Saving room in your housing budget can help you manage higher costs of homeownership in the future.

When buying a house, it’s very tempting to stretch your budget to get as much house as possible. However, it’s important to consider the costs of ownership today as well as those in the future. Discover five reasons why it makes sense to include a budgetary cushion when deciding on how much to spend on your monthly mortgage.

Insurance

Homeowners insurance premiums can go up for a variety of reasons. As the cost of building materials and construction labor increases, insurers hike rates to keep pace. Additionally, if you file a claim for loss or damage, you may see your premium go up the following year.

Inflation

As we’ve all experienced, when inflation affects the cost of groceries, utilities and other living expenses, personal budgets feel the squeeze. By committing to a mortgage that’s less than the maximum you could be approved for, you give yourself financial breathing room when prices rise.

Property tax increases

Homeowners need to be financially prepared for annual property tax increases. In Michigan, Proposal A limits increases in property taxes to a maximum of 5%. In 2022, homeowners saw their property taxes rise 3.3%. In many recent years, when inflation was low, the rate hike maintained around 1% each year.

HOA fees and assessments

Homeowner associations (HOAs) face the same increases in prices as homeowners. When the costs rise for things like liability insurance, landscaping and building maintenance, so do HOA fees. In some cases, special assessments may be levied by an HOA to cover an unforeseen expense.

If you belong to an HOA, read the Covenants, Conditions, Restrictions & Easements (CC&R) document to learn if dues increases are limited and budget accordingly.

Adjustable-rate mortgage changes

The popularity of Adjustable-rate mortgages (ARMs) means many homeowners are taking advantage of lower interest rates during the fixed-rate period. However, after the first three to ten years, depending on the terms of the ARM, the rate will be adjusted. While interest rates could decrease, it’s also possible that they could increase.

If you have an ARM be sure you understand the cap that governs how much your home loan’s interest rate can increase.

Fluctuations in homeowners insurance, taxes and other expenses can quickly add up each year. These changes could be reflected in your monthly escrow payment or come out of pocket. Building in a financial cushion when you first get your home loan will help homeowners manage future costs.

Looking for a mortgage?

If you’re ready to buy a home, the Consumers mortgage team can help you with flexible lending options that fit your budget. Learn more about Consumers’ custom-made mortgages.

Consumers helps more than 2,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.