Hidden Costs for Homeownership
Category : Need to Know
Hidden Costs for Homeownership
I have owned a few homes as well as leased a few. There are advantages and disadvantages to both. Once you have made up your mind that you are going to purchase your own home, there are some things to consider financially that some Real Estate Agents may not inform you of.
It’s not just as simple as looking at the sales price of a home, figuring in a interest rate spread over 15 or 30 years and voila, you know what this new home is going to cost you on a monthly basis.
No, there are some other things to consider that may cause you some financial stress and rob you of fully enjoying your new dream home.
On top of your new mortgage you just took out, here are a few important considerations when planning out your monthly budget.
Hidden Costs for Homeowners – Property Taxes
Property taxes is something every property and home owner has to contend and deal with on a yearly basis. Your property taxes are typically based on the location of your property and the size of your property. These tax monies go towards the cost of street lights, road repairs, public works, government employee wages and local public schools. As your home increases or decreases in value, so do your property taxes fluctuate accordingly.
Some people choose to pay their property taxes up front in one payment, while others may choose to pay them monthly out of their escrow account set up at the closing of the purchase of the home.
Forgetting to include the cost of your property taxes on your home could thrown your budget into a whirlwind.
Hidden Costs for Homeowners – Home Owners Insurance
It goes without saying, or at least it should, that no one is going to get away with taking a mortgage out on a home purchase without having to show proof of and maintain home owners insurance. This protects the home in the event of an unexpected and natural occurrence that could damage the home and affect the value should the damages be costly.
Hidden Costs for Homeowners – Supplemental Insurance
In addition to your homeowners insurance that protect you and your home against things such as plumbing mishaps, normal storm damage, roof leaks, etc., you may live in an area that is prone to natural disasters such as frequent flooding, earthquakes, tornados or hurricanes. If this is the case, you are likely going to be required to purchase a supplemental homeowners insurance policy that will cover these natural disaster type of occurrences your regular homeowners insurance do not cover.
Hidden Costs for Homeowners – Mortgage Insurance
Different than homeowners insurance, mortgage insurance protects the lender in the event you default on your loan. Depending on how much money you put down on the house, 20% or more, you may not be required to purchase mortgage insurance. If you bring less than 20% of the loan/purchase amount to the closing however, chances are, your mortgage company is not going to allow the transaction to go through. Mortgage insurance is typically 0.5% – 1% of the loan amount and is, in most cases, lumped in with your monthly mortgage payment.
Hidden Costs for Homeowners – HOA Fees
HOA fees are an expense not all homeowner or condo owners have to pay for. If you purchase a property in a neighborhood that has an existing HOA, then this is an expense that must be considered when determining if you can afford the property you are considering. The HOA fees cover a myriad of expenses such as local neighborhood park, pool or community center. HOA costs can vary widely depending on your association. Expect to spend anywhere from $10 to hundreds of dollars per month.
Hidden Costs for Homeowners – Home Maintenance
Now that you have purchased your dream home, you will now have to take care of it. There are ongoing maintenance costs associated with the upkeep of a home that can not be ignored, lest you compromise the investment of your home. Air conditioner, appliances, plumbing, lighting, flooring, painting, the roof and even sometimes new windows. Industry practices suggest that a homeowner allocate at least 1% of your homes value to ongoing maintenance costs. In reality however, 1% is only the starting point when considering landscaping projects, home decoration and upgrades.
Hidden Costs for Homeowners – Landscaping and Lawn Care
After you have settled into your new home, there are going to be things on the outside of your home that will need regular attention such as lawn care, landscaping and possible tree care. Depending on the are of the country you live in, this may be seasonally, or it could be a monthly, year round expense.
Buying your own home is likely one of, if not the single most, significant purchases in your life. Before you even start the process of looking for a new home, consider all of the expenses associated with home ownership and go into the process with a balanced and realistic expectation of costs.