my first townhouse—it was about 23 years old. I went to settlement, and boy, that was a process in itself, getting through that as a young person, having to verify this and verify that. I moved in and hadn’t even made my first payment when, wham-o, you need a new central AC unit. I certainly wasn't expecting that. It was a real struggle to get it fixed. I had no concept of what that even cost. But with some creative financing, I was able to make it happen. But those were some warm nights that summer. And I hadn't even thought about how much something like that would cost.

Ralph Estep Jr.:
03:59

Well, now let’s talk about property taxes and insurance. Your mortgage includes principal and interest as your monthly payment, but not the other recurring costs of owning a home. And this is the truth. Property taxes vary by location, but you should really plan for 1 to 3% of your home's value. You also want to budget for homeowners’ insurance based on factors like location and value. You want to shop around for the best rates. Now, some mortgage companies will require you—or they may allow you; it just depends on your mortgage company—to do what's called an escrow for these tax and insurance costs. So, you may want to consider that option to spread those costs into your monthly payments.

Ralph Estep Jr.:
04:38

I have a lot of clients that say to me, "Ralph, you know what, when I buy a house, I go ahead and do the escrow thing because then those monthly payments include my insurance, include my taxes. I don’t have any surprises." Well, we would have to do a whole other episode on that. But there is a surprise if your taxes go up and your insurance goes up and your escrow is short, but we'll save that for another day.

Ralph Estep Jr.:
04:59

Utilities are another budget buster, from electricity and water bills to garbage collection. I remember when I had my first house, I would sit in the dark a lot. I didn't realize how much it cost to run that electric, run that air conditioning, have those lights on, and pay those water bills. I didn't even know there was such a thing as a water bill. So, the way you balance this is, you've got to monitor your usage and look for energy-efficient upgrades to lower your costs. If it's possible, put some money aside monthly to even out seasonal peaks. I still remember going on some sort of budget billing for my electric with that first townhouse, and it seems like that made it a bit easier on that budget. They would spread out my monthly budget for electric over the year, and I didn't have those peaks and valleys.

Ralph Estep Jr.:
05:42

Well, let's talk about closing costs. I had absolutely no idea about these. They generally run 2 to 5% of the purchase price. You've got to be prepared for fees like inspections, appraisals, legal fees, and prepaid costs like insurance and property taxes. Yes, they are going to collect a year’s worth of insurance and a year’s worth of property taxes right at the settlement table. So, you’ve got to factor these in when you're determining your down payment. Now, your mortgage company or broker should give you what's called a good faith estimate of closing costs, so you know how much to bring to the settlement table.

Ralph Estep Jr.:
06:16

But I will tell you from experience, plan on having a bit more available. Things change at the last minute. I remember my wife and I were buying a home not too many years ago, and they had given us a good faith estimate of closing costs. Then all of a sudden, the numbers got really crazy, and we had to bring an extra three or four thousand dollars to the settlement table because the paralegal had made a bit of an error.

Ralph Estep Jr.:
06:38

Well, how about those unforeseen repairs? These require an emergency fund. If you listen to me, you know I talk about emergency funds all the time. I was not prepared for that major AC replacement, as I discussed earlier. And these things are just the beginning: things like a failed water heater, storm damage—think about that; you have absolutely no control over that—or an appliance replacement. These things generally can't wait. If you need air conditioning, if you need a hot water heater, if you need a new washer or dryer. So, you've got to slowly build up three to six months' worth of savings to handle surprise costs without going into debt. You know I talk about this all the time—you’ve got to build up that emergency fund.

Ralph Estep Jr.:
07:18

How about another thing: upgrades and renovations? They add up fast. Even small projects like painting—who thought that painting could be so expensive? Landscaping—listen, you can't put a bush in a house for less than $1000 these days. Or how about finishing a basement? I had no concept of what that would cost. Those things get pricey in a hurry. This is where you need to prioritize needs versus wants, and don't forget to get multiple quotes. Consider doing it yourself where you can. Now I'm going to tell you, Ralph is not good with do-it-yourself. So, this is not a good plan for me. I am not good at those projects—just ask my wife, and she will tell you that.

Ralph Estep Jr.:
07:53

Those miscellaneous costs pile on too: things like lawn care, snow removal, home security systems, furniture, moving expenses. I could sit here and list a ton more. So, it's vital that you track these ongoing costs in your budget.

Ralph Estep Jr.:
08:08

Owning a home is a worthwhile investment. I'm not going to say it’s not, if you're prepared. You have got to be prepared. So, I always want to give you tips. So here are some tips to make those hidden costs more manageable.

Ralph Estep Jr.:
08:20

The first one is this: I can't stress this enough. Research all costs before buying and include them in your budget. You’ve listened to this show; go find other resources, do your research, and tap online calculators to estimate your taxes, utilities, and maintenance. One of the things a lot of people don't think about is, you could ask the realtor when you're going through the purchasing process to talk with the owners of the house and see if they'll share their normal utility costs. That way you don’t have any surprises. You can go to most county websites and find out what property taxes are, so that won’t be a surprise.

Ralph Estep Jr.:
08:54

Number two: I talk about this all the time—build up an emergency fund over time to handle unexpected repairs or costs. Even starting at $25 a week will help you. It wouldn’t have bought that new AC unit I needed, but at least it’s a start.

Ralph Estep Jr.:
09:11

Number three: You’ve got to shop around for the best rates on insurance. A lot of people think, "I'm just going to get that homeowners insurance or even automobile insurance. I'm just going to set it and forget it." But I encourage you, annually, to shop that around. You also need to keep an eye on utilities—maybe there are other options for those ongoing expenses. Loyalty doesn't pay, so reassess deals yearly.

Ralph Estep Jr.:
09:35

Homeownership costs are steeper than many first-time buyers expect. You now have a very valuable asset. Appreciation over time and equity built up often offset the endless mini-expenses. You might feel like it’s nickel and diming you to death. I’ve heard the term, "I’m house-poor," but the truth is, with proper planning and budgeting, you can handle the responsibilities that come with owning your own slice of the American dream. And we all want that.

Ralph Estep Jr.:
10:00

So, let's recap the key takeaways from today’s show. Maintenance, repairs, taxes, and insurance are just some of the hidden costs of homeownership beyond your mortgage payment. So, you’ve got to do your research and budget accordingly. Utilities, closing costs, renovations, and miscellaneous expenses—those things also add up. Shop around for those. And you’ve heard me say it probably three times already in this episode: build up an emergency fund to handle surprise repairs without going into debt. Be disciplined. Like I said, even if you can only do $25 a month, do it and save monthly. With proper planning, proper budgeting, and knowing what to expect, you can handle the financial responsibilities of homeownership. Well, thank you for joining me today, and keep striving for financial freedom on your homeownership journey while keeping your faith in trusting God. Manage your money wisely, spend less than you earn, and your investment will pay off over time. That is a promise.

Ralph Estep Jr.:
10:58

Visit askralphpodcast.com to join our email list for more helpful money tips. If you’ve enjoyed this episode, do me a favor and share it with a fellow homeowner or anyone looking to buy, and check back tomorrow when we uncover tax mistakes that could be costing you.

Ralph Estep Jr.:
11:14

Now, listen, before I close out today, I want to bring something to your attention. I started this Ask Ralph podcast back in November in earnest. I had been doing it back in 2017 and 2018, but my goal in doing this daily podcast is to answer your questions. So, I truly want to hear from my listeners. Go to our website, askralphpodcast.com, leave us a message, or send us a message. We want to answer those questions. I love to answer questions. So, as I always say, stay financially savvy, and God bless you abundantly.