Buying a home can be a huge transition in life. Moving out from a rental or even your parents' home can have you shouldering a new and hefty responsibility in the form of homeownership.
In fact, taking on a home can be a life-changing experience. Not only can there be plenty of lessons to be learned, but it can alter the way finances are handled, and even determine if there are any finances left to be handled.
Building a better understanding of homeownership costs
Before we ever bought a home, I outlined most of the associated costs and actually came reasonably close in my estimates. However, never having purchased a home before, while I covered things like the monthly mortgage payments, property taxes, insurance, utilities, and home upkeep and repairs, there were certain things about which I just wasn't knowledgeable.
First off, there was how the loan was amortized. Amortization is the way in which a loan payment is broken down between interest and principal, and for those of you who are thinking it's an even 50/50 split throughout the course of the loan, it isn't. Typically the loan payments start off weighted heavily toward paying more interest than principal. Using a loan amortization calculator can provide a better idea of just how a mortgage is broken down this way.
There were also all the costs to obtain the mortgage and buy the home -- application fee, underwriter fee, appraisal fee, title and title company fees, lawyer fees -- and then the closing costs to sell the home -- real estate agent commission, more title and title company fees, more lawyer fees, the survey cost, property taxes due -- that added tens of thousands of dollars to the cost of our homeownership experience.
A lesson in financial life and loss
While the real estate market had been rocketing upward in the years before we purchased, once we bought in 2008, it began to plummet. To make a long story short, we lost about 30 percent on the eventual sale of our home. And while at the time, it seemed a large hit to take and some people questioned why we were selling in 2011, had we waited it out as the market continued to decline, we would have not only lost further value as the neighborhood home values fell further, but we might have missed out on the chance to reinvest in a property that better fit our needs at a much lower price.
Realizing the true responsibility of homeownership
Maybe one of the biggest ways in which buying a home changed my life was that I came to the realization of what a responsibility being a homeowner really is. There was more than just making the monthly mortgage payment and kicking back to enjoy the title of homeowner. There were thousands of dollars in home repairs and maintenance costs -- expenses that average almost $2,000 a year. There were regularly increasing property tax bills that averaged about $4,000 a year. There were the costs involved in buying and selling the home. There were the higher costs that came with heating and cooling a home as compared to an apartment. There were the tens of thousands of dollars we forked over in interest on our mortgage payment. And when something broke, there was no manager or janitor to fix it as there had been in previous apartment settings.
So buying a home meant more than just a place to live, it taught me how much responsibility goes along with being a homeowner and just how expensive homeownership can be.
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The author is not a licensed financial or real estate professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Real Estate