Budgeting Tips for New Homeowners

Property tax payments may be a less predictable component of your home budget than your mortgage. Your property tax bill may increase for various reasons. For example, it may rise if there’s a change in local laws, or a jump in home values in your area. But it all depends on where you live: Some states have imposed caps on annual increases or your total tax payment.²

Like mortgage interest, property tax payments are tax deductible, which may help to offset some of the cost. The property tax deduction is capped at $10,000, whether you’re a single filer or married filing jointly. The cap is $5,000 if you’re married filing separately. Again, you must itemize deductions.³

As a homeowner, you are responsible for all utilities. If you were previously renting, you may have been paying some of these, like electricity bills — but you probably didn’t have to budget for all of them. The utilities included in your home budget may include:

Some of these utility costs, like garbage collection or monthly cable subscriptions, may be predictable. Others are harder to estimate in advance. For example, if you use gas to heat your home in winter and electricity to run air conditioning in summer, you can expect big monthly variations in your electricity and gas bills. You may be able to do some preliminary budgeting using information about average residential usage from your city or your local utility company, or you might even get useful information from your home’s previous owner.

Some utility companies offer budget billing, letting you opt to pay an estimated monthly bill that spreads your expected annual costs into 12 monthly payments, with a periodic “true-up.” That approach is great for home budgeting purposes.⁴

If you live in a condo, townhouse, or a single-family home in some planned communities, your home budget may include monthly homeowners’ association (HOA) fees. The fees generally cover everyday maintenance of shared facilities and may also be used for other purposes.

It’s not uncommon for homeowners to have to pony up substantial additional one-time payments if the HOA doesn’t have enough financial reserves to cover unforeseen major problems, like a flood in a shared underground parking structure.⁵

New homeowners might underestimate the cost of maintenance and repairs. Besides everyday repairs and replacement of worn-out items, you should also budget for major remodeling projects. Here are some factors to keep in mind:

Appliances and furnishings generally don’t last forever, so think about their age when planning your home maintenance budget. For example, carpets typically wear out within 10 years, while conventional water heaters usually last six to 12 years, according to the Inter­national Association of Certified Home Inspectors.⁶ If you want your home budget to reflect how professional building managers spend, you’ll want to divide the expected cost of replacing those things by the number of months they should last, and contribute that to a savings fund each month. The accompanying chart can help you get started.

If your home has a landscaped backyard, or even just a grassy patch and couple of trees, you’ll incur some landscaping or gardening costs. If you don’t plan to do all the work yourself, it’s worth factoring installation and regular maintenance costs into your home budget. Even hiring a company to mow the lawn may be costly.

Major remodeling and renovation projects can cost thousands of dollars. If you’re planning a big project and you don’t have enough saved to pay for it, it may make sense to set up and contribute to a separate fund until you’ve accumulated enough cash. Alternatively, you may consider financing the project by refinancing your mortgage or getting a home equity line of credit (HELOC). For more about HELOCs, read “How Do HELOCs Work?”