For many people, the home they own represents their largest financial asset—particularly if they’ve lived there long enough to pay off a significant part of their mortgage. Recently, the real estate market has helped homeowners build up equity almost instantly as property values rose by about 16% between April 2020 and April 2021. History also demonstrates that owning a home is among the best long-term investments you can make. A 2020 study of data provided by Zillow reveals that home prices have increased an astonishing 49% over the last ten years. Add to that the tax advantages of homeownership, including the mortgage interest deduction and the capital gains allowance on primary residences, and you can see why owning a home is often part and parcel of people living the American Dream.
With Homeownership Comes Responsibility
Whether you’re a first-time homebuyer or an experienced pro, it’s important to consider all of the costs of homeownership in advance of making a purchase. Most monthly mortgage bills include payment of your loan principal, interest, taxes, and homeowner’s insurance and that’s a good place to start. But other costs come into play rather quickly once you’ve moved in. A thorough home inspection is critical if you want to cross the threshold to homeownership with your eyes wide open. But expenses arise even when your home checks out pretty well under inspection with no major faults uncovered.
If you’ve always lived in an apartment, you may never have had to mow a yard—or owned a lawnmower. Ignore your lawn and your own risk: unkempt yards can cause bad blood between neighbors or can even result in your being fined. If your home has a wood-burning fireplace or stove, you’ll need a safety inspection and a chimney cleaning every year. And chances are you won’t love the color of every room when you move in so you’ll spend money on paint and, perhaps, a professional painter. But don’t begrudge your home the money and work it takes to maintain it. Much of what you put into your home will come back to you when it comes time to sell. By the same token, if you neglect basic home maintenance tasks, your home may not fetch as high a price in a competitive market.
Best Bet Home Improvement Investments
Depending on the age and condition of your home, you may want to prioritize certain home improvements over others. The cosmetic stuff is tempting, of course. But a little bit of chipped paint on your baseboards isn’t going to hurt your home. Clogged, leaky, or missing gutters, on the other hand, can cause roof problems. Insufficient drainage can cause foundation damage if left unattended. Here’s a good rule of thumb to follow: fix the things that will cause more trouble if they’re left unfixed.
Realtors often advise that renovating your kitchen or bath is most likely to pay a high return on investment when you sell your home. But the upgrades you make don’t have to involve major floor plan changes or replacing appliances or fixtures. Some home experts report that moderate changes can return even more money than full-blown remodels. Sanding and repainting your cabinets rather than replacing them can pay off. Simply switching out hardware that looks dated can spruce up your kitchen’s appearance. A well-lit mirror can freshen up a bathroom without breaking the bank. Higher-priced projects make more sense if you plan on living in your home and enjoying your renovated space for a long time.
Budgeting for Home Maintenance Costs
The real estate experts at HGTV recommend that you budget between 1% and 3% of the purchase price of your home for routine repairs each year. If your home was newly constructed, you can expect to spend at the lower end. If you happen to purchase an “antique”, you may want to up that figure by a percentage point or two. You can expect little things to add up, from changing your furnace filter (at least) annually to replacing damaged window screens. But it’s the unexpected broken appliance or pipe that bursts one frigid night that can really throw your monthly finances for a loop.
That’s one reason some homeowners decide to purchase a home warranty. Home warranties are a little like life insurance for your home—and a little like health insurance, too. When your refrigerator dies, a home warranty that covers appliances will pay to have it repaired or even replaced. Home warranties make budgeting for home repairs a simpler proposition. You pay the same premium each month. If your home requires repair, you’ll pay a set fee per service call, usually between $75 and $100. Home warranties are a great way to hedge against large expenses, particularly when they cover your home’s systems. They more than pay for themselves when, for example, your furnace gives up the ghost and your warranty covers its replacement. A comprehensive home warranty covers appliances—down to food waste disposals to garage door openers—to heating, cooling, electrical, and plumbing systems. You can opt for hot tub and pool protection, too. Sometimes, home sellers will include a one-year home warranty on their homes to incentivize buyers. Many buyers continue to pay for a home warranty once they’ve moved in for budgeting purposes and for extra peace of mind.
Tips for Home sellers
If you’re preparing to sell your home, focus on boosting its curb appeal. A freshly painted front door makes a great first impression and offers a warm welcome to buyers who tour your home. Investing in landscaping is a sure bet, according to HomeLight, a leading resource for homebuyers, sellers, and realtors. One study reported that a well-landscaped home sells for up to 10% more than a house with little to no outdoor amenities. A well-maintained lawn, for example, can yield a 325% return. HomeLight found that 60% of homebuyers value privacy more than any other home quality. Landscaping features that add a sense of seclusion to a property are highly sought after. Think tall hedges or a tall privacy fence in the backyard. If you live on a busy street, a bubbling fountain can mask traffic noise and provide a more relaxing outdoor environment.
Before you invite prospective buyers to tour your house, fix anything that’s visibly broken, whether that’s a hairline crack in a windowpane or a loose outdoor handrail. Buyers take a mental inventory of even small problems with your home as they go through your home. Having ample storage space is a chief concern among homebuyers. Host a yard sale and clean out your garage and attic before you list your house. Realtors also recommend this simple trick of the trade: make sure your closets are half-empty when buyers peek inside. You’ll create the illusion of more space. Pack up half the books on your bookshelves and toss out all the mismatched, never-used glasses and jelly jars in your kitchen cabinets to create the same effect.
Rely on Professional Advice
Whether you’re buying or selling, you need an experienced team behind you. A top-notch realtor can help sellers “stage” their homes for sale and limit house showings only to qualified buyers. A knowledgeable mortgage lender can help you figure out how expensive a home and large a home loan you’re likely to be approved for. An accountant can help you figure out the tax ramifications of buying or selling. Real numbers are what you need to create an accurate budget. Your team can do a lot of number-crunching for you. Tap into their talents for smoothing sailing during your home purchase or sale.
Susan Doktor is a journalist, business strategist, and principal at Branddoktor. She writes on a wide range of subjects, including real estate, personal finance, and historic homes. Follow her on Twitter @branddoktor.
Figure Lending LLC dba Figure. 15720 Brixham Hill Avenue, Suite 300, Charlotte, NC 28277. (888) 697-1506. NMLS ID 1717824. For licensing information, go to www.nmlsconsumeraccess.org. Equal Housing Opportunity.