Avoiding the money pit

By John Schooler

Remember the movie “The Money Pit” where a young couple struggles to repair a hopelessly dilapidated house that literally falls in around them? That 1980s slapstick comedy may not be funny for many first-time homebuyers dealing with unexpected bills that squelch the joys of home ownership. To avoid surprises that could move you from your dream house into the poor house, follow these suggestions:

1. Get a home inspection.

An ounce of prevention is worth a pound of cure. While home inspections vary dramatically from state to state, according to the National Association of Certified Home Inspectors, your home inspection should address:

• Structural Elements
• Exterior Elements
• Roof and Attic
• Plumbing
• Systems and Components
• Electrical
• Appliances
• Garage

Although your home inspection report will not describe in detail the condition of every component, it should note items that are defective or require immediate service. Serious problems that should be spelled out include: health and safety issues, roofs with a short life expectancy, furnace malfunctions, foundation deficiencies, and moisture or drainage issues. Keep in mind that you may need to hire an additional inspector with a specific license to inspect and address asbestos, radon, lead, mold, or rodents and other pests.
Naturally, it’s rare that a home inspector compiles a report without a punch list of items that need attention. While the seller may offer to address issues raised in the report, it’s often wiser to negotiate a price reduction and hire your own contractors so you can supervise the repairs.

1. Get the right mortgage.

Maybe you’ve experimented with mortgage calculators to determine how much mortgage you can afford, but as you become more serious in your home search, it’s a good idea to get pre-qualified for a loan. That means you go to a lender and apply for a mortgage so you’ll know exactly how much you can afford.

1. Plan for the full cost.

If you are making the transition from renter to homeowner for the first time, there may be additional expenses you have not factored into your monthly budget. For example, if your utilities have been covered in your rent, you may want to ask your real estate broker to help you get information from the seller on how much they pay annually for heat and electricity. In addition, you might have to budget for homeowner association fees or condo association dues. Of course, you will also have to set money aside for property taxes and homeowner’s insurance.

1. Start a home repair account.

Remember Murphy’s Law? If something can go wrong, it will, and at the worst possible time. Accordingly, if your home inspection revealed a host of “problems waiting to happen,” it’s wise to establish and continue to contribute to an account designated for essential future home repairs. That way, when your furnace fails in mid-January, you won’t be left scrambling for the funds to fix it. Additionally, if you are new to the area and have not worked with local plumbers, electricians, or contractors, it may be a good idea to ask neighbors for referrals before you actually need these services.

1. Protect your property.

Your new home likely will be your largest asset, so take the time to protect it with the proper homeowner’s policy. While your homeowner’s policy protects your home from damage due to common threats like fire and smoke, lightning, theft, and extreme weather, be aware that there are also specific policy exclusions, such as flood damage. Read the fine print carefully. To cover the exclusions, you often can add endorsements to your policy or purchase additional coverage.
While it’s impossible to predict every expense associated with your new home, a little advance planning can take the sting out of the unexpected and ensure that your “home sweet home” doesn’t turn into a money pit.