The Real Cost of Homeownership

The Real Cost of Homeownership

With lower home prices and mortgage rates, you may be thinking, is now the right time to buy a house? Probably, but… before you take the leap, it's important to think about the costs of buying a home beyond the monthly mortgage payments.

Most people are aware of insurance, property taxes and closing costs, but there are many expenses, and they can add up. To help you budget accordingly, here are a few of the typical, additional expenses associated with homeownership:

Insurance

Your homeowner's insurance policy is essential to protecting one of your biggest investments – your home! It can protect you and your family in the event of a natural disaster, theft or similar catastrophe. If a loss occurs, your policy will help cover the costs of repairing or rebuilding your home and replacing your personal possessions.

In addition, your homeowners' insurance will provide liability and medical coverage in case someone becomes injured while in your home.

Often, the cost of your policy will depend upon a number of factors, including: insurance replacement cost estimation, your home's age and its location. You may also need an additional insurance policy if you live in a flood or earthquake zone. Generally, however, homeowners will pay an average of $800 a year to cover the cost of their homeowners insurance.

Your insurance agent can give you a quote during the buying process, so you can understand the coverage options available and make the right choice for you.

Property Taxes

As a homeowner, property and school taxes will now become part of your regular monthly expenses.

Often, your property taxes will be determined by multiplying your local tax rate by your home's appraised value. Taxes vary widely from region to region depending on many factors and can
range from a few hundred dollars a year for vacant land to tens of thousands of dollars for homes near major cities.

Make sure to check the current annual tax rate any home you might purchase. Also, remember to ask if your property taxes will increase with the sale of the home. These questions will eliminate any payment surprises down the road.

Closing Costs

Depending on your home's location and mortgage agreement, closing costs usually average 3-5% of your home loan's value, which for most people means between $4,000 and $10,000. This generally includes the cost of inspections, legal work, title insurance, homeowner's insurance premiums and property taxes.

Condo Fees & HOA

If you purchase a home within a condominium or homeowner's association, you will often be required to pay a monthly or quarterly fee. Association dues can range from a few hundred to a few thousand a month depending on the services provided or managed in common. But, these fees are not set in stone. If your association needs to fix the roof on the clubhouse or repave the parking lot, the association may vote to have all members contribute to a fund to cover the costs.

Utilities

Monthly costs for electricity, cable, water, heating and cooling vary depending upon your home's location, size and number of people. Naturally, a single person uses much less water, electricity and heat or AC than a family of five.

Get a good idea of your future home's approximate costs by requesting to see the seller's recent bills for utilities and services.

Yard work

Maintaining your home's curb appeal requires time and money. Purchasing a lawn mower and a snow blower can put a major dent in your savings. Or, if you chose to use a lawn maintenance service, you could spend at least $140 a month on yard work alone.

So, whether you choose to spruce up your exterior yourself or hire a landscaping professional, make sure you have a little money set aside to maintain your home's property.

Maintenance

Performing regular maintenance on your house can help you avoid having to do major house repairs further down the road. Cleaning your gutters and changing your furnace filters are just a few of the routine tasks many homeowners perform.

Some projects, however, such as putting in storm windows and cleaning your chimney may require outside help.

House Repair

While maintenance tasks are routine, housing repair costs can catch you by surprise. A sudden leaky roof, burst pipe or termite invasion are just a few of the costly, unexpected repairs many homeowners experience.

Any one of these costs is quite manageable for most buyers. However, these costs add up quickly. The best way to protect yourself is gathering as much specific information as you can during the buying process to make sure any home you are considering fits your budget and lets you build a cushion for emergencies.