Ahhh the joys of home ownership. This is the first in a series about budgeting for your home, I take my finances very seriously, and encourage you to learn and understand as much as you can before buying a home.

This is not financial advice, I am not a financial expert this is just what I do and what works for our family.

Most people worry about coming up with a down-payment for their first home. It can take a long time to accumulate enough money, and it seems damn near impossible for most Americans. Start with some research and do yourself a favor with some real financial planning.

Before we purchased this home, we were living just south of San Francisco. We initially lived in the Mission and had the joy of our rent increasing by 15% after our first year. Realizing that we really wanted more control over our finances in the future we decided to move south to save money. Our next apartment was a total shithole (we just thought it was outdated but we were wrong), I’m not kidding, we had quite an issue with rats & raccoons in our walls. I’ll spare you the gross details.

Let’s skip ahead a little bit. When researching homes online there is usually a monthly mortgage payment estimate, it is nearly always way off. It depends on the down payment and the interest rate that you actually qualify for. Most people look at this and either panic or they think oh that’s less than my insane rent.

Ok cool, let’s do this.

So, then you run the numbers and feel good about monthly payments, and maybe you have a little budget for a renovation or paint or whatever. Then you should take a look at the utility estimates, how much does it cost to heat or cool a larger space, how much is trash pickup etc?

Add all that shit up. Still looking good?

How much are property taxes?

Property taxes vary depending on where you live, so it’s important to include this when you look at your total cost of living.

We live in a higher taxed state and county, but that doesn’t bother me because we consider it part of paying for the community that we want to live in. When you look at a property tax bill it includes your base tax which is usually a specified % of the total value of your home, plus taxes to cover schools, and shared resources such as emergency services, public parks, transit, and even storm drains, and mosquito control.

It’s also important to understand that bond measures can be added to your property taxes during elections in California. This means that everyone, including people that don’t own homes decided how much home owners should be responsible for paying. Once measures are voted on the county treasurer handles the rest.

Ok, so now what?

Once you apply for a mortgage loan some banks require an escrow account and some don’t.

What is an escrow account?

Escrow is a legal arrangement in which a third party temporarily holds large sums of money or property until a particular condition has been met. There are 2 types of escrow accounts when buying a home.

We are talking about the escrow account for taxes and insurance here.

This means that in addition to your mortgage payment, your bank lender includes another fee that accumulates each month and then they pay your property taxes and insurance with that money. The benefit of this is that you aren’t hit with a large expense twice a year when property taxes are due. However, you are also trusting that your bank pays this on time and there are no hiccups. Doesn’t seem so bad.

How to pay property taxes?

We prefer a lower monthly payment to the bank and create our own “sinking fund” savings account to pay these bills. I’ll get into all of our sinking funds in another article later.

We essentially do the same thing that the bank does, we automatically move a set amount of money each month to a high yield savings account (HYSA). This money sits there and earns interest and then when property taxes are due we have the exact amount ready to go.

So, instead of the bank earning interest on your money, you are earning the interest and accumulating more money until the payment is due.

I also like that you can also just front load it and not worry about moving money every month. This works if you put part of a bonus or tax refund into the account to lower the amount you need to set aside each month.

This only works if you stick to your monthly plan and don’t touch that account for any other reason. For some people it can be tempting to dip into when needed, but it feels good to not stress about writing that big check twice a year.

There is not right or wrong answer, you need to do what works best for you.