Stealth Costs That Add Up
You saved your down payment, and you made sure you can afford your mortgage payment. However, you’re probably overlooking some critical expenses when buying a home — your electric, gas, water and other utilities. Recent data show that these bills can be more expensive than you think.
Buying a home means taking on utility charges, and they are probably higher than they were in your apartment. Gauging the energy efficiency of the house you want to buy can make you a more informed and prepared buyer.Verify your new rate (Nov 20th, 2018)
The 25% You Forget About
A new report from ATTOM Data Solutions and UtilityScore reveals that costs for electric, natural gas, water and sewer add 25 percent to monthly housing expenses. The study also found that monthly utility bills cost seven percent of average wages.
Related research by UtilityScore and Trulia shows that nationwide, single-family homeowners spend a median of $2,715 a year ($226 monthly) on utilities. And homeowners in lower-cost markets like Pittsburgh and Detroit may actually spend as much for utilities as for their mortgage.
News You Can Use
Pay attention to three key findings, says Daren Blomquist, senior vice president for ATTOM Data Solutions.
“First, utilities represent a substantial but often hidden portion of the cost of ownership. It’s probably third in line behind mortgage payments and property taxes,” he says.
“Second, if utility costs are made transparent, they make homeownership too expensive for average wage earners. This is true in counties where homeownership would have been affordable without utility costs included.”
Third, he adds, “is that controlling utility costs not only saves on the monthly cost of homeownership. It also can amplify the wealth-building effect of owning a home—specifically when it comes to electricity costs. Unlike mortgage payment and property taxes, utilities are one ownership cost that owners have more control over.”
The Dangers Of Utility Ignorance
Blomquist says it’s natural for consumers to underrate or overlook utility costs before buying a home.
“Someone looking to buy a home is likely already paying many utilities as a renter. So it’s not a completely new expense they will be taking on,” he says. “But utility costs on a home will likely be higher than utility costs on a rental.”
And that’s where buyers can get burned.
“Utility costs are intertwined with the long-term investment of the home. If renters can’t afford the combined cost of housing, including utility costs, they may end up getting evicted and lose their security deposit in a worst-case scenario,” adds Blomquist.
“But those who can’t afford the combined cost of ownership plus utilities risk losing tens or hundreds of thousands of dollars in equity they’ve built up in a home.”
Blomquist suggests aiming to keep total utility costs below 25 percent of your total housing costs.
“Going over 25 percent, in the long run, will likely hurt your property’s resale value,” he says.
“But remember that utility costs are much more under your control as a homeowner. So a home with above-average utility costs could also be viewed as a chance to add value to the property by making energy-saving improvements.”
Buying A Home: Here’s Your Plan
You can claim a home that costs less to juice, heat, cool and hydrate. First, ask your real estate agent what you can expect to pay for utilities monthly and yearly. Have the sellers provide the last 12 months of electric, gas, water and sewer charges they paid.
Second, do some research on your own. Visit MyUtilityScore.com for a free home profile score and estimates of utility bills for your desired property. Or contact the utility companies in the area and request utility bill estimates for the address in question.
Next, have your home inspector assess the condition of important systems and materials that affect energy usage. These can include air conditioners, furnaces, boilers, wall and ceiling insulation and windows and doors.
Based on the inspector’s findings, plan key energy efficiency upgrades once you move in. Try thinking solar. Blomquist says California homeowners who installed solar panels between 2010 and 2017 insulated themselves successfully from high utility sticker shock.
“They realized average profits that were more than twice the average profits of owners who did not install solar, both on a dollar and return-on-investment basis,” notes Blomquist.
Add Energy Efficiency When Buying A Home
If you don’t like the energy numbers, but still want the house, you may be able to add an Energy Efficiency Mortgage (EEM) to your purchase loan. EEMs allow you to add the cost of energy-related improvements, to your home loan.
Fannie Mae loans and government-backed loans like FHA and VA allow you to finance these smart improvements. You can improve insulation, replace appliances, upgrade windows and more. Energy Star appliances make your home more comfortable while adding value.
What Are Today’s Mortgage Rates?
Current mortgage rates are holding within a narrow range, and are still low enough to make buying and improving a home affordable.
Contact several lenders and choose the one who offers the best deal to purchase or improve your property.Verify your new rate (Nov 20th, 2018)