Owning a home is beneficial in more ways than one. You now have a place to call your own that you can renovate and design as you wish. A home provides shelter and comfort for you and your loved ones. As a homeowner, you also have an asset that can prove beneficial in future financial endeavors. These all sound like good reasons to begin looking for the perfect property to call your own, but not without considering one very important factor – the costs.
All too often, home buyers obtain a property without having a full understanding of what they’ll be required to pay. This then results in a great deal of financial stress for homeowners. Some end up having to take out second mortgages or personal loans while others end up losing their home to foreclosure. To prevent the same outcome for yourself, it is imperative to have a true idea of what it costs to be a homeowner.
Though you don’t have to have the full cost of the house upfront, most mortgage lenders will require you to have a sizable down payment to secure a loan. Depending on the type of mortgage program you’re applying for, your credit history, and the amount you need to purchase the property, you could be looking at anywhere from 10-20% of the overall cost of the property. There are programs available for first-time homebuyers to take advantage of where you can pay a lesser amount for a down, but you’ll still need to calculate these costs.
Loan, Interest Rates, and Associated Fees
If you are approved for a loan, you’ll be required to pay back the principal along with interest for the next 15, 20, or 30 years. This rate is applied annually (deducted manually)and can range anywhere from 3% to 5% of the total loan amount. There may also be other associated fees your lender requires to be paid on a monthly or annual basis.
Another 3-5% (of the total value of the loan) will be required to pay for closing costs. This includes appraisals, property inspections, title searches, deed-recording fees, taxes, title insurance, and credit check fees.
Maintenance and Repairs
As a property owner, you’re responsible for the upkeep and repairs required in your home. Though you can utilize financial resources like payday loans to cover the upfront costs and repay the amount in installments, you should know that maintaining a home and repairing various systems isn’t cheap. Not including unexpected emergencies, you are looking at an average of 1-2% of the total property value each year to keep it up to par.
Property Insurance and Taxes
The out of pocket expenses for a homeowner don’t stop there. You’ll also be responsible for keeping the property insured and paying state taxes. While the amount you’ll pay in taxes will depend on where you live, you’re looking at an average of more than $3,000 a year. Adequate property insurance can cost around $1,000 a year depending on where you live and how much coverage you need.
What good is a home if you don’t have the bare necessities like running water, electricity, and heat? The cost of utilities will depend upon the size of your home, where you live, your usage, and the current market rates. Ideally, however, you’re looking at at least $500 a month or more in utility costs.
HOA or Condo Fees
If you’ve got your heart set on purchasing a home within a gated community or neighborhood with a homeowner’s association or a condo, you’ll also be required to pay the associated fees. These monthly or quarterly payments are required to help keep up the neighborhood. They can be used to pay for garbage pickup, snow removal, parking lot repair, and maintenance for common areas like parks and pavilions. These costs, unfortunately, can increase based on the needs of the community.
Before signing a mortgage agreement and committing yourself for the next 15 years or longer, be sure you’ve done your due diligence. Though buying a home has many different advantages, if you cannot afford the home, eventually, it will lead to your financial demise. Utilize the information provided above to get a ballpark idea of what you’ll need to cover housing costs, then review your budget to see if you currently make enough to afford the house you want.