Becoming a homeowner isn’t as easy as it seems. The true cost of homeownership involves several hidden factors and expenses beyond the typical down payment and monthly mortgage payments. Below are some potential expenses you need to be prepared for before owning a home.
1. Down Payment
When buying a home, one of the biggest upfront expenses is usually the down payment. The down payment you choose to make on your home determines the kind of mortgage you qualify for, the amount of money a lender will give you, as well as the loan’s terms and conditions.
2. Closing Costs
Closing costs are the fees charged at the end of a real estate transaction. Both buyers and sellers may be subject to different forms of closing costs. They can vary widely depending on the home, location, and other variables.
Generally, common closing costs may include your lender fees, application fees, processing fees, appraisal, discount points, underwriting fees, title insurance, recording fees, attorney fees, setting up your escrow account, and tax certification.
3. Mortgage Insurance
If your down payment is less than 20% of your purchase price when obtaining a mortgage, your lender will most likely require you to get private mortgage insurance. Moreover, if you end up not paying for this coverage in full as part of the closing costs, you will have to pay it monthly. Once you pay the loan to a loan-to-value ratio of 80%, you may be eligible to cancel your mortgage insurance.
4. Homeowner’s Insurance
Homeowners insurance is a type of insurance that can cover both interior and exterior property damage, loss or damage of valuable assets, and personal injury.
For most individuals, their house is the largest asset they own; therefore, this insurance is a must-have to protect your home and save money in case something catastrophic happens. You will shop for your own insurance policy and then the cost is usually added to your monthly mortgage payment.
However, it’s essential to mention that a homeowner’s insurance doesn’t cover “acts of God,” which typically include weather events like floods, storms, and hurricanes. Meaning you may need to pay for extra coverage against natural disasters.
5. Property Taxes
Property tax is another cost of homeownership that will always be there. This tax is usually calculated on an annual basis by your local government based on your home’s location and their assessed value. The funds raised through property taxes often go to activities and programs that benefit your local community, such as roads, churches, and public schools. Oftentimes, this is also included in your mortgage payment and will fluctuate year to year.
Transitioning from apartment living to owning a home can be a shock to your budget, so being aware of all the potential ongoing expenses is key. Water, garbage pick up, pest control, termite bond, internet, television, and security (can’t find the word, but basically ADT) are common expenses that homeowners will see on a regular basis and these expenses can fluctuate year over year or based on the different times during the year.
7. HOA Fees
If your new home is in a neighborhood, townhome, condominium or gated community, there’s a good chance you will have to pay homeowner association fees (HOA). This charge covers costs for services that benefit everyone in the neighborhood, like common area maintenance and garbage collection. Some communities may even have 2 HOAs depending on the size and the amenities offered.
While the total cost of homeownership can be quite expensive, owning a home can be a great investment that could benefit you in the future. A reputable real estate company will help you calculate all the expenses that come with owning a home and set a budget that suits you financially.