Owning a home is more than just paying a mortgage. Other costs include property taxes, homeowners insurance and utility bills.
These costs can add up quickly and may be hard to estimate for new buyers. However, knowing these upfront costs can help you build a realistic budget and decide whether homeownership is right for you.
- Down Payment
If you’re planning to buy a home, saving for the down payment is probably the most important upfront cost. The amount of money you put down, along with your credit score, debt and income, help lenders determine if you qualify for a mortgage.
Your down payment also helps build equity in your new home. However, it’s important to keep in mind that you should have emergency savings and cash available for other financial goals.
In addition, you’ll need to save for closing costs, which typically run between 3% and 6% of the purchase price of your home. You should also plan to budget for moving expenses, and any additional money you want to spend on upgrades or renovations once you move in.
- Closing Costs
Besides the down payment, closing costs are another major expense that buyers need to consider when buying a home. Closing costs include a variety of different fees that are charged at the closing table, including mortgage fees, transfer taxes, surveyor fees, inspection fees, attorney fees, recording expenses, and more.
Closing costs vary based on where you live and your mortgage rates. Use Houzeo’s closing cost calculator to get a better idea of what to expect with your specific transaction.
Some sellers may be willing to cover some of the buyer’s closing costs, known as a seller credit or seller concession. This is typically done when the seller is anxious to sell or has been having difficulty selling the property. However, there are limitations on how much a seller can contribute to closing costs based on your loan type.
- Property Taxes
The mortgage is a big upfront expense but homeownership brings with it ongoing monthly costs such as property taxes. Make sure you understand how the total cost of homeownership fits into your financial goals. A certified financial planner can help. SmartAsset’s free tool matches you with vetted advisors in your area who can discuss your financial situation and provide customized recommendations.
Property taxes are fees paid to state, county and local government authorities that in turn fund local schools, road maintenance and other municipal services. These
fees can vary significantly by state and locality.
Taxes are typically calculated by multiplying the property’s assessed value by the local tax rate, although the exact process varies by state and county. Most homebuyers pay their property taxes through an escrow account that is part of their mortgage payment.
- Homeowners Association Fees
Homeowners associations are governing bodies that establish and enforce rules for specific properties. They are often found in condos and co-ops, and owners are required to pay monthly fees that help maintain the association. These fees may also cover utilities and other amenities.
On average, HOA fees vary, but the amount can vary depending on property location and the extras a community offers. It is important to consider these additional costs when buying a home. Many questions can arise like What is home insurance coverage like? What is covered by home warranty? What is covered by home association fees? It is important to understand all the fees and costs to budget when you buy a new home.
If you are considering purchasing a home in an area with high crime rates or near highways and railroad tracks, consider your commute time to work or school. This can make a big difference in your quality of life. You will also want to research schools in the area, including test scores and teacher-to-student ratios.
- Insurance
Owning a home is a big financial commitment. It’s important to understand all the costs involved before you decide to make the purchase.
The best homeowners insurance companies offer competitive premiums, discounts, and coverage options. Additionally, some offer group or association coverage options for additional savings.
Renting has its perks, too. For example, it’s easier to manage living expenses and landlords typically take care of maintenance.
When you’re ready to buy, be sure to work with a real estate agent who can help you find the right property within your budget. Your agent can also assist with securing your mortgage. And don’t forget to budget for closing costs and other monthly housing expenses. Then you’ll be better prepared to make the best decision for your lifestyle.
