Home ownership is the American dream. We save and set our sights on the perfect home in the perfect neighborhood. Indeed, it’s a worthy goal! But many buyers, especially first time buyers, are taken aback by the initial and ongoing investment that homeownership requires. The price of home ownership includes so much more than just the listing price. Getting educated about all of the unavoidable housing expenses ahead of time can lessen the stress of over extending your budget in the end. Spending the greatest amount for which you are able to qualify is, typically, not the amount you can actually afford. Here are 13 expenditures you’ll want to consider before outlining your budget and setting the price range for your home search.
- Home Inspection
The home inspection is an important part of the home buying decision-making process. A home inspection is not mandatory, but every good agent and home buyer knows that it is essential. A good inspector can save you money in the end, and keep you from making a big mistake. The pricing is based upon the size of the home inspected, starting at several hundred dollars for a smaller home and increasing for larger homes.
The appraisal, however, is mandatory. Your lender will require the property to be valued by a certified real estate appraiser. The value of the home determines the amount of money loaned out on the property. The cost of the average appraisal usually ranges between $300 to $400.
- Escrow Account
The escrow account is sometimes difficult for first time home buyers to understand. In a nut-shell, this account is designed to collect payments for items such as taxes and homeowner’s insurance. The escrow account must maintain a positive balance at all times, and this adds an additional amount to your closing costs and monthly mortgage payment.
- Closing Costs
Closing costs can add up. Of course, you will receive a “good faith” estimate before closing. This should eliminate any big surprises. Still, closing costs can sometimes outweigh the down payment (2% – 4% of the mortgage), so you have to be prepared. Closing costs include items such as loan origination fees, discount points, underwriting fees, surveys, and title search fees. These costs are an unavoidable part of the closing process.
- Homeowner’s Insurance
Homeowner’s insurance, as mentioned before, will be added in as part of your monthly mortgage payment. However, it is important to “shop around” for the best pricing. You will choose your insurance agency and your policy, but your premiums will be paid from your escrow account.
- PMI – Private Mortgage Insurance
PMI is mortgage insurance which is used with conventional loans to protect the lender if the borrower ever stops making payments on the loan. This can add up to several hundred dollars each month, depending on the balance of your loan and rate. Once your loan to value (LTV) ratio is paid down, PMI can be removed from your monthly expenses, but this usually takes years.
- HOA – Home Owner’s Association Fees
HOAs are standard among most neighborhoods these days. These fees will not be included in your mortgage payments. Typically, the fees are collected once a year by the association. They can range as low as $1,000 annually to $1000+ monthly. The HOA fees are something that you need to consider before making an offer on any particular property.
- Mortgage Interest
Mortgage interest, just as it sounds, is the interest rate you pay on your loan. Negotiating the best rate, and/or paying the rate down in the beginning will greatly impact your monthly mortgage payment.
Many home buyers fail to consider the cost of utilities when preparing their monthly budget. Electricity, water, natural gas, telephone, and trash/recycling costs can add up to thousands each month. Be sure to calculate all of these costs before deciding on the price of the house you plan to purchase.
- Property Tax
Yes, the property tax will be included in your escrow account and figured into your monthly mortgage payment. However, it is also something you must consider when looking seriously at any property. The amount varies greatly from state to state, and is used to pay required city, county, and school taxes.
- Maintenance and Repairs
First home buyers are often caught off guard with regular maintenance and repairs. Coming from a rental experience, where everything is covered by the landlord, home buyers do not realize the expense they can occur when it comes to general maintenance. From HVAC systems and swimming pools to regular landscaping and lawn care, the dollars can add up. Don’t forget to include these costs in your budget.
- Moving Expenses
Moving expenses include, not only, the cost of moving your belongings from one property to the next. It also includes initial deposits and connection fees for home utilities and services.
- Furniture and Window Coverings
Purchasing a new home, usually, means purchasing more space. Filling this new space with furniture, décor, window treatments, and other necessities can be costly. Figure these items into your budget as well.
The more you know about the hidden costs of purchasing a new home, the better you will be able to prepare and manage a workable budget. Home ownership is, without a doubt, a dream come true. But, getting in “too deep,” financially speaking, can become a nightmare. Knowing the costs associated with purchasing your home will help you make the difference!