With the housing market beginning to turn around, more and more buyers are dipping their toes into the real estate pool, hoping to make the switch from renting to owning before prices fully rebound. Buying a house is a thrilling experience, but the danger of taking on more expense than you can afford is very real. These tips will help you to understand the actual cost of owning a home and the costs of buying a home, above and beyond the monthly mortgage payment.
- The cost of property taxes will vary widely from place to place because they can be assessed by state and local governments. Before purchasing a home, investigate what the monthly property taxes will cost. In general, this will be about 1 to 2 percent of the value of your home, which means that if your home is worth $200,000, the property tax will be between $2,000 and $4,000. Given those numbers, you would need to plan for an additional $177 to $333 each month.
- You will also be required to carry homeowner’s insurance on the property. This will also range in price depending on many factors, but in general it will be approximately $25 a month for every $100,000 in home value. This means that the home used in the previous example will be looking at another $50 or so per month. This is not an optional cost, and even if it were, it is for your own protection and an important part of responsible homeownership.
- Remember that when you own your home, there is no landlord to come in and fix any issues that arise. If the water heater gives out, the basement floods, or the refrigerator needs to be replaced, those costs will come out of your pocket. There is no way to accurately predict these expenses, but many financial planners recommend that you plan to save $100 per month for your repair fund. You won’t need it all the time, but you’ll be glad you have it when the time comes to replace the stove or update the wiring.
- If your down payment was less than 20 percent of the cost of the home, you will be responsible for private mortgage insurance. This will be about $45 per $100,000 of your loan, which means that the more you borrow, the higher it will be.
- Many renters are accustomed to paying only some of their monthly utility bills. Bear in mind that when you own your home, you alone will be responsible for water, power, gas, sewer, and trash service. These costs will range widely, and not every house will use gas, but research the cost of these essentials before you buy in order to account for them when deciding how much house you can afford.
Frank Newhouse is a freelance writer with experience in property management and finance. He currently writes for AC Florida, which helps people find air conditioning services.