Home Ownership

Analyzing The Real Costs of Owning a Home

house on moneyMany people are rushing to purchase homes now because of the median costs of buying homes and the parallel costs of renting houses. Getting mortgages has also become easier with people who have scores as low as 625 qualifying for home loans.

Despite the convenience of purchasing your own place and the fact that mortgage payments are spread over 30 years, many first-time homebuyers get shocked by the extra expenses of purchasing homes. You can avoid mortgage frustrations by budgeting properly for your first home. Your first home budget must include the following hidden expenses if you want to avoid any financial hurdles.

1. Closing Costs

The closing costs can range between 3%-5% of the total costs of purchasing your home, and they are usually paid right before you close the deal for your new home. These costs are channeled towards acquiring a title insurance to ascertain you are the sole owner of the property. Part of the closing costs also go to paying off legal services and inspections as well as the escrow account savings for your property tax and home insurance premiums.
You can reduce the closing costs by requesting the seller of your new home to assist you to offset these costs. This arrangement is usually referred to as the seller assist and has become common practice in many property deals.

2. Private Mortgage Insurance

This cost is charged to mortgage borrowers who pay less than 20% of their total home costs as their down payment. The lenders, in this case, compel such borrowers to take out mortgage insurance so that they can recover their money if the borrower fails to pay.
Once you purchase your home, you will continue to pay off this insurance sum until you reach the 20% target, at which point you can request the lender to stop collecting such payments. If you have defaulted from paying your monthly mortgage installment, the lender might continue charging for the private mortgage insurance.

3. Mortgage Paymentsmortgage payments

These are monthly payments that you have to meet depending on the amount of your house loan, the interest rates charged and the time frame within which you have to repay the whole amount. Most mortgage payments will include escrow account services which essentially help you to save up to pay for home insurance and taxes. If your mortgage payment does not include these payments, you must budget for them separately.

4. Property Taxes

Property taxes are charged on every property by the local government. The cost of property taxes is pegged to the size of your home and the location. You have to find out the current amount of property tax charged on your home before moving in. Additionally, you must also find out any ongoing reassessments of property tax and whether they have any financial implications.

5. Home Insurance

Home insurance is one of the prerequisite requirements for many lenders and it is a payment made to insurance companies to protect your home from natural and man made disasters. Home insurance can be particularly handy after storms, floods, fires, tornadoes, and earthquakes amongst other calamities.
Since insurance firms cover the repair costs of your home in case of any disasters, they consider factors such as the location, age and size of your home when calculating the amount you need to pay. You should expect to pay higher insurance rates if your home is located near the beach or in areas that are susceptible to earthquakes and tornadoes. You will also be charged much more if your house is older because it is more likely to have repairs.

6. HOA Fees

Homeowners’ Associations (HOAs) are bodies that oversee the management of homes found n gated communities and controlled development areas. Buyers of condos or townhouses in areas that have been leased or has controlled development, should expect to adhere to the HOA rules including paying the monthly or annual HOA fees. The HOA fees are often used to maintain the property and amenities within the area.

7. Utilities

For many house renters, the utility costs are covered in the rent and so you do not have to worry about costs of gas, water, electricity, heating and air conditioning expenses. Your utility bills will be commensurate with the number of individuals living in your house.
There are many other homeowner expenses that you have to budget for, and these may include maintenance and repair costs. You can no longer transfer the expenses of repairing your plumbing system and lawn care to your landlord because you are now the “landlord”. Budgeting for all these costs and any renovation costs can help you to purchase your home in peace without any surprise expenses creeping up on you.