Estimated Costs of the First Year of Homeownership
Although the current market conditions have led to increased levels of affordability, there are additional costs beyond the monthly mortgage payment when you purchase a home. And whether you’re coming from renting an apartment or owning, it’s hard to anticipate exactly how much money these extra expenses will cost. The key is to prioritize what’s most important and know when to ask for assistance. Let’s take a look at some of those costs now:
Closing costs are the costs associated with the transaction of buying a home, such as attorney fees, title service, documentation fees, a survey fee, application fees, inspections, appraisal costs, etc. The amount can range from 1 to 8% of the price of the home, although typically they fall between 2-3%. It’s important to account for this, as they are out of pocket expenses in addition to a down payment.
A mortgage lender typically requires any borrower who makes a down payment that is less than 20% of the home’s value to purchase mortgage insurance (MI). This protects the lender should they incur any losses due to the default of a mortgage loan. You’ll also have to get homeowners insurance which helps protect you should anything happen to your home. You may also be required to buy flood insurance if the property is in a flood zone.
Perhaps the scariest costs associated with homeownership are the maintenance costs, as these are unknown and, therefore, hard to estimate. But the only thing worse than dealing with repair issues is not having money to take care of it. It’s recommended that you anticipate spending at least 1% of your home’s value per year on maintenance and repair, more if the home is older or in poor condition. One way to help ease the burden of home repairs would be to purchase a home warranty, which is a service contract that covers commonly-occurring home repairs and replacements.
Furnishings and Appliances
With the abundance of foreclosures in the market, it’s important to factor in the costs of cosmetic repairs, furnishings, and appliances that are associated with the purchase of a home. It’s very rare to find a home that meets all of your search criteria, so prioritize what’s most important to change immediately and what can wait. For example, an oven that is from the ‘50s and doesn’t fit a standard baking sheet will be hard to live day-to-day versus a mantel that’s hideous to look at.
The good news is that in today’s real estate market it’s standard to ask the seller assistance to help with some of the costs of homeownership such as closing costs, carpet allowances or even a home warranty. Just make sure your agent put that in the terms of the offer. The bottom line is, being prepared for the extra costs associated with homeownership is crucial. Knowing what to expect and how to budget for these expenses them will ensure that your homeownership experience is a positive one.
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