Being a homeowner comes with a variety of ongoing expenses. While these costs add up month after month, they also contribute to building valuable home equity. With smart budgeting, homeowners can manage their monthly bills, grow their equity, and plan for future home improvements to ensure their house remains a cherished space for years to come.
This guide walks you through the different expenses that come with being a homeowner, how to save money on these expenses, types of home equity loans, how to best use home equity loans for home and non-home related projects, how to increase the value of your home, and how to determine whether you should renovate or sell your home. A Homeowner’s Guide to Expenses, Equity, and Improvements will help you through these potential situations.
Home Ownership Expenses
As a homeowner, you’ll experience a list of ongoing costs to pay each month. Some of these payments are specific to homeowners, but you may have paid for others as a renter. To create an accurate budget for managing your home expenses, here are some categories.
Mortgage payments – Mortgage payments are due to your lender each month. This payment covers the cost of your principal loan balance, plus interest for your lender. If you have a fixed-rate mortgage, your bill will not change over the life of your loan. If you have an adjustable-rate mortgage, your interest rate can change after a few years to adjust to the current market standard. Mortgage loan terms are typically 15 or 30 years.
Property taxes – Property taxes are typically paid annually to your state, but many homeowners choose to escrow this expense as part of their monthly mortgage payment. By doing so, you can spread the cost over the entire year, making it more manageable and avoiding a large lump-sum payment at year-end. Property taxes for your home can amount to several thousand dollars, which can be challenging if you haven’t budgeted for it, particularly since the due date often coincides with the holiday season.
Insurance – Lenders require you to have homeowners’ insurance arranged before you close on your house. There are different types of insurance based on whether you own a condo, townhouse, or a standalone house. Each of these covers the same basics from building to building. If the down payment of your mortgage was less than 20%, you will also have to pay for private mortgage insurance, or PMI, until you have over 20% equity in your home.
HOA fees – Homeowners association (HOA) fees are common in the suburbs. HOAs ensure that the aesthetics of the neighborhood are up to standard. This includes the exteriors of homes and yards as well as the streets and other amenities. Some HOA fees include access to community swimming pools, clubhouses, tennis courts, and more.
Utilities – Different types of utilities vary in price based on usage, so allow some wiggle room in your budget. Utilities include water, sewer, electric, gas, and trash and recycling. Some of these utilities may be included with your HOA fee. Check with your HOA to find out what is covered.
Lawncare – Some elements of lawn care may also be included in your HOA fee. Lawn care is an ongoing expense you must manage as a homeowner. Mowing the grass, trimming bushes and shrubs, tending the garden, watering the lawn, raking leaves, and shoveling snow take time. Some homeowners budget for a service to take care of yardwork while others decide to save the money and spend their time taking care of the lawn instead.
Home security – Home security systems are optional but helpful to keep you and your house safe. Many systems require an upfront cost to pay for materials and an ongoing cost to pay for the service. If you plan to get a home security system, research what options are available. Doorbell cameras, indoor cameras, floodlights, and more are available from various retailers.
How to Cut Expenses
Maintaining a home comes with regular bills and fees, but there are often opportunities to reduce these costs. Even small monthly savings can add up over time, allowing you to reallocate those extra dollars to other priorities. Below is a list of practical tips to help you cut down on essential home expenses.
Refinance your mortgage. If you’ve been paying your mortgage for a few years, refinancing could be a smart financial move. If your credit score has improved and your debt-to-income ratio remains stable, you may qualify for a lower interest rate. Refinancing can significantly reduce the amount of interest you pay, potentially saving you hundreds of dollars each month.
Save on your utilities. By adjusting your thermostat to be hotter or colder when you aren’t home, you can save on your monthly bills. Swapping your current light bulbs for LED lightbulbs plus adding motion sensors can reduce the cost of your electric bill. Unplugging appliances when you are done using them can help you save money too.
Shop for new home insurance. Consider switching to a different home insurance company that can give you a lower monthly premium. Just make sure you don’t compromise your coverage. Many companies offer discounts if you have other types of insurance with them too. Plus, you may be able to pay for six months of coverage at a time, which is usually cheaper than the total of six individual monthly payments. It will just cost you more up front.
Do your own maintenance. Simple home maintenance tasks may be easier to tackle on your own than you think. YouTube tutorials can guide you through tasks like mowing the lawn, unclogging drains, and cleaning gutters. While you might need to invest in supplies upfront if you don’t already have them, doing these chores yourself can save you significant money over time.
Automate and negotiate your bills. Sometimes the costs on your bills can be negotiated. All you have to do is ask. This could be a phone call or an email to the service provider or apps like Rocket Money can negotiate the bills for you. If you automate your payments through the providers website or Alltru’s mobile and online banking, you reduce the risk of having to pay late fees because you forgot to pay a bill. You may be able to receive a discount for automatic payments too.
Energy Efficiency for Homeowners
Energy proofing your home can help you save money throughout the year. These tips are easy to implement. After a while, they will start to feel like the norm. Here are ways you can make your home more energy efficient.
Adjust your thermostat. During the summer, set your thermostat to a higher temperature when you’re not at home. In the cooler months, lower the temperature while you’re away. This reduces the workload on your HVAC system. Many thermostats come with built-in timers, allowing you to schedule automatic adjustments for times like your morning commute or school drop-off. These simple changes can help lower your energy bills significantly.
Unplug electronics. Even if your electronics are turned off, electricity will still run through the device. You’re essentially paying for electricity you aren’t benefiting from. Unplug your devices when you are done using them to help lower your electric bill. If you frequently turn a few devices on and off, invest in a smart power strip instead. This will help you save on your electric bill too.
Replace your air filter. Air filters should be replaced every 60-90 days. Neglecting to do so can cause your HVAC to work harder to pump clean air through your home. You can purchase air filters for a relatively low price at hardware stores.
Upgrade your windows. The newer double and triple pane windows are more energy efficient than the single pane windows that are common in older homes. Purchasing and installing new windows can be costly upfront but save you money overtime. Get quotes from different companies so you find the perfect option at the best price.
Seal gaps and cracks. Imperfections in your doors, windows, and walls can cause your valuable perfect-temperature air to escape too quickly and let the unideal outdoor temperatures inside. Add weatherstripping and caulk to gaps around windows and doors. Put insulation around vents and pipes to keep these places at ideal temperatures.
Plant trees. Planting trees that provide shade for your home can reduce your energy bills by easing the workload on your HVAC system to maintain a comfortable indoor temperature. Additionally, well-placed trees enhance your home’s curb appeal, potentially increasing its resale value if you decide to sell in the future.
Get a home energy audit. If you aren’t sure where to start, or think you have an energy efficient home but want detailed feedback, get a home energy audit. Getting an audit from select auditors in the area may make you eligible for a tax credit. Visit the Missouri Department of Natural Resources to find an eligible auditor for your home.
Personal Property Tax Help
We touched on personal property taxes earlier but want to elaborate since it’s an essential and costly part of owning a home. Property taxes can be confusing, but they don’t have to be. Here are some things to know about personal property taxes.
Personal property taxes are due to your state. However, your city or county where the home is located enforces the tax. Personal property taxes are charged for your home and vehicles. Property taxes are due at the end of each calendar year.
You don’t have to calculate your personal property tax amount. Unlike when you file your tax return in April, you don’t have to calculate how much you owe for personal property tax. At the beginning of the year, the county assessor’s office evaluates your home based on condition, age, location, and type of building. The house then gets an assessed value that is multiplied by the local tax rate to determine how much you owe. When you receive your bill, this total will be included along with the charges for other property you own. Keep in mind that this amount may change over time.
Personal property taxes can be paid in several ways. Every fall, you’ll receive a bill for your property taxes. You can mail this back with your payment method, or you can visit the Missouri Department of Revenue website to pay instead. Others escrow their payment into that year’s mortgage bills. By spreading out the payment during the year, you can avoid a large bill due right after the holidays.
You must pay for some of the tax if you sell your home. When you close on selling your home, your tax will be prorated. This means that you pay the equivalent charge for owning the home for a portion of the year. If you buy a new home shortly after, your tax will be prorated for the time you’ll own the new home in that calendar year.
You may be able to save money on your property taxes. If you meet certain requirements from the IRS, you can claim your home as an itemized deduction on your tax return. In addition, the Missouri Property Tax Credit Claim gives credit to certain disabled and senior citizens of up to $1,100. Visit the Missouri Department of Revenue website to see if you qualify.
Home Equity Loan Types
As a homeowner, you’ll probably want to make some updates to your home over time. If you don’t have the money up front to complete projects, we offer various loans to fit your needs. What’s the difference between a Home Equity loan, a HELOC, and a Home Improvement loan?
A Home Equity loan is a loan where your home serves as collateral. The amount of money you are allowed to borrow varies based on your credit history, the equity you have of your home, and other factors. A Home Equity loan is an ideal loan if you need a lump sum of money at once, upfront, to pay for your project. Home Equity loans have varied terms and fixed interest rates, so you have predictable payments when paying back your loan. The funds from your Home Equity loan can be used for nearly anything, whether or not it is home related.
A HELOC, or Home Equity Line of Credit, is also backed by the equity of your home. A HELOC works like a revolving line of credit. You can get money when you need it. This prevents you from borrowing more money than you need. The payback process works similar to a credit card, so you pay as you borrow. You can use the funds you borrow with a HELOC for home and non-home-related projects. This type of loan is ideal if you have an ongoing project or plan to tackle several home projects over a period of time, since you can borrow money throughout the length of the term whenever you need it.
A Home Improvement loan is a type of loan that doesn’t involve collateral. As a result, interest rates tend to be higher than a Home Equity loan or HELOC but lower than in-store financing. With a Home Improvement loan, you must use the funds for home projects. This loan is more limiting than the other two, but your home is not at risk. In addition, this loan is great for new homeowners who don’t have a lot of equity in their homes yet. It’s an empowering tool to make your home perfect from the beginning instead of waiting for years to make improvements.
To help determine which loan is best for you, consider the nature of your project or needs and your current financial situation. If you have some home equity and need money all at once, a Home Equity loan is the ideal option. If you have some equity in your home but will need money over a longer period of time, a HELOC could suit your needs. For recent home buyers, a Home Improvement loan gets you funds for your home project, regardless of equity.
Reasons to Get a HELOC
With a HELOC, you can unleash the potential of your home by borrowing money against the equity of your house to put back into your house. Funding your next project through a HELOC is easy with Alltru. Whether you need money fast or you plan on tacking projects in a few months, here are some reasons why you should get a HELOC.
Use your home equity. To calculate the equity of your home, subtract your current mortgage balance from the market value of your home. Many lenders approve HELOCs of up to 90% of the home’s equity. This means the more equity you have in your home, the more money you qualify to borrow.
Borrow what you need. When you borrow with a HELOC, you only borrow the money you need. A HELOC is a revolving line of credit, which means you can borrow what you want, when you want, and pay the loan back as you go. This is a great option for borrowing money for an ongoing project or if you want to complete several projects overtime.
Secure a low interest rate. The interest rates of HELOCs are often lower than the interest rates of personal loans, credit cards, and in-store financing due to the loan being backed by collateral (your home). A low interest rate can save you thousands of dollars over the lifetime of your loan.
Qualify for tax benefits. The interest you pay on your HELOC may be tax deductible. This only applies if you use your HELOC for home related projects, even though you can use the funds for non-home projects. Check with a tax professional to see if your project qualifies to be listed as an itemized deduction.
Add value to your home. By using the money from your HELOC for home related projects, you can make improvements that increase the value of your home. Even if you aren’t necessarily trying to grow the value of your home now, this can come in handy in the future if you decide to sell your house. In addition, if you decide to open another HELOC in several years, you have the potential to borrow more due to the increase in home equity.
How to Use Your Home Equity for Your Housing Projects
The equity you’ve built in your home over time can serve you well when you need a stash of cash. HELOC or Home Equity loans are backed by your home to get you money fast. If you are confident in your ability to pay back your loan, here are some ways you can use your home equity to enhance your housing.
Tackle home improvement projects. Since you’ve built substantial equity in your home, you’ve likely been living in your home for several years. As wear-and-tear takes its toll and your personal style changes, you can make some upgrades to your home using your home equity. Replace your old and worn carpet with hard wood floors. Add a deck to your backyard. Upgrade your kitchen. Plus, many of these upgrades can increase the value of your home if you eventually sell your house in the future.
Fund an emergency situation. While home insurance was required when you purchased your home, it might not cover the entirety of your situation. If you need money fast to pay for an unexpected situation, like a flooded basement or hail damage, use your home equity to cover the cost. The smaller payments over time won’t leave a large dent in your savings right after an emergency.
Make a down payment on a vacation home. Treat yourself to a weekend or vacation home! Since you’ve built equity in your home, you know how to manage consistent payments. Vacation homes usually don’t stay on the market for very long. A Home Equity loan can get you the money you need fast so you can make an offer before someone else does.
Open a rental property. Investment properties take some work, but they can result in passive income down the road. Buy your property using your Home Equity and list the house on AirBnB or VRBO to rent it out. The income from bookings can help you repay the loan, while any surplus becomes your profit.
Homes that are well maintained often grow in value over time. This can help you build more equity in your home. These tips can help speed up the process. Just remember that your home is on the line, so you must make your minimum monthly payments on time.
Unexpected Ways to Use Your Home Equity
A major perk of HELOCs and Home Equity loans is that you aren’t required to use the funds for home projects. The funds can be used for anything. Certain situations may require you to come up with a payment quickly. Other situations may provide you with a financial cushion for the long term. Here are some ways to use your home equity funds that aren’t home-related.
Consolidate debt. If you have several other loans already, you can consolidate them with a HELOC or Home Equity loan. This way, you’ll only have one monthly payment to manage instead of several. In addition, you have the potential to save hundreds of dollars on interest over time.
Diversify your investments. If you are confident in your investing abilities, use your home equity to diversify your investment portfolio. Since this is a risky idea, we recommend that only experienced investors use their home equity funds in this way as your home is at risk too.
Continue your education. Many don’t go back to school because they can’t afford to pay for tuition up front. With a HELOC, you can pay for your school as you go, whether you enroll in college, tackle trade school, or attend other types of classes. You can use one loan to pay for the entirety of your program. This can save you from the potentially high interest rates of student loans.
Take a vacation. Reward yourself for building equity in your home by treating yourself to a vacation. By using your home equity, it is simple to keep track of how much money you spend on your trip. Honeymoons, international getaways, and other vacations can get expensive, but your home equity can get you fast access to the money you need to make your dream a reality.
Pay for long-term medical care. As you get older, you might have ongoing medical care needs. The costs of doctor’s appointments and other medical needs add up quickly. A HELOC is a great way to help you cover your bills when they are due around the same time. This can help you focus on rest and recovery instead of worrying about paying for your necessary care.
Home Improvements to Build Equity
After spending several years in your home, your life has likely changed dramatically since you first bought it. Perhaps your family of two has grown to a family of five, you’ve become empty nesters, or physical limitations now make navigating your home more challenging.
If you’re considering selling your home, making strategic upgrades before listing can be a smart investment. Projects costing around $5,000 can potentially increase your home’s value by $10,000, giving you a $5,000 profit. This extra money could go toward a future down payment, bolster your savings, or be invested elsewhere.
Here are some projects to help boost your home’s value.
Paint your walls. A few coats of paint in a neutral color can make your home appealing to many home buyers. This is an inexpensive project that only takes a few hours to complete. Plus, you can hide any imperfections that were on the last coat. Small holes from frames or décor on the walls can be quickly patched with a fresh coat of paint.
Look down. Consider replacing the flooring in your home. Worn-out carpets can be swapped for new carpet or easy-to-clean vinyl. Many homebuyers prefer not to take on the hassle of updating floors themselves. By doing the work ahead of time, you can significantly boost your home’s value and make it more appealing to potential buyers, encouraging more offers.
Don’t forget the outside. The upgrades you made on the inside of your home might not been seen by homebuyers if the exterior of your house or yard isn’t appealing. Well-kept flowering bushes and walkways make a home inviting. Also, consider the aesthetics of your siding, shutters, mailbox, and other yard décor.
Redo your kitchen. The kitchen is often considered the heart of the home, and a modern, well-designed kitchen is a major factor that homebuyers look for. Consider neutralizing your cabinets with a fresh coat of paint and adding new handles. Upgrading older appliances to sleek, stainless-steel models can also make a big difference. Adding ample lighting will further enhance the space, making it feel more inviting. These updates can significantly boost your home’s value and appeal to potential buyers.
Update your bathroom. Bathrooms are an essential part of any home, and even small improvements can make a big impact on both functionality and value. Consider updating the tub or shower for a fresh, clean look. Adding aesthetic touches like a large mirror, ample lighting, and warm wall colors can create a more inviting and stylish space. These simple upgrades can help enhance your home’s appeal and increase its overall value.
Home Improvement Strategies
If you want to sell your home in the near future or just want to make some updates to your home, deciding how to tackle projects can become a project in itself. Get ready to apply for a HELOC or a Home Equity loan and follow these tips to tackle home improvement projects.
Complete one room at a time. Trying to renovate several rooms in your house can leave your house a cluttered mess. Instead of tackling several rooms at once, start with just one room. Complete all the projects in that room, one project at a time. By successfully completing a few small projects in one room, you can be motivated to continue making upgrades through the rest of your home.
Don’t neglect small projects. Even if you have an extensive list of small projects, don’t put them off. Completing these projects can make your home more appealing to home buyers if you decide to sell your home soon. In addition, these little projects can still add value to your home, even if they don’t cost a lot of money to complete.
Update the exterior. Don’t just focus on the inside of your house. Refresh the exterior of your home to make it an inviting space from the outside. Update your siding and shutters. Refinish your deck. Add low-maintenance plants in your front yard. There are several opportunities to make the exterior of your home appealing.
Renovate or Sell Your Home?
After living in your home for several years, you may find that you no longer feel satisfied with the space or need more room. If you’ve built up substantial equity in your home, it could be worth renovating your home rather than selling and purchasing a new property. So, how do you decide whether to renovate or sell your home? By following these steps, you can make an informed decision about what’s best for your living situation.
Create a list of projects. What aspects of your home feel unappealing to you? It’s important to identify the specific changes you’d like to make so you can transform your space into one that feels like home again. Take some time to create a list of the projects you want to tackle, regardless of how realistic they seem from a practical standpoint—not a financial one. This could include tasks like updating the kitchen cabinets, replacing the carpet in the bedrooms, adding an in-home office, or installing a pergola in your backyard. Once you’ve listed these projects, rank them in order of priority, from most important to least important, to help guide your next steps.
Draft a list of new home needs and wants. If you were to move to a new home, what are the needs that you won’t settle on and the wants that would make a new home better? Write out these needs and wants so you can keep track of these features in houses you tour later.
Determine your home equity. As we mentioned earlier, the equity of your home is calculated by subtracting your mortgage balance from the home’s market value. If you aren’t sure what the market value of your home is, use our Home Value Calculator to get an estimate. If you decide to renovate with funds from a Home Equity loan or HELOC, you can typically borrow up to 90% of your home equity. Keep this number in mind.
Budget your projects. Next, determine how much money you are willing to spend on home renovations and how much money you are willing to spend on buying a new home. Then, go back to your list of projects and budget how much money it will cost to complete the first one. Give yourself a little wiggle room in case an unexpected situation causes you to spend more money. Create a budget for each project. If you plan to have professionals complete the projects for you, start getting quotes to find out how much it costs.
Create a renovation plan. Put together a timeline for completing your home projects. At this point, don’t commit to any services from professionals yet. This is to determine the order of completing your list of projects if you decide to reprioritize based on how long it will take to complete the projects and how much they cost.
Browse other homes. Take your list of new home needs and wants and search for other houses with these features. You have the potential to move to a more rural or urban part of greater St. Louis, just make sure your potential new home is in a desirable location for your needs. Consider the distance from schools, work, family, and friends as well as what features you get for the price.
Renovate or sell. Evaluate the other homes you found with your renovation plan. Which costs more, renovating or buying a new home? How long will it take to complete your home projects vs the two months it takes to close on a house? Are all your needs and wants met by renovating or buying? Consider these questions, and you can make the best decision for your family and home.
Conclusion
Maintaining a home requires both commitment and financial investment, but the result is a space that perfectly suits your family’s needs for years to come. By creating a budget and finding ways to cut costs on monthly bills, you can save money without losing any quality in your home. Additionally, your home equity can serve as a valuable resource, allowing you to borrow funds for home improvements, invest in other opportunities, or fund your future dreams. If you find that your current home no longer fits your needs, we’re here to guide you through the process of preparing your home for sale while helping you maximize your equity, giving you more financial flexibility for your next move. No matter what your home loan needs may be, Alltru is here to help you get started.