Most soon-to-be homeowners are prepared to budget for their mortgage payment and down payment, but you should go into your dream of homeownership with a clear picture of all of the costs associated with this milestone. There is a long list of pros to the investment of owning a home, including building up equity, tax benefits, and control over the decisions you make about your living space. Eagle Home Mortgage is here to make sure you’re prepared for your homebuying journey. We have outlined some costs that may not be at the top of your mind when it comes to estimating how much home you can afford.
Closing costs can include a long list of expenses including mortgage taxes, lender application fees, attorney’s fees, title insurance (the insurance policy for the deed), recording fees (paid to the county clerk’s office to record the deed), and any potential real estate tax reimbursements if the seller has paid them upfront. All in, you’re generally looking at an average of 2 to 4 percent of the total cost of the home. Closing costs will also vary from state to state. Make sure you understand what’s included in your closing costs before you buy.
A mortgage will also require the purchase of homeowner’s insurance, which will cost more than the renters insurance you’re probably used to. Factors such as the age of the house and your credit score will impact the cost of your homeowner’s insurance. Insurance companies can even monitor your credit score overtime and raise your rates accordingly. Note, if you live in a flood zone, earthquake zone, tsunami zone or volcano zone, you’re going to have to pay extra for hazard insurance.
You need to find out what the taxes are in advance (they’re usually on the MLS listing), divide it by 12 and add it to your estimated monthly payment. Remember, the taxes are just going to keep going up — you could even get a tax increase in the first year you own your home — so make sure you have room left in the budget to account for higher taxes.
When renting, many utility costs are covered or already rolled into your rent, such as trash removal and water, so you might not notice how much you spend on them monthly. When owning a home, make sure you budget beyond the utilities you’re accustomed to paying for, such as electricity, and think about costs you might not normally account for. If you are buying from a previous owner, you could always ask them what they paid on average for utilities to get an idea of what they might cost you month-to-month.
Owning a home also means you’re responsible for anything that breaks inside your home such as water heater, plumbing, etc. The cost for repairs will be coming out of your pocket. Maintenance costs will also include upkeep such as house cleaning, yard care, gutter cleaning, and pressure washing. According to the Harvard University Joint Center on Housing Studies, a good rule of thumb is to budget 1 to 2 percent of your home’s value each year for unexpected repairs.
If you’re part of a homeowner’s association, don’t forget to add these monthly dues to your mortgage payment when deciding how much you can afford. Neighborhoods that offer extra amenities or require a lot of communal upkeep will have higher HOA dues. HOA fees are mandatory and can range from a nominal fee, to a few hundred bucks, to upwards of $1,000, depending on the neighborhood in which you buy.
If you’re upgrading from a rented apartment to purchasing your own home, congrats! But keep in mind that extra space will likely mean shopping for extra pieces of furniture to fill that space. A one bedroom apartment probably won’t have enough furniture to fill a 3 bedroom house, especially if you were renting a furnished dwelling. Decorating your own home can be a blast and there are ways to shop affordably for home furnishings, but make sure to account for this extra cost.
We believe the benefits of homeownership far outweigh the costs, as long as you are prepared for the amount you’ll be paying at closing and on a monthly basis. Eagle Home Mortgage is here to help you stay informed, from realizing your dream of home ownership to starting the process & beyond.