When thinking about buying a home, it can be easy to overlook many of the homeownership expenses. The mortgage payments will naturally get most of your attention, but there are other costs you need to consider.
You have to make sure you are ready to cover the expenses, that being a new homeowner brings with it. We look at the costs that are going to be due when you buy a home.
Home Buying Costs
There are some expenses associated with being a homeowner that you have to be ready to pay when the home you purchases closes escrow. Before you consider buying, be sure to create a budget of what you can realistically afford. Use a spreadsheet and understand your current expenses, and what to anticipate with a home purchase. There are monthly expenses that need to be factored into your home buying budget. There is a home buying process that you need to take into account when searching for a home.
One of the largest expenses would most likely be the down payment. There are some excellent tips to save for a down payment so you have sufficient money to put down on a home. Unless you are fortunate to qualify for a zero percent VA loan, you will normally need to find 3 to 20 percent of the purchase price. FHA loans offer 3.5% down payments, though the higher down payment you are able to pay, the lower monthly expenses you will have to find.
There is a difference between the down payment and earnest money deposit. It is imperative that you meet with a lender before home shopping to ensure you are searching for a home in the right price bracket of what is affordable.
Lenders will charge you fees for things like underwriting and processing your application. These charges may not be the most expensive, but they do add up and can be very different depending on the lender. Make sure to take the lender fees into account when comparing mortgage loans available to you. You also want to be aware of all the documentation the lender requires so that your loan is approved. There can be reasons why a buyer fails to be approved for a mortgage.
If you are trying to lower your monthly payments and are desiring to lower the interest rate, you may have the option to pay points to reduce your ongoing and overall mortgage costs. This is a topic to be discussed with your lender as they will understand your overall financial picture.
Moving costs can be a considerable expense if you are moving across the country. Even a local move could cost several thousand if you use a full-service moving company.
On top of these charges, you may need to pay fees or interest that become due before your first mortgage payment. Apart from the moving costs, most of these other charges should be on your mortgage contract from your lender. Be sure to research the movers and check their recommendations. There are some excellent tips about moving. You will always want to plan your move ahead of time.
Other Home Ownership Expenses
There will be many ongoing expenses to cover once you have moved into your property. The utility bill will have to be paid, trash and sewage, along with HOA fees if you live in an association area.
A host of other minor expenses will need to be paid throughout the year, and this can average over $1,000 annually. From cleaning the home to maintaining the HVAC system, as well as pest treatments and yard work, the small expenses are almost never-ending.
Even if you take care of your home, things will inevitably break at some point. Kitchen appliances might need to be repaired or renewed at an inconvenient time, and you will need to find the money to cover the cost. Air conditioning units tend to only last for 10 to 15 years, so be ready to replace them if they are showing their age.
Your home could be damaged by a storm or by accident, but you will normally have to cover the expenses whatever the cause. A home warranty could take care of some of these repairs, though this is another monthly cost for you to pay.
When you move into a new home, you might want to put your own stamp on the property to make it really feel like yours. There are some excellent suggestions on buying a fixer-upper. This is the sort of thing you can put off or choose cheaper options if you don’t have the finances available, however. If you plan to remodel your home after the purchase, there are steps to ensure that you are able to achieve your goal. One is to plan ahead with the remodel and establish a budget.
The loan payments are likely to be your biggest expense of owning a home. Your monthly payments include principal and interest which is amortized over the course of the loan. The payments do pay down the loan balance, but you do pay interest at the rate your lender obtained when you got the loan.
If you had a smaller down payment or decided to obtain an FHA loan, then the monthly mortgage will likely include private mortgage insurance. The requirement for mortgage insurance varies depending on the type of loan you have. VA loans don’t require it, though there is another one-off charge payable, and some conventional mortgages don’t either if you don’t have 20% down. FHA loans do normally need insurance, however.
Property taxes also be part of the monthly payment as well. Though you may need to pay this, and the insurance, directly to the organizations concerned if you don’t have an escrow account.
While the mortgage payment is one of the most obvious and largest ongoing costs involved in buying a home, it is far from the only one. You have to be aware of the expenses that you will be responsible for so that you have the budget to cope with all the costs.
In California, property taxes are due in two installments. December and April. This is another expense that must be budgeted for. Property taxes may also be impounded or included with your monthly mortgage payment. Property taxes are another thing to discuss with your lender to ensure you can afford either the two times per year outlay of expense or pay it monthly with the mortgage.
Other Recurring Expenses to Consider with Owning a Home
There will be other recurring expenses that you can anticipate with you are creating a budget for your home. For example, if you are moving into a condo community that has an HOA (home owner’s association), then you will have your monthly or annual HOA fees to consider.
Expected Monthly Expenses
- Utility bills including electricity, natural gas, water, and trash. Keep in mind if you are moving to a warmer climate and need air conditioning, then your electric bill may be higher.
- Sewer and septic costs depending upon the location of the property you are purchasing.
- Internet and cable monthly expenses.
- Pest control including termites.
- Gardener if your property has a large yard and you are not going to be able to maintain it.
- Pool man to maintain the pool if a property has a pool or spa.
Security System and Cameras
Many homeowners are using security systems and cameras. Ring cameras are great and are motion-sensitive. The cameras do have to make the home more secure and that is an added benefit for a homeowner.
Of course, this is an option, and every homeowner needs to make that decision for themselves. Many of the security systems and cameras can be operated from an iPhone or Android device. This smart home technology will improve the overall value of your home. There are companies such as Ring and Nest which do offer cameras that you can access from your phone. There are also doorbells that get rung through your phone as well.
Even if the home you are buying does not need any “work” at the moment, you need to allocate money on a monthly basis and have reserves for maintenance. Houses are not rocket science, however, things do wear out or break. You could have a plumbing leak, make sure the house has a fresh coat of paint, or even replacing window coverings. It is important to have a reserve account when you purchase the home and save monthly for maintenance on the home.
Buying a home is one of the biggest investments that you will make in your lifetime. Be sure to budget ahead for the costs including the monthly allocations for all the utilities and other expenses. Keep in mind if you need extra funds for any remodeling project. Moving into a new home is a wonderful experience, but you want to know about the monthly financials.
About the Author
Top Newport Beach CA Realtor Sharon Paxson with Newport Beach Real Estate has written the article “What are the Costs of Home Ownership?”. With experience since 2005 representing clients with their real estate transactions including home buying, home selling, and working with lease clients. We welcome the opportunity to share our knowledge and expertise and guide you through the home selling or buying process.