Utility Bill Costs—Have You Taken Them into Account? Part I

The growing trend in America, as has been for many years, is to get the biggest and best home that one can possibly afford. Generally, new homeowners buy homes up to the maximum amount possible based on their income, credit score, and debt to equity ratio. What many homeowners don’t take into account when deciding to purchase a new home is the effect the cost of their utilities, heat and/or air conditioning will have on their monthly cash flow. The desire to have the very best is tempting, but the back end costs can really add up. Utilities on any home can become very costly in the winter and summer months. With the increased desire to purchase larger homes there is the added responsibility of larger and larger utility bills.

For an example take Joe and Mary. They have been married for a year and are ready to purchase a home. Joe works for a growing national company in management, and Mary works at a local company in accounting. Together they earn a cumulative household gross income (before taxes) of $80,000 a year. After speaking with a realtor and mortgage broker, they determine that the maximum mortgage loan monthly payment they are qualified for in order to purchase a home is $1,933 a month which includes the payments for principal and interest, taxes, and homeowner’s insurance. Mary and Joe are excited to purchase a newly built home in a great neighborhood they found, just the style and statement they are looking for, and right at the maximum amount that they are qualified for. Mary and Joe don’t necessarily need this large of a house since it’s only the two of them for now, but see that in the future they will use the rest of the space because they want to start a family. However, this home’s mortgage payment including taxes and insurance are the maximum they are qualified for and it would definitely make money a little tighter for them than what they are used to, but home ownership is the American dream and they want the best house they can get so why shouldn’t they get it?

Five years later, 2 kids and a dog, that once slightly tight budget has gotten much tighter. With minimal increases in salaries and multiple increases in expenses such as gasoline, food, etc their once sufficient cash flow has become a series of budgets and sacrifices.

When consumers like Mary and Joe purchase homes and don’t take into consideration the cost to operate their home, they can end up being financially strapped—“house rich cash poor”. With energy costs rising continuously, utility bills are not expected to go down any time soon, if ever. The market place is unstable, it is a time of war, costs of everything seems to increase almost daily, quality seems to be diminishing and job stability certainly is not what it was 30 years ago. That once affordable 2350 sq ft home is getting more and more expensive to keep warm and cool.

Copyright © 2006, Frangipani & Siti Crook, The Energy Efficient Home Team™