Essential Home Buying Tips: Utilities, HOA, and Mortgage Insurance Explained

Summary

Earn Your Leisure Podcast: Essential Home Buying Tips — Utilities, HOA, and Mortgage Insurance Explained

Hosted by Rashad Bilal and Troy Millings, the "Earn Your Leisure" podcast delves into the financial intricacies of home buying, providing listeners with valuable insights to navigate the complexities of purchasing a home. In this episode, released on February 4, 2025, the hosts are joined by a guest expert who offers comprehensive advice on utilities, homeowners association (HOA) fees, mortgage insurance, and homeowner’s insurance.

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Understanding Utilities

The episode begins with a deep dive into the often-overlooked aspect of home buying: utilities. Rashad Bilal emphasizes the significance of understanding utility costs before committing to a property.

Guest Expert [03:00]: "If you're buying a 5,000 square foot home... it could really be thousands of dollars."

Key Points:

• Assessing Current Utility Bills: The guest expert advises prospective buyers to request statements of past utility expenses from current homeowners. This includes average costs for electricity and gas, which are controllable yet substantial expenses.

• Impact of Home Size: Transitioning from a smaller apartment to a larger home can exponentially increase utility bills. For instance, heating and cooling a significantly larger space can lead to costs that add up to thousands of dollars annually.

• Energy Efficiency: Implementing energy-efficient solutions can help mitigate high utility bills. Utilizing energy-efficient appliances and insulating properties can lead to long-term savings.

Navigating Homeowners Association (HOA) Fees

Troy Millings shifts the conversation to HOA fees, a prevalent consideration for those purchasing condos or townhouses.

Key Points:

• Inclusion of Services: HOA fees often cover utilities and amenities, which can offset some of the monthly expenses. For example, a condo in Atlanta includes both utilities and community amenities within a $1,400 monthly HOA fee.

• Maintenance Standards: HOAs enforce maintenance standards, ensuring uniform upkeep of exteriors and communal areas. This can enhance property value and appeal but comes at an additional cost.

• Value Appreciation: The guest expert underscores the importance of HOAs in maintaining property values, which is a primary reason for investing in real estate.

Guest Expert [04:30]: "What you get is the lowest rate, that has the highest coverage."

Home Maintenance and Protection

Maintaining a home involves ongoing costs, which the podcast addresses comprehensively.

Key Points:

• Routine Maintenance: Regular upkeep is essential to prevent costly repairs. This includes tasks like gutter cleaning, pressure washing exteriors, and annual HVAC system checks.

• Home Warranties: Investing in a home warranty can safeguard against unexpected repairs. For instance, replacing an HVAC system can cost upwards of $20,000, but a home warranty can alleviate such financial burdens through a manageable monthly fee.

• Annual Inspections: Conducting yearly home inspections helps identify and address issues before they escalate. This proactive approach ensures the longevity and integrity of the property.

Guest Expert [08:00]: "You have to advocate for yourself... you can actually shop around."

Mortgage Insurance Explained

Mortgage insurance is a critical component for buyers with less than a 20% down payment.

Key Points:

• Purpose of Mortgage Insurance: It protects the lender in the event of borrower default, not the homeowner's property itself.

• Requirement Conditions: Mortgage insurance is mandatory for down payments below 20%. Once the principal investment exceeds 20%, homeowners can request the removal of mortgage insurance.

• Irrelevance to Property Damage: It's crucial to understand that mortgage insurance does not cover property damages, such as those from fires or floods.

Guest Expert [09:35]: "Mortgage insurance covers the lender... because you don't have enough skin in the game."

Securing Homeowner’s Insurance

Proper homeowner’s insurance is vital for protecting one’s investment and ensuring comprehensive coverage.

Key Points:

• Comprehensive Coverage: Buyers should avoid opting for the cheapest insurance options, as inadequate coverage can lead to significant out-of-pocket expenses in case of damage.

• Reporting Upgrades: Any home improvements, such as kitchen renovations or the addition of valuable items, should be reported to the insurance provider to ensure adequate coverage.

• Annual Review: It's advisable to renegotiate insurance terms annually to secure the best rates and coverage levels.

Guest Expert [10:57]: "Cheaper is never better."

Effective Budgeting for Homeownership

Troy Millings highlights the importance of budgeting beyond the mortgage payment to encompass all associated costs of homeownership.

Key Points:

• Comprehensive Budgeting: Homeowners often exceed their initial budget when factoring in mortgage payments, utilities, taxes, insurance, and maintenance.

• Unexpected Expenses: Without a well-planned budget, unexpected expenses can strain finances, leading to potential financial stress.

Troy Millings [12:37]: "If your budget is like $2,500 and your mortgage is $2,000... your $2,000 mortgage actually turns into $4,500 a month that you actually end up spending."

Additional Considerations: School Taxes

Rashad Bilal brings attention to school taxes, an often-overlooked expense that can impact a homeowner’s budget.

Key Points:

• Location-Based Taxes: Living in desirable neighborhoods with excellent schools comes with higher school taxes, which are typically paid semi-annually or quarterly.

• Budget Integration: Buyers must incorporate these taxes into their overall budget to avoid financial surprises.

Rashad Bilal [13:18]: "When you want to move to that great neighborhood... they're paying school taxes, which is another amount that you're gonna have to put into that budget."

Final Advice on Insurance Policies

Before concluding, the guest expert offers additional advice on managing insurance policies effectively.

Key Points:

• Policy Advocacy: Homeowners should regularly review and advocate for their insurance policies to ensure they maintain optimal coverage at the best possible rates.

• Shopping Strategies: By comparing multiple insurance providers and communicating intent to find better rates, homeowners can secure more favorable terms.

Guest Expert [14:46]: "Get the lowest rate, that has the highest coverage and that will help with controlling your overhead expenses."

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Conclusion

This episode of "Earn Your Leisure" provides a thorough exploration of the financial responsibilities that come with homeownership. From understanding and managing utilities to navigating HOA fees, securing appropriate insurance, and effective budgeting, Rashad Bilal and Troy Millings, along with their guest expert, equip listeners with the knowledge needed to make informed and financially sound decisions when purchasing a home.

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For more insights into personal finance, entrepreneurship, and the intersection of business with pop culture, tune into "Earn Your Leisure" on your preferred podcast platform.

Transcript

[Rashad Bilal]

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[Rashad Bilal]

Yeah, so let's talk about some of these other fees, right? Because we know about the mortgage, some of some people know about the property tax, we know about homeowners insurance. But there's some other fees that.

[Troy Millings]

But wait, but before we go to another slide, so, because we didn't, we didn't. I just want to make sure people get that, the whole thing. So can we go back to that? Can we go back to the slide?

[Guest Expert]

Let's do it.

[Rashad Bilal]

Yep.

[Troy Millings]

So utilities is a big one because this is why a lot of people using, you know, different type of energy efficient things for their homes and that, that can save a lot of money. Right? And even setting up utility a lot of times as a process, Water, gas, all that type of stuff. And then of course the homeowner's insurance. But the homeowner's insurance is vitally important. Now especially you look at California fires, you look at Florida, you look at floods. So okay, the taxes, we just talked about that, that's important. The mortgage is pretty going to be straightforward. As far as on the bank side, you should understand those terms. But this homeowners insurance and the utilities, can you talk about that? Because that's something that people need to really have an understanding of what they're getting themselves into before they actually get the home.

[Guest Expert]

Absolutely. So let's jump into utilities. If you're looking for a single family home, it would be ideal. And I want you to write this down. Oftentimes agents don't do this. Ask the previous homeowners to provide you with a statement of what their utility bills are. Like, what are they paying on average for their light bill, what are they paying on average for their gas bill. Those are two controllable expenses that you don't really consider when you're buying a home. Why is this important? Let's just say you're buying a 5,000 square foot home on a basement and you're coming from a two bedroom apartment that's maybe 1300 square feet. The difference in the amount of heat that's required to heat that space, the amount of H Vac that's required to cool that space, it could be almost the cost of it could really be thousands of dollars. So while you're out here assessing what your expenses should be, ensure that you call, you get that. Get that information from the current homeowner before making your purchase. So utilities are such a big deal. And then when we talk about homeowners, homeowners association fees. So you guys are in New York, so a lot of times you guys are buying, not y'all, because you know you deserve to be rich. But a lot of people are buying condos, townhouses, things like that. And there a lot of times those fees are included. So you get into a hoa, they'll say, here's an additional. I saw a condo here in Atlanta where the HOA fee is $1,400 a month, but it includes the utilities and then it includes amenities. So it includes. So it kind of offsets. But you have to understand how that will affect your monthly payment. So HOA fees is a huge deal. I think we get a big, like, bad rep. I don't want a house in the hoa. It's good to it and it's not so good. The good parts of an HOA is if you are in a neighborhood, a single family neighborhood, and everybody has to maintain the exterior a certain way. Everybody has to maintain the grass, their yards a certain way. It actually helps with your value appreciation. You're going to hear me say value appreciation a lot because I want you to understand that is the number one reason for getting into real estate and owning a property is value appreciation and ownership. That's it. So, of course, HOA fees is something you need to consider and see what they're. What's included in that. And then routine maintenance. I most recently was consulting with someone and they have to get an entire new hv a h vac system. They got a quote for $20,000. Like, you can't call the landlord. You are the landlord. You are in charge of those fee of that maintenance. Maintenance. So getting routine maintenance on your property and accounting for those additional expenses. I hate to scare people. Everybody has this scare tactic. I'm going to tell you, and I'm this is not even like, look into any type of home warranty companies that offer complete protection. So when you get a home warranty company that helps you with the routine maintenance. So instead of you being responsible for that $20,000 fee to replace the system, if you were paying a monthly fee into a home warranty company, then you could call them the same way you would call your landlord. Why do I want to say this? Because I'm sick of people trying to scare people into not owning a home, saying, my landlord can pay for that. Well, if you were paying a $50 fee per month and your H VAC system went out tomorrow, you would be able to call your home warranty company to cover it. So don't allow these expenses to scare you, but be very aware that these expenses are there. So your job is to protect yourself. So again, unexpected expenses are going to happen. You're going to have to get your gutters cleaned every year. You're going to have to get your exterior of your property pressure washed every year. Some people do it every quarter. You have to consider that you want a home inspector to come inspect your property every single year, not just when you buy the home. When you initially buy the home, you do get a home inspection because you're negotiating with the seller for any defects in the property. And you don't want to purchase a property with a defect. But what happens when you live in a home? There could be underground leaks that you are not aware of that continue to happen. Your H Vac could be at the bottom of like at the end of its lifespan. So you get a home inspection every single year. That's about five to six hundred dollars. But what it does is preventative maintenance. That preventative maintenance. Now you can call your home warranty and your handyman to address issues before they become too expensive. No one talks about that type of maintenance, but that's what it requires to maintain a home. So outside of that, you have the utilities, you have the just maintaining the integrity of your property. But then you also got to account for certain things. And I'm going to focus on single family homes because it's completely different maintenance than having a condo. A single family home you may want to take into your bud. At what point do I have to replace the roof? And the average roof span is 15 to 25 years. So you have to think about that. At what point do I have to replace the H Vac system? They keep changing the Freon and different things in the H vac system that's typically five to 10 years. Some of them are saying 20 years. So what you want to do is budget that get, and I will not stress this enough, get a home warranty, get a home warranty and then make sure when you purchase your property you're getting scheduled and consistent maintenance of your home. That is not.

[Rashad Bilal]

There's a part here like we talk about the homeowner's insurance, but most people don't know about mortgage insurance. And I'm assuming if a lot of people are doing are being first time home buyers and they don't have the 25 down payment or 20 down payment, they're going to fall in this, this category. So talk about what that is and kind of give it like a explanation of what mortgage insurance actually entails.

[Guest Expert]

Yeah. So mortgage insurance covers the lender. Mortgage insurance does not cover your property. It covers the lender in case you default on the loan. So when you're paying mortgage insurance, a lot of people are like, do I have to pay it? Yes, you have to pay mortgage insurance. Unless you're putting 20% down. If you're putting less than 20% down at some point though, what does happen? You do pay the private mortgage insurance, but at some point when you have invested more than 20% towards the principal of your mortgage, you can actually call your mortgage lender and say, hey, I have invested this much. I want the mortgage insurance to come off. The mortgage insurance will not cover your house if it's damaged. The mortgage insurance doesn't cover your house. God forbid if there's a fire. It only covers the lender because the lender is taking a chance on you because you don't have enough skin in the game. You have enough skin in the game for them to say, hey, we're going to give you this, this, this mortgage. But you're putting less than 20% down. So we need insurance on top of what, on top of what we're giving you just in case you default and you cannot satisfy the loan. That is what mortgage insurance is and you can't get around it.

[Troy Millings]

So what's some best practices as far as. For the homeowner's insurance? Right. For the homeowner's insurance. What's best practices that people should be aware of when getting a homeowner's insurance policy?

[Guest Expert]

You get what you pay for cheaper is not always better. And I feel like oftentimes when you're shopping with different home insurance companies and I have great relationships with homeowners insurance companies, you're just thinking, this is going to affect my monthly payment? It is. They take the, the calculation of what it will cost you for 12 months and then you're paying on it every single month as a part of your escrows. Your escrows include your insurance and your taxes. Right. So when you're thinking about, okay, I have to pay this amount, I would say shop and tell them the truth. If you have three Rolex watches in the house. Right. And you just did an upgrade in your kitchen and did soft closed cabinets and wolf appliances, you need to tell your insurance company about this because what Happens is you're getting insured at the house. Let's say you buy a house with, you know, GE appliances, you're just happy to own a home. You read the book I deserve to be Rich. You, you do a stock option play and now you want to renovate your kitchen. Now you and you go and do this whole renovation. It's a hundred thousand dollar renovation and you don't report it to your homeowner's insurance company. What happens in the interim if your house catches on fire? Like I said, like what happened in LA and things like that, if you never paid, the difference in that cost, it's not covered. So that's why keeping up with your homeowner's insurance and making sure that you tell your preferred insurance agency the truth about your assets, they can understand how much it would cost to, to actually rebuild the property. Because there's different levels to insurance. Cheaper is never better. I will always say be educated about the level of insurance that you receive so in case something happens, because that is what insurance is for, you're covered.

[Troy Millings]

And then also it's important because they had a study that like I think 30% of homeowners actually, they're paying more money and all the ancillary stuff than the actual mortgage. So you gotta have a budget. You gotta have an idea of how much money you're going to spend. Because if not, if your budget is like 2500 and your mortgage is 2000, you think that I got a 500 surplus. But then when you add all these utilities and the taxes and then the insurance and then, you know, maintenance upkeep, and the budget is actually your $2,000 a month mortgage actually turns into 4, 500amonth that you actually end up spending. That causes a lot of problems.

[Rashad Bilal]

Yeah. And one of those taxes that I didn't even see in there is school tax. Right? Like everybody wants to live in a great neighborhood and go to the great school. Well, that costs. And so that, that's something that's getting paid semi annually or sometimes quarterly. So just keep that in mind, like when you want to move to that great neighborhood, because it's procedure. School, the people that own property there, they're paying school taxes, which is another amount that you're gonna have to put into that, that, that budget that you apparently thought you had when you were starting the buying process.

[Guest Expert]

Oh, and this is one thing I want to tell you guys, that I'm a, I'm a professional, right. So it shouldn't have happened to me, but it happened to me too with homeowners insurance, one of my investment properties, I'm just like, why is this monthly note so high? What happened? Right? I did put down 20. So I, I just pay yearly, I pay annually. And it slipped my mind to renegotiate the terms of my homeowner's insurance policy. So they increased my homeowner's insurance policy beyond the limit that I wanted was comfortable with. So always remember, you have to advocate for yourself. And every year when it's time to renew that policy, you do know you don't have to be stuck with who you started with. You can actually shop around, let them know you're shopping around. Shop three different people, tell them you're shopping, get the lowest rate and then every but get the lowest rate, that has the highest coverage. Let me say it one more time. Get the lowest rate, that has the highest coverage and that will help with controlling your overhead expenses.

[Rashad Bilal]

Highly important. Vitally important. All right. So.

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