Most people dream of owning their own home, and it does offer a lot of benefits. You get some tax write-offs, you can earn yourself some equity, and you have a place that you can call your own. However, what most people fail to realize is the actual cost that comes with buying a home. Buying a house isn’t just about paying your mortgage, it’s also about including the added expenditures of owning a home, which include things like insurance, taxes, utilities, and all the things in between. Before you start house hunting with what you believe is your budget, first understand the true cost of buying a home.
Mortgages
Have you ever looked at houses online and notice a mortgage calculator on the page that tells you something along the lines of this $300,000 home you’re looking at will only cost you $800 a month in a mortgage? It’s a trap. First, those numbers are usually skewed based on the best possible interest rate, a hefty down payment, and not factoring in anything but the mortgage. However, when you factor in the true interest rate, the property taxes, the insurance, and other added fees, this number could actually double. Never base your budget on what you see on these websites. Instead, talk to a real estate broker or lender and find out exactly what your monthly payment would be on a home based on your specific details. By doing this, you may realize your $300,000 budget just went down to $150,000.
Insurance
Most states require you to have homeowner’s insurance. This is designed to protect your investment and assets in the event of a lawsuit or damaged property. Some people opt to pay their homeowner’s insurance out of their own pocket while others roll this cost into the escrow of their mortgage payment. Either way is acceptable, but you need to factor in this cost when looking at your budget. The price of homeowner’s insurance will vary on a variety of topics, such as what your home is worth and where it’s located. For instance, homes on the ocean will cost more to insure than homes that are inland. Find affordable insurance brokers in your area and talk with them about the cost of homeowner’s insurance. This can help you get a better understanding and balance your budget.
Taxes
Aside from your mortgage and your insurance, you’ll also need to pay taxes on your home. This is typically done through property taxes, and the cost of this will vary on where you live. Like homeowner’s insurance, your property taxes can be rolled into your monthly mortgage payment or can be paid out of pocket. What you also need to realize is that property taxes tend to go up every year, so you need to ensure your budget is flexible enough to accommodate this change. It’s also important to understand you have some tax incentives as a homeowner, though, so be sure you’re getting all the cutbacks and breaks you can to help alleviate some of this cost.
Additional Expenses
Buying a home often comes with other expenses. For instance, you’ll need to have money to put into an escrow account when you put a bid on the home. You’ll also need money for a real estate lawyer and a real estate agent, if necessary. If you don’t have at least 20% to put as a down payment, you’ll need to get an FHA loan, which requires you to pay PMI insurance. This is another monthly expense you’ll need to pay that will increase the cost of your mortgage. Talk to your financial institution about all the costs associated with buying your home or getting your loan so you can fully understand what you’ll need to pay.
Utilities
Being able to pay your mortgage is one thing, but you don’t want to be house poor because of it. This means you need to understand what you’ll need to pay in terms of household utilities, such as water, electricity, and gas, and those are just the basics. When you factor in everyday living expenses like vehicle gas, groceries, debt repayments, and entertainment, your cost of living will just continue to rise. Be sure to create a true budget that doesn’t exclude anything so you can be sure you truly can afford living in the house you have your eye on.
Buying a house is exciting, but you don’t want to put yourself into a bad financial situation because of it. Be sure to fully understand the costs involved and have a true plan before you start to look.
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