Whether you are a new home owner or in the process of buying your first home, your attention has probably been focused on financing and interest rates, and more specifically, your anticipated monthly payment. This is understandable, and certainly that monthly mortgage payment is important when it comes to how home ownership is going to impact your wallet.
But understanding home ownership costs means thinking beyond your monthly mortgage payment and your ability to make those payments on time.
Home owners typically focus on principal, interest, taxes and insurance, if they look beyond principal and interest at all. Unfortunately, it is fairly common to overlook many of the other costs of buying and maintaining a new home, whether you build or find an existing house to call your own.
Some home ownership costs will pop up as you securing financing and close on your home, while others won’t become evident until well after you move in. Regardless of what category these costs fall into, it’s important to go into home ownership with your eyes wide open and with a thorough knowledge of the true costs of becoming a home owner.
Before you even put the key in the lock, you will need to deal with closing costs, which vary from state to state, but can run into thousands of dollars. The list can get lengthy, but the list of closing costs typically include the appraisal, inspections, title insurance fees, fees related to pulling your credit report and other expenses. You can expect closing costs to run about 2 to 5 percent of the purchase price of your new home.
Depending on your agreement with the seller and what is contained within your accepted purchase to offer, the seller may assume all or a portion of the closing costs, getting you off the hook. You may also include some of expense in your offer so that you do not have to come up with the additional cash upfront.
Is your loan payment less than 20 percent of the purchase price? If so, you can expect to add the cost of private mortgage insurance (PMI) to your monthly mortgage payment. PMI allows buyers to purchase a home with a smaller down payment, while providing some protection against default for lenders.
You are not going to be able to secure a home loan without evidence of a home owners insurance policy. Keep in mind, however, that a basic policy likely doesn’t cover every natural disaster that could strike. Ask your insurance agent to discuss your policy with you in detail.
You may need to add a rider to your policy if you have a lot of valuable art, jewelry or similar items. You may also want to consider adding supplemental insurance to cover damage by floods, hurricanes, tornadoes or earthquakes if you live in areas prone to these natural disasters and your policy does not already provide coverage.
Property tax information is public, so it’s easy to learn how much was paid in taxes during the most recent tax year on the property you’re planning to buy.
Property tax amounts can vary widely from one state to the next. Do a little research so you can anticipate how much you will need for property taxes. Your lender is likely to include taxes in your monthly mortgage payment, where it will then be placed in escrow until your taxes come due.
Keep in mind, however, that you will still need to pay any difference between what you have in escrow and your actual tax bill.
Unless you purchased a fixer-upper, you have probably been too focused on the best attributes of your new home to consider the areas that will need your attention—and dollars.. But even new houses require regular upkeep and maintenance.
In addition to minor tasks done on a regular basis, like changing HVAC filters, it won’t be too far down the road before you begin to anticipate a major repair or renovation, like replacing a roof or furnace. In fact, it’s a good idea to expect a major repair or replacement—costing hundreds or even thousands of dollars—every year and set aside some money in an account dedicated for such repairs.
In addition to the home itself, you will need to plan ahead for exterior costs like:
While it is more fun than cleaning gutters or changing a furnace filter, there is still a cost to filling your new home with suitable furniture and adding your touch to the decor. You probably already have some furniture, but you may find it does not fit your new home. Or, you may need to buy additional furniture to fill your new place.
You will likely also run into some decorating costs, from custom window coverings to just the right decorative accents for your living room.