Monday, February 13, 2012 / by Justin Hoffmann
When budgeting how much home you can afford, its important to understand and anticipate the costs of owning and maintaining a home. Here are a few things that some first-time buyers forget to include.
Private Mortgage Insurance
This is added on to your mortgage when the down payment is less than 20 percent. You can buy a home with less money but youll pay the PMI which covers the lender should a homebuyer default on the loan. As you build up equity, your PMI drops off.
Property taxes generate revenue for municipalities, counties, and schools. Its an expense that can vary across the U.S. However, on average, its 1.38 percent of the homes value. Back East tends to have the highest property taxes.
Homeowners Association fees (HOA) can add several hundred dollars to your monthly household expenses. These HOAs help to maintain common areas, typically within condominium complexes. They also govern what can be done to the unit and the surrounding area. While there is an up side to HOAs, some buyers prefer to have more freedom over their property, perhaps, until the neighbor paints his house turquoise with red accents.
Lenders require homeowners insurance on your property. The amount youll pay depends on many variables including: where you live, the age, type, size of your home. For example, older homes can cost more to insure due to the fact that they may require more repairs than newer homes. Also, high-hazard areas can cost more to insure and some insurance companies may not offer an insurance policy for your home, if youre in a high-risk area.
Utilities and appliances
These areas can be overlooked because, often, when people are renting the appliances are taken care of. When you own your own home, be sure to consider expenses such as the water heater or dishwasher breaking down. While, you cant exactly figure out when an appliance is going to quit working, you can set a monthly allowance aside to start establishing a household repair fund. Just dont touch the account or when you really need it, youll find its not there for you.
Inspections, appraisals, and closing costs
Many buyers understand they will have closing costs but they fail to budget for other items such as a home inspection. Sometimes inspections are paid for by the seller but its usually the buyer who pays for the inspection. And, even if the homeowner recently had a home inspection and has the report, a buyer still might want to pay for an inspector to have another look to compare the findings.
Depending on the home, there may also be other inspections such as for lead paint, pests or radon gas.
While the extra expenses do add up quickly, if you carefully budget and plan ahead, the goal of homeownership is achievable and very satisfying.
By Phoebe Chongchua