Understanding Costs of Home Ownership

Understanding Costs of Home Ownership

There are other costs to expect besides your monthly mortgage payment when buying a home. Some costs are considered upfront, while others are ongoing. Upfront costs are those that you pay once when you purchase the home. Ongoing costs are the costs that you continue to pay after you buy the home.

Upfront Costs

Down Payment– The down payment is your first investment into your home. The lender decides the minimum amount you can pay for your down payment, which usually ranges from 5 to 20 percent of the sale price. If you have more money saved to make a bigger down payment, this will reduce the amount you have to pay back each month.

Closing Costs– Closing costs are fees associated with your loan and other costs related to buying a home, like inspections. Depending on the kind of loan you choose, closing costs can range from two to seven percent of the home’s price. Not all closing costs are paid at the time of your loan closing. You will pay some fees along the way to closing, like a credit report and appraisal.

Escrows and Prepaids– Escrow and Prepaids are some costs that cover the initial months’ premiums for taxes and insurance. Lenders use these funds to set up your escrow account. Your lender may also want you to pay interim interest, which is interest on the money you borrowed, this covers the days before you loan payments start. For example if you closed in the middle of the month and the payments start on the first.

Reserves– Your extra funds. This is the money you have in your savings account for an emergency or to fix things. Some lenders require you to have reserves equal to two to three months of your house payment. Even if this is not a requirement for you, it is still a really good idea to save you from any thing unexpected.

Moving Costs– Moving costs are the expenses for moving from your existing place to your new house. You might be able to move all your stuff in your car or truck, but you may need to hire professional movers or a moving truck. Other items include utility deposits, changing locks, and any immediate repairs that you need before moving in.

Ongoing Costs-

Utilities– Your utilities are the services that help your house run. When you own your own home you are responsible for paying for heating oil, gas, electricity, water, sewage and garbage. You can check with your real estate professional on the average costs of these services for your new house.

Maintenance– Tasks associated with keeping your home in good working order. There are many things that you will need to regularly check on and service, including your appliances and systems like heating and plumbing. Set some money aside for regular maintenance.

Repairs- Projects that are needed when something breaks in your home. When you own the home you are responsible for fixing things when they break. Set some money aside anticipate and some unexpected expenses.

Home improvements– These are optional projects that change your home and can possibly add some value. Before jumping into any project be sure to make a plan and see how much you can afford to spend.

Taxes and insurance– These are bills that you have to pay every year if you do not have an escrow account, because they are not included in your mortgage payment. Put money aside every month so when the bill comes it isn’t overwhelming.