Calculating the True Cost of Home Ownership
Are you ready to purchase your first home? If so, educate yourself on the real cost of owning a home. Although owning a home can be a smart financial decision, it does come with its share of expenses – ones that may surprise you and potentially break your budget.
In particular, current renters may be surprised to discover that the cost of the home is just one factor when determining monthly obligations. Here is a rundown of the true cost of owning a home so you can best decide if making the step into home ownership is the right decision for you:
- Property Taxes – Taxes are an easily overlooked home ownership cost for first-time home buyers, yet it must be factored into the cost of their monthly mortgage payment. Depending on where you live, your taxes could end up making up a large portion of your monthly mortgage obligation. Before you begin looking for homes, always look into the costs of local taxes, so you can be sure you are budgeting accordingly. Keep in mind that your local property taxes will reflect the value of your home, so they will be different depending on where you live and how much your home is worth.
- Homeowners Insurance – You can’t purchase a home without homeowners insurance. Although the average premium for a homeowner’s insurance policy is still less than $1,000 a year, it could make a difference when it comes to budgeting for your monthly home allowance. Remember that older homes are often more to insure than their newer counterparts, and homes that are located in areas that experience more extreme weather, for example, are also more expensive to insure. In addition, if you do not put 20% down on your home, you will be obligated to purchase private mortgage insurance (PMI), which will add yet another cost to your monthly expenses.
- Utilities – Utilities are not often given too much thought by renters, as the landlord often covers a portion of the utilities. However, as a homeowner, you will, of course, be responsible for all utilities, including gas, electric, water, sewer, phone, cable, Internet service, refuse, and recycling. Your full rainbow of utilities can make up a large portion of your budget, and they should be considered when budgeting for your first home.
- Home Maintenance/Repair – Unlike an apartment or other rental property, if something breaks or needs updated or repaired, the cost is solely on your shoulders. From a broken furnace to a leaking roof, you must be able to leave enough room in your budget or maintain a good-sized emergency fund to account for upgrades, updates and repairs.
- Exterior Maintenance – Again, unlike a rental property where exterior maintenance was likely covered by your landlord or property owner, you will need to be responsible for tending to the yard, the exterior of the house and any outside structures, such as porches, patios and decks. If you aren’t a hands-on person, you will need to consider the cost of paying someone to do this work and maintenance for you.
Owning a home can be an excellent long-term investment decision, but before you sign those heaps of mortgage documents, make sure you have accurately forecast the real cost of home ownership so that you can avoid costly mistakes associated with buying a home.