Top 10 Homeowner Expenses That You Should Be Aware Of

Is buying a home for the first time on your list of life goals? Many people in the United States would benefit greatly by making the choice to own a home. Aside from the obvious financial benefits, buying a home also offers a number of other advantages over renting.

Buyers in many U.S. cities are told by real estate brokers that buying a home is more cost-effective than renting a similar one. Actually, it’s not uncommon for a mortgage payment to be less than the monthly rent you’d have to pay. You should be aware of all the costs associated with buying a home, mortgage payment included. In light of this, here are eleven potential up-front and ongoing costs of home ownership to consider before you even begin looking.

Paying down your mortgage:

Let’s start with the largest outlay of money. A mortgage lender will most likely be your go-to for a loan when purchasing your first house. The only way to avoid monthly mortgage payments is to purchase for a home in cash. Your lender will apply some of the payment toward your principle balance, and some will go toward insurance premiums.

Taxes on Real Estate:

Your residence is subject to annual property tax payments. Where you live has a significant impact on how much you will pay in property taxes. If you own a $250,000 home, you may expect to pay anything from $675 in Hawaii to $6,000 in New Jersey in property taxes. Typically, mortgage holders will make monthly payments to their mortgage servicer that include a portion of the property tax bill. The money will be held in escrow until the time comes when the lender will pay the full amount of your property tax obligation.

Insurance for homeowners:

In most cases, homeowners insurance is a precondition of keeping a mortgage on one’s property. It’s prudent to keep insurance even if you own your property outright. In the event of a disaster, such as a fire, homeowners insurance can protect you financially. It’s common practise to pay this cost every month as well. In fact, the sum of principal, interest, taxes, and insurance is typically referred to as PITI because it is so frequently needed.

Remember that standard homeowner’s insurance coverage won’t pay for things like flood damage. In some places, such as those at risk from hurricanes, windstorm insurance is also considered to be a separate policy from flood insurance, which may be required by your lender if you live in an area prone to flooding. If you want to get a feel for the local real estate market, it’s a good idea to talk to a local insurance agent about the mandatory (and voluntary) types of homeowners insurance in your area.

Mortgage loan coverage:

Private mortgage insurance premiums are typically added to a borrower’s monthly payment when a down payment of less than 20% is made on a home. Mortgage insurance for FHA loans is different from that for conventional and other forms of mortgages, which is known as private mortgage insurance, or PMI. This cost varies widely based on factors including the type of mortgage and the amount of the down payment. After reducing the loan-to-value (LTV) to 80%, you can submit a request to have your mortgage insurance premiums cancelled.

Funds held in escrow:

Your mortgage payment often includes escrow deposits for property taxes, homeowners insurance, and mortgage insurance, as I explained before. However, you won’t be starting out with a blank slate in your escrow account; you’ll likely be asked to pay a small deposit when you close. In case your real estate or insurance premiums end up being more than the lender anticipated, these funds will be available in your account.

Points on a mortgage:

Points on a mortgage are a form of upfront financing cost that some borrowers choose to pay. With a mortgage, you can pay a higher number of “points” up front in exchange for a reduced interest rate throughout the life of the loan. Paying points, which are equal to one percent of the loan’s principal at closing, can be worthwhile if you plan to keep the house for a long time and the interest savings will more than make up for the upfront cost.

Financing fees:

Again, the closing fees will differ greatly from one property and one region to the next, and from one loan to the next. Closing expenses are typically between one and three percent of the purchase price of the home, though they can be much higher for more affordable residences.

Common closing costs include lender fees for origination, processing, and underwriting the loan; appraisal fees; title insurance; deed registration fees; document preparation fees; credit report fees; and more.

Utilities:

Most people who live in apartments and pay rent each month are accustomed to covering the cost of some amenities, such as power, cable, and internet. You may not be acclimated to the monthly expense of certain utilities until you buy a home. In many cases, tenants don’t have to pay for utilities like water, sewer, and trash removal because they are bundled into the rent. When house hunting, be sure to set aside money for them.

Condo fees:

There is a fair probability that you will be required to pay a homeowners association (or HOA) fee if your new home is located in a neighbourhood or if you are purchasing a condo or townhouse. HOA fees are typically paid monthly and can vary widely depending on the area and the amenities provided.

For instance, my HOA fees are $30 per month ($380 per year) and cover things like common area maintenance and a community pool. It is not unusual, however, for condo and single-family house HOA dues to be significantly higher to account for items like building insurance, cable, yard maintenance, and so on.

Management:

Listed below is the single most unpredictable cost that will need to be accounted for. When you’re a renter, your landlord is responsible for fixing things that break, but eventually you’ll want to fix certain things yourself. Depending on the severity of the damage, home maintenance can cost anything from a few dollars (to change the air filters) to several thousand dollars (to replace the roof).

Maintenance costs should be estimated at roughly 1% of your house’s worth per year (say, $2,000 on a $200,000 home). This varies greatly from one year to the next and is typically substantially higher for older properties.

Prepare a spending plan that takes these considerations into account:

So let me explain. First-time buyers frequently overestimate their financial capabilities while looking for a home. They aren’t prepared for all of these costs, which is a major factor. Years ago, when my wife and I were initially house hunting, I would have appreciated a list like this one.

Simply put, you may avoid getting in over your head with excessive housing bills if you have a reasonable estimate of how much you’ll have to spend for your property and its accompanying expenses.