- 7 different financial costs to consider before buying a home
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If you are thinking about buying your first home; you may have already saved up what you think is enough money, You may have thoroughly researched the local market, and you may have even talked to a mortgage lender to estimate closing costs. While these steps are important to take when preparing to buy a home, it is important to think about the ongoing costs associated with home ownership and maintenance. Owning a home will impact your budget in numerous ways, and you must be properly prepared for the financial changes that are in store for you. It will be a major financial decision you make that can give you freedom and a place to call you own with the idea that your residence can become a good investment. Real Estate Values Rise. Start small and take baby steps to your Dream Home while keeping all your real estate as an excellent source of income to get out of the rat race.
1. Your Down Payment
Most people think about the down payment as a cost to purchase the home rather than a cost associated with ownership. However, it can impact your ongoing financial health, and its long term impact on your finances is important to consider. Some buyers will make such a large down payment that their liquid assets are drained. This creates unnecessary financial stress on you until you are able to replenish your account balances. In other cases, however, a very small down payment is made, and this creates a larger mortgage payment that impacts the budget for years or even decades. Carefully analyze your assets in relation to your need for a smaller down payment as you proceed with your buying plans. Some lenders offer zero down payment but of course that has a higher monthly payment.
2. The Mortgage Payment
Your mortgage payment will be one of the most significant expenses in your budget in most cases. You can adjust your mortgage payment by adjusting your down payment, buying a larger or smaller home, shopping for a lower rate, buying down the rate and adjusting the loan term. As you can see, you have significant flexibility to make the mortgage payment affordable for your budget. Therefore, carefully analyze your budget to determine what an affordable mortgage payment may be before you select the right home to buy.
3. Home Insurance
Depending on the size of your home and its location, you may expect to pay less than $1,000 per year or more than $2,000 per year on home insurance. Home insurance is typically required by your mortgage lender. Even if you pay cash for the home and do not have this requirement mandated on you, it is important to purchase coverage. Home insurance can protect you against financial loss related to fires, theft, natural weather events, floods and more. In some cases, you may be required to purchase additional and expensive coverage. For example, if your home is in a flood plain, you may be required to purchase flood insurance for an additional fee. Other factors can also affect your home insurance premium, such as the size and value of the home, the age of the roof, the location, the exterior materials and more. You may consider comparing insurance quotes on several homes you are interested in to determine which is more affordable.
4. Property Taxes
In most locations, home owners are required to pay property taxes. Some states that do not have a state income tax, such as Texas, have high property tax rates that may equate to two to four percent of the home’s value each year. Other states, such as Mississippi, have an average property tax rate of less than one percent of the home’s value. California is a little over 1% in most areas. This can equate to a substantial amount of money each year because of the high value of a home. In some cases, homeowners may be paying $10,000 or more per year on property taxes. Your mortgage company may escrow for taxes each month, which will increase your monthly mortgage payment. In other cases, the homeowner must properly budget and save to pay this large annual expense on his or her own. Keep in mind that property taxes as well as mortgage interest are typically deductible on your federal income tax return. With this in mind, you may be able to adjust your tax with holdings from each paycheck to properly account for this significant deduction.
If you have been renting a home, you may be accustomed to paying utilities on your rental home each month. In many instances, these expenses may not change much. For example, your cable and Internet bill often will not change if you move to a larger home in the same local area. However, many people do purchase a larger home, and they find that their heating, cooling and general energy consumption costs increase as a result of this. If the home is not well-sealed and the home is substantially larger, the increase in energy costs may be as much as a few hundred dollars a month in some cases. In addition, you may now be responsible for caring for the lawn, or you may simply have the desire to keep a lawn that you own better maintained than the yard in your rental home. Because of this, your water bill may increase as you regularly water your yard. It may be helpful to ask the seller for estimated utilities expenses before you make an offer on the home to fully determine if the property is affordable for your budget.
6. HOA Dues
If you are planning to purchase a home in a neighborhood, you may be required to pay HOA dues. These may be less than $100 per month or significantly higher. HOA dues may be used to pay for community amenities, such as landscaping, a pool, a clubhouse, parks and more. You may avoid paying HOA dues by choosing to live in a rural location.
7.Repairs and Maintenance
Repairs and maintenance on the property is often overlooked or downplayed by home buyers, and this can create an unpleasant shock when you take ownership. Homes require regular maintenance, and this includes everything from lawn care and air filters to replacing light bulbs and more. Repairs are also needed periodically, such as for plumbing leaks, electricity issues and more. You should also account for significant replacements, such as replacing the flooring, HVAC system, water heater, roof and more. When selecting a home, pay attention to the age of its features as well as the current repair needs noted in the property inspection. This will help you to determine if you can afford to take on the property with its current age and condition.
Owning a home can be a dream come true, but it also can be expensive. It is important to review ownership costs before you make the decision to buy a home. Furthermore, select a home that is affordable for you to own when all of these factors are taken into consideration.
Dan Barcelon, Published on March 20, 2017
About Agent Josie: I am a full time Realtor that personally believes Real Estate can be one of the most valuable assets you’ll ever own. I am available to Educate & Guide you and/or your friends on how to climb the latter and get out of the rat race. Build an evergreen family legacy that you will be proud of. I have already helped hundreds of people, Today is your turn. You can Call/Text me at (858) 353-6649 or search 24/7 for San Diego homes on www.PriceOfHomes.com or email me at firstname.lastname@example.org.
~The Way To Get Out Of The Rat Race is Through Passive Income~