Everyone knows that buying a home is expensive, but many buyers are surprised to find that the expenses go far beyond the down payment. Some of the costs associated with buying a house are unavoidable, such as legal and inspection fees. But some homeowners make it more expensive than it needs to be, by spending money on items that aren’t necessary. It’s also common for first-time homeowners to get overwhelmed and not know how to manage the many priorities in homeownership. Here are six ways that new homeowners waste money.
1. Extended Warranties That Waste Money
Homes don’t always come with large appliances, and even when they do, they might be old or outdated. Many homeowners buy an extended warranty or appliance insurance. Unfortunately, when it comes to value, the math doesn’t always check out.
According to Consumer Reports, it’s uncommon for a product to break during the period of coverage. And while the average cost of large appliance warranties is about $120, in the off chance that a repair is needed, the average cost of repairs is only about $16 more than the warranty. In addition, appliances may have extended coverage through a credit card company, homeowners insurance, and even the manufacturer
2. New Furniture/Decor
New homeowners often find that the furniture and décor from their previous home doesn’t fit the new space, or they have more space now and need more furniture to fill it. This is especially true of people who move from an apartment to a house. But in their haste to fill the space, especially on a new-homeowner budget, they may be more inclined to choose less expensive, lower-quality items that they will just end up replacing later.
3. Skipping the Energy Audit
Let’s be honest: when the costs of buying a house start to pile up, it’s tempting to cut corners wherever possible. Many people choose to skip out on an energy audit—but this can be an expensive mistake. An energy audit can reveal major inefficiencies and determine how much energy is wasted. For a buyer, this can be an opportunity to pass on a house that will end up costing more in improvements and utility bills than their budgets are prepared for.
An energy audit can also show homeowners how they can save money. According to the Department of Energy, the average American wastes between $200 and $400 every year on heating and cooling due to inefficiency. Making a home energy efficient can save a homeowner hundreds of dollars on utility bills each year—leaving more room in the budget for the fun stuff.
New homeowners often don’t shop around for homeowners insurance. In the overwhelming process of buying a home, they choose the path of least resistance, either sticking with the company providing their renter's insurance or following a friend’s or realtor’s recommendation. Many people don’t realize that it can make a significant difference. According to U.S. News & World Report, shopping around for the best policy can save homeowners up to 30 percent on their insurance premiums.
5. Yard Maintenance
Companies that provide lawn care services often seek out new homeowners, because they are particularly easy to sell on the image of a perfect yard to go with their brand new home. But the services may not be worth the cost—especially for tasks that most homeowners can do themselves, such as mowing grass and spreading fertilizer.
6. Private Mortgage Insurance
Private Mortgage insurance may be required for buyers who make a down payment that is less than 20 percent of the purchase price. While many people may not be able to avoid paying PMI, it’s important for them to know they aren’t stuck with it indefinitely. For many homeowners, it’s added to their monthly mortgage payment, and they overlook it.
Homeowners can ask their loan servicers to cancel their PMI once they have built 20 percent equity in their home, based on the original appraised value. This can happen over time, as they pay down the balance of their home loan. However, they can get rid of it early by paying extra on their mortgage each month. Homeowners should also pay close attention to the value of their homes—in addition to paying down their loan balance, they may reach 20 percent equity even faster if the appraised value of their home increases.
Phil Karp is a 25-year industry veteran who currently serves as the head of brokerage services at Owners.com, where the process of buying and selling your home is made easy. Phil's experience gives him the tools to educate homeowners on saving money throughout their home owning process.