Owning a home is lauded as the best thing since sliced bread, and it can truly be that way. But only if you take care to include all the various homeownership costs when making your decision to purchase.
Too many people only think of the downpayment and monthly mortgage payment when calculating their cost of homeownership, but that’s only part of the picture. To make the best financial decision for you and your loved ones, you need to calculate all the hidden costs of homeownership as well. Keep reading to find out what some of them are.
Yearly Maintenance Fees
Similar to every other thing you own, like your car or your boat, you are going to have to put aside some money in your budget to account for the yearly maintenance costs for your house as well. There is a lot that could go wrong with a house, and even if you purchase a new build, after a couple of years, you might have to replace or repair something.
Some items that need to be replaced or repaired commonly are:
- Appliances might need replacing or repairing (especially if they are older)
- Driveways might need to be repaved
- Landscaping for both the backyard and front yard at regular intervals
- Garage doors
- The flooring
- Foundation
- Windows and doors
- And more
Always keep aside at least 1% of your purchase price for yearly maintenance costs. So, if your home cost you $300,000, keep aside $3000 a year for maintenance.
Property Tax
This will be another monthly cost that you will need to add to your budget. Depending on the area where your home is located, property taxes could be high or low. It also varies depending on the state and county your home is located in.
Funds raised by the government using property taxes go towards building proper infrastructure in your neighborhood, so it’s actually a good thing to pay it. It could be used to build local parks, community centers, roads, and public schools. You could even have a say in the matter if you attend certain local council meetings and vote on issues important to you and your family.
Don’t forget that property tax will also go up over time, as your property value rises and/or your city’s real estate becomes more valuable.
Homeowner Association Dues
If your home is located in a gated community or if you own a condominium, then you will need to pay an additional homeowner’s association fee or condominium fees every month as well. Depending on the amenities that your home or condo comes with, the dues can be quite exorbitant.
Of course, this means that the association takes care of a lot of headaches for you. But it does come at a price.
Again, these dues will also increase over time as the association’s costs and other prices go up. So account for this increase in your budget as well. It could increase every year or every other year, depending on the association.
Homeowner’s Insurance
You will want to buy homeowner’s insurance to protect your home from all sorts of eventualities, like flooding, natural disasters, fire, theft, and burglary. As your home is probably the biggest asset you own, you will want to protect it from all the possible things that could harm it.
There are two types of homeowner’s insurance – personal property insurance and dwelling insurance. Depending on how valuable your personal property items are, you will want to get both kinds of home insurance.
Also, when thinking about how much insurance to get, think about what it would cost to rebuild your house, rather than just what your house is worth currently. This will give you a better idea of how much coverage to purchase.
If you are looking for a suitable vendor, consider purchasing home insurance with LoPriore.
Utilities
Depending on the weather, you could either be paying through the roof for heating or cooling costs (or even both). If you are the kind of person who wants to ensure they live in a comfortable temperature at home all year round, you will want to account for high utility bills in your budget.
Also, if your home is from the older era and still uses oil for heating, then you will have to include a monthly oil delivery cost as well.
You will also have to consider how much water you and your family use. If you use tap water for drinking, washing, and cooking, then you will end up using more water monthly. And don’t forget about Wi-Fi – most American families will not be able to do without an internet connection in their home, especially since a lot of schools and workplaces are going online.
Mortgage Insurance
If you make a downpayment that is less than 20%, your lender might make it mandatory for you to get private mortgage insurance (PMI). You will have to pay this amount monthly unless it’s included in your closing costs.
Once your home reaches 20% equity, you can cancel this coverage. Or you could keep it if you have a job that’s quite volatile and you worry about not being able to pay your mortgage regularly. It could give your family a sense of stability and security.
The True Cost of Homeownership Is Usually Higher Than Expected
Unfortunately, most people who are in the process of buying a home are unaware of all the hidden costs of homeownership. They don’t take into account all the items mentioned above and then end up in trouble when they find out too late that they don’t have enough income to take care of all homeownership costs.
Don’t let this happen to you. Calculate the total cost of homeownership for you by adding up all the possible costs mentioned above and always have a bit of a buffer added in as well.
Did you find this article informative? We have many other related articles on real estate and home, to help you in your future homeownership journey.