Money Management

Some of the expenses of homeownership may come as a shock to first-time buyers. Take a look at five expenses you must be ready for. 

When you’re buying a home for the first time, you know you’ll have to start making mortgage payments. But aside from the principal and interest that you’ll now be paying on, there are other costs that are likely going to start coming out of your bank account — and it’s important to be prepared for them.

To ensure you aren’t caught off guard, here are five big expenses you should know about before buying your first home.

1. Closing costs

Closing costs add up to around 2% to 5% of your home’s purchase price. In June 2023, the typical starter home sold for $243,000. This means a first-time buyer buying a typical entry-level home could need to cover closing costs totaling as much as $12,150. That is a lot of money to have to bring to the closing table.

Borrowers can sometimes roll these closing costs into their loan. But this would mean borrowing more or accepting a higher interest rate, both of which would make your loan more expensive over time. Instead, you may be better off just saving for a little longer in a high-yield savings account until you can pay for your closing costs out-of-pocket.

2. Property taxes

The median property tax paid in the U.S. is around $2,971, and the effective property tax rate nationwide is 1.11%. You’ll have to pay these property taxes every single year, and they will likely increase over time.

You must be prepared for this added expense on top of your mortgage principal and interest. Many mortgage lenders require you to pay part of your property taxes each month, including that amount in your mortgage bill so it can be put into a special escrow account. That’s an account the lender maintains on your behalf; it collects the money into the account and then pays property taxes from it when they come due.

So, when you calculate how much house you can buy, be sure to take monthly property tax payments into account.

RELATED: Mortgage Calculator

3. Insurance

The average cost of homeowners insurance is about $2,305 annually. This is another big sum of money that first-time home buyers must prepare for.

Buyers are typically required to secure insurance before closing. They may also have to pay their insurance premiums as part of their monthly mortgage payment so this money can be put into an escrow account as well. This also must be factored in when estimating how much home you can afford.

4. Home maintenance and repairs

You should typically budget about 1% of your home’s value for maintenance each year. That means you’d be looking at another $2,430 if you bought a typical starter home.

You won’t necessarily spend that amount each and every year. But you should put it into savings either way. That way, when one really big expense comes along like a new air conditioner or a new roof, you’ll have the funds you need to pay for it and won’t have to go into debt.

5. Moving expenses

Finally, you’ll have to think about what it will cost you to move into your new home. This could cost thousands if you hire movers. Even if you don’t and you handle the move yourself, you’ll still have to pay for things like boxes and a moving truck.

Be sure to consider all these costs and save for them before you move forward with buying a house. Otherwise, you could end up staring at an empty bank account and struggling to afford the home you thought was a dream come true.

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Child care may be more costly than you think. Find out how much American parents spend on these costs and learn how to prepare for this important expense. 

Raising a child is expensive. Parents should consider how child care costs impact their wallets. As the cost of living rises, many adults must work full time. Unless they have family or friends who can help for free, these parents must budget for child care expenses or risk being unprepared for the cost.

These costs in the U.S. continue to rise, impacting the checking accounts of families with kids. If you have young ones, you may be in for a surprise. A recent study by Care.com found that families plan to spend more than $18,000 per child on child care expenses this year.

Families are spending 27% of their income on child care

Care.com, an online platform where people can hire housekeepers, pet caretakers, nannies, and more, publishes a yearly Cost of Care Report to help U.S. families prepare for the cost of child care. The 2023 report found that, on average, U.S. parents spend 27% of their household income on child care expenses. Here are some notable findings from this year’s study:

Half of parents are more concerned about the cost of child care than they were at this time last year.One in five parents expect to break their child care budget by the end of the year.More than one-third (42%) of parents surveyed lean on relatives for child care arrangements.

59% of parents plan to spend more than $18K per child

The study found that 59% of parents plan to spend more than $18,000 per child on child care expenses in 2023. Last year’s study found that 58% of parents expected to spend over $10,000 on child care in 2022. That’s a significant increase in expected expenses.

According to the U.S. Department of Health and Human Services, child care is considered affordable when it costs families no more than 7% of their household income. Unfortunately, many families plan to spend much more than that.

Two-thirds (67%) of parents surveyed spend 20% or more of their household income on child care, while 89% pay 10% or more of their income for this expense. Even if you spend time comparing prices in your area, finding affordable, quality care can be challenging.

Hopefully, more will be done at the state and federal level to help make this expense more affordable for parents so their children are well cared for while contributing to society and working to bring in income. But for now, most parents are left to figure it out on their own.

Four tips to afford rising child care costs

Here are a few ways you can cope with the expenses of child care.

1. Don’t wait to save

Saving up before you have children is not always possible, but doing so can be helpful. If you know you want to have kids and have the financial means to save now, stashing extra cash in a high-yield savings account can make paying for this expense in the future less stressful.

2. Research prices and get on enrollment waitlists early

Many parents are thinking ahead about child care. It can be beneficial to research prices and get on enrollment waitlists early. I’ve been seeing parents post in neighborhood groups in my area, and many recommend getting on enrollment waiting lists at least one year in advance. Don’t wait to plan, or you could pay more.

3. Contribute to a Dependent Care FSA

Check if your employer offers a Dependent Care FSA, a type of flexible spending account (FSA). By contributing pre-tax dollars to this type of account, you could save money. For 2023, families can contribute up to $5,000 annually, or $2,500 if married filing separately.

4. Consider alternative arrangements

If daycares and child care centers are too pricey or are booked up, consider alternative arrangements. See if other parents in your area offer small-group affordable care, or consider hiring a nanny to provide care in your home to keep costs more manageable.

Are you looking for additional financial tips? Check out our free personal finance resources.

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A lot of people say renting is a waste of money. Learn why Ramit Sethi says investing is more important than buying a home and how renting can make sense. 

Renting a home instead of buying one is often compared to throwing your money away. After all, aren’t you just paying your landlord’s mortgage instead of building equity?

But Ramit Sethi, author of the bestselling book I Will Teach You To Be Rich and star of the hit Netflix show How to Get Rich, doesn’t believe buying a home is the automatic path to wealth as it’s often touted. That doesn’t mean he’s anti-homeownership. But Sethi doesn’t believe you should be worried about renting forever if you’re a savvy investor.

“I estimate that less than 5% of people understand if you build a large enough portfolio, it can pay your housing in perpetuity,” he recently tweeted.

Investing vs. buying a home: which has better returns?

Homeownership has historically been a key driver of wealth in the U.S. But that doesn’t mean becoming a homeowner is the only way to grow rich.

On average, S&P 500 annual returns have hovered around 10% before inflation. By comparison, the compound annual growth rate for home prices in the U.S. from January 1991 through March 2023 was 4.4%, according to quarterly Federal Housing Finance Agency data.

So historically, you’d get better returns from investing in an S&P 500 index fund than you would have gotten from buying a home. But this isn’t a perfect comparison, of course. An index fund isn’t going to provide you with a roof over your head. But Sethi takes issue with a few common claims put forth by proponents of buying a home.

The financial impact of buying a home

For starters, Sethi notes that home prices aren’t guaranteed to go up forever. Sethi also says that many would-be buyers forget to factor in “phantom costs” of homeownership, like closing costs, taxes, property insurance, maintenance, and repairs. When you factor in those expenses, Sethi argues that it could be significantly more expensive to buy a home than it is to rent a similar one, even if the monthly payments are the same.

Yes, if you bought the home instead of renting it, you’d build equity. But Sethi points out that substantial equity takes years to build. In the early years of your mortgage, the majority of your monthly payment goes toward principal rather than interest, which is why it takes a long time to build equity. For example, if you had a 30-year fixed-rate mortgage for a $300,000 mortgage and a 6% interest rate, you’d pay about $1,800 a month, but you’d only have about $20,000 of equity after five years.

Buying a home isn’t just about the numbers, though. Often, it boils down to a lifestyle decision. If you prefer stability, buying may make sense, whereas if you prefer liquidity, renting is the wiser choice.

But if you start investing early enough, you’ll be able to afford whichever type of lifestyle you want. If you invested $1,000 a month in a low-cost brokerage account and earned 8% annual returns, you’d have over $2.1 million after 35 years. Your total investment? Just $420,000.

This example illustrates the power of compound earnings in investment — and why you don’t want to delay investing, even if you’re pursuing other financial goals like homeownership. If you give yourself enough time to build a substantial nest egg, the idea of renting in retirement isn’t so scary.

Should you buy a house?

Sethi suggests asking yourself the following questions before buying a home.

Will I live here for 10+ years? Buying is most likely to pay off if you plan to stay put for a long time, because closing costs can eat into your profits. Plus, if the housing market dips in your area, you’ll give your home time to recover its value.Is my total monthly housing cost lower than 28% of gross monthly income? A general rule of thumb is that housing costs — including property taxes and insurance if you own — shouldn’t eat up more than 28% of your monthly income.Have I saved a 20% down payment? Though it’s easy to buy a home with just 3% to 5% down, one advantage of a 20% down payment is that you can avoid private mortgage insurance (PMI).Am I OK if the value of my house goes down? Home prices aren’t guaranteed to go up, particularly in the short term. Make sure you’re buying a home you actually want to live in instead of one that you view primarily as an investment.Am I excited about buying? The final question seems easy to dismiss since it’s about feelings instead of numbers. But it’s essential to buy a home because you want to do it — not because your parents are pressuring you or because you’re worried rent is a waste of money.

Renting and buying can both make sense, depending on your personal situation and preferences. If you invest early and consistently, you’ll be able to afford whatever housing arrangement fits your lifestyle.

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Groceries and home products aren’t the only items you can save big on at Costco. Here are five surprising things you can get with your membership. 

You probably know about Costco’s famous $4.99 rotisserie chicken and its beloved $1.50 hot dog and soda combo. But Costco isn’t just a place to stock up on food items. Whether you’re shopping in the warehouse or on Costco.com, you’ll encounter plenty of surprising finds. Read on to learn about five things you didn’t know you could buy at Costco.

1. Caskets

A casket is often one of the most expensive funeral expenses, with prices averaging between $2,000 and $5,000. But whether you’re looking for a loved one’s final resting place or you’re pre-planning your own funeral, you can save money by buying a casket at Costco.

Costco caskets range from $1,149.99 to $1,599.99. Caskets can be shipped to 48 states (Alaska and Hawaii shipping isn’t available), plus the District of Columbia. You can even have a casket shipped directly to a funeral home. Per Federal Trade Commission (FTC) rules, funeral homes must allow those planning funerals to use caskets from outside sources without charging extra fees.

2. Above-ground swimming pools

It’s not surprising that you can find kiddie pools at Costco. But you can also find full-size above-ground swimming pools at the warehouse store so the whole family can cool off during this scorcher of a summer.

Costco currently offers an above-ground pool that can hold around 6,000 gallons of water for $599.99, along with one that can hold more than 13,000 gallons for $999.99. Both come with a sand filter pump and a chemical dispenser. Assembly, of course, is not included.

3. Six-person barrel sauna

If you still have room in your backyard after adding that above-ground swimming pool, you could prepare for cooler temperatures by adding a barrel sauna. Manufactured by Harvia of Finland, the sauna features benches big enough for six people to sit or two people to fully recline, and temperatures that can reach 190 degrees.

4. Gourmet caviar

Costco isn’t exactly associated with a caviar budget. But Costco actually has several options for caviar connoisseurs. A 2-ounce three-pack of Plaza Osetra Farmed Bulgarian Sturgeon Caviar will set you back $249.99 and gets 4.6 out of five stars from reviewers on Costco.com. Or, if your personal finances allow it, you could go big and try the 35.2-ounce Plaza Golden Osetra Caviar Kilo Pack for $1,999.99.

5. Engagement rings

If you’re contemplating a walk down the aisle, consider first taking a walk to the jewelry section of Costco. The warehouse club offers a wide variety of engagement and wedding rings.

If you’re a big spender and have a credit card with a high limit, check out Costco’s priciest engagement ring — a fancy pink diamond platinum ring with a 1.54-carat diamond that costs a mere $349,999.99. For couples on a budget, Costco has several engagement rings available for $999.99.

Shopping at Costco? Maximize your credit rewards

If you’re making big purchases at Costco or anywhere else, you’re probably going to want to maximize your credit card rewards. Just keep in mind that Costco only accepts Visa cards.

You can find plenty of great deals on unusual items at Costco. But before you buy that swimming pool or that $1,999.99 caviar pack, make sure you’ve looked at the impact on your budget so that you’re not draining your checking account on impulse buys.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Robin Hartill, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Visa. The Motley Fool has a disclosure policy.

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A home purchase should be contingent on an inspection. Find out what to do if the inspection shows issues with the foundation or these other key problems. 

When buying a house, it’s important to make your offer contingent on a home inspection. After all, you don’t want to get a mortgage and purchase a place only to find out there are serious issues. Undiscovered problems could drain your bank account, so you want to find out up front all that might be wrong with the home.

In some cases, an inspection may turn up problems. Sometimes these are solvable, but in other situations, you may decide you want to walk away from the purchase altogether. Here are four examples of situations where canceling your purchase could be your best option.

1. Foundation problems

The national average cost of foundation repair is $4,500, but This Old House reports that costs can range from $2,000 to $7,500. It can also be difficult to determine the full extent of the necessary repair costs ahead of time when dealing with cracks or other foundation issues.

Since a problem with the foundation can affect the structural integrity of the home, it may be a good idea to walk away if an inspection shows major issues.

2. Major mold damage

Mold is a huge problem if it shows up in an inspection. For one thing, it can be expensive to deal with; the national average cost of mold remediation is $3,500, with prices typically ranging from $1,500 and $9,000.

Mold can also be a health issue and do serious damage to the structural integrity of the home. You don’t want to take a chance on moving somewhere that could be unsafe for you and your loved ones, especially since there could be more mold in hidden locations than is visible on an inspection. If you spot a mold issue, you should seriously consider canceling your sales contract.

3. Serious electrical issues

A minor electrical problem isn’t necessarily a deal-breaker. But if there are major issues with a home’s wiring, it could cost tens of thousands of dollars to fix — especially if you have to start tearing up walls to access faulty wires.

Electrical issues are also a major safety hazard, as your home could be at risk of catching on fire. And, if you start doing electrical work on an older home, you may need to bring it up to modern building code standards, which could add even more to your cost.

If you don’t want to take a chance on uncertain expenses and a major safety risk, you may want to make electrical issues a deal-breaker.

4. Termites

The cost of repairing termite damage averages $3,000 but could go as high as $37,500 or more. It can be hard to eliminate these pests from your home, and they can do serious damage to its structural integrity until they are removed from a property.

Since it can be difficult to determine the extent of the damage deep within the walls, it makes sense to cancel a contract when signs of termite activity are present.

While it can be disappointing to walk away from a home you love, your personal finances are often far better off if you cancel a deal when these major issues arise rather than potentially taking on huge costs after moving in.

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If you are considering buying a fixer-upper, be sure to ask yourself if you have the time. Find out what else you’ll need to deal with the process. 

Buying a fixer-upper could be a fun project and could potentially allow you to keep your mortgage costs down since, in most cases, you’ll pay less for the home up front. But it’s also a big undertaking that could do serious damage to your mental health — and your bank account.

To be sure you’re ready to take on the task, ask yourself these four key questions before moving forward.

1. Are you paying a fair price for the home given the work involved?

When you buy a home that needs to be repaired, you have the up-front costs of the purchase. You also have to pay for the repairs and remodeling. Once you add those costs together, you’ll want to be sure they come in at less than or equal to the home’s market value.

Say, for example, you pay $200,000 for the fixer-upper and have to put $50,000 of work into it. If you could sell it for at least $250,000 (based on comparable properties), then it may be worth moving forward with the deal.

2. How much of the renovations will you hire out?

If you plan to do the work on the home yourself, you can often save a lot of money on repair costs. But, you also need special knowledge to do it right and ensure you comply with building codes.

It’s important to think about what you can do yourself versus how much you’ll have to hire out. Not only will hiring professionals cost you more, but you’ll also have to deal with finding them, managing them, and making sure they do the project correctly.

If you’re planning on funding the renovations using a special mortgage aimed at fixer-uppers, such as an FHA 203(k) loan, you may also not be allowed to do the renovations yourself, as a licensed contractor may be required to perform the work.

3. Do you have a fund for surprise costs?

Cost overruns are a part of life when you are doing any kind of construction work. In fact, you should have enough money to exceed your planned expenses by around 5% to 10% so you don’t face hardships when inevitable surprises occur.

Without the money to cover unexpected issues, work could stall while you come up with extra cash. Or you might be forced to try to borrow, which could be a challenge if you already have a big mortgage and lenders are worried about loaning you more money.

4. What’s your timeline for the project’s completion?

If you need to move into a home right away, you’ll have to consider how long it will take for the project to be completed. You probably don’t want to live in a construction zone if you are doing major repairs, so you’ll also need to be sure you have another place to live if you can’t move in right away.

If you have a definite date you must move in by, you may also want to write that into a contract with whomever you hire to perform the work for you, as it’s common for construction projects to go longer than expected.

By considering these key issues, you can decide if moving forward with purchasing a fixer-upper is really right for you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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