When dreaming about purchasing your first home it can seem like it’s an impossible mission. That’s why planning ahead and carefully working out a budget is vital in attaining your goal of homeownership.
So what are the expenses to include in your new home budget? The only way to know how much home you can afford to purchase is to have a good understanding of the costs involved in owning and maintaining a home.
Private Mortgage Insurance
When your down payment is less the 20 percent, this insurance is added on to your mortgage. The PMI covers the lender should a homebuyer default on the loan. PMI drops off as you build up equity in your home.
Property taxes are an expense that can vary across the nation. The purpose of property taxes is to generate revenue for municipalities, counties, and schools.
Homeowners’ Associations help to maintain common areas in a community/sub-division of single family homes and condominium complexes. These associations govern what can be done to a unit/home and the surrounding area. HOA fees can add several hundred dollars to your monthly household expenses. Though there are numerous upsides to purchasing in a community with an HOA in place, some buyers prefer to have more freedom over what they can and cannot do to their property.
It is a requirement of mortgage lenders that your property has homeowner’s insurance. How much you will pay for this insurance will depend on many variables such as: where you live, the age, type, size of your home. If the property you intend to buy is an older home, the insurance can cost more due to the fact that the home may require more repairs than a newer home.
Utilities and Appliances
When you are a renter, the appliances/utilities are taken care of should they break down. But when you own a home, the cost of break downs is on you. There is no way to gauge when an appliance or utility such as a hot water heater is going to stop working, so it is wise to set aside X amount each month for your “household repair” fund. The trick with any savings fund is to not touch it so that when the need arises, you already have the monies set aside to take care of the repair.
Inspections, Appraisals, and Closing Costs
Although buyers understand they will have closing costs many fail to budget for a home inspection which can also include inspections for radon, termites and mold. There are times when a home seller recently had a home inspection done and has the report, however, a buyer may want to pay for their own home inspector to have another look to compare the findings.
Unless you are paying for your new home in cash, the mortgage lender will require you to pay for an appraisal which can cost a few hundred dollars, depending on the price of the home.
The goal of home ownership is achievable and very satisfying, when you carefully budget and plan ahead.