Why Owning a Home Is More Expensive Than You Think
Buying a home is expensive, but the actual selling price is only a subset of the total costs associated with homeownership. Before you even move in to your new home, you'll face closing costs and home inspection fees, not to mention the expense of any work you want to have done on the house, from painting to repairs, before you get comfortable.
Here is a roundup of some of the costs you should make sure you can afford before deciding to transition from renter to homeowner:
1. Getting a home inspection. Since a home purchase is likely to be the largest financial investment of your life, it's a good idea to have it professionally inspected beforehand. The cost of a home inspection, which can run several hundred dollars or more, is typically incurred by buyers before closing.
2. Checking for pests. Buyers should consider obtaining a separate inspection for wood-destroying insects, such as termites. Termite inspections typically cost between $50 and $200, but if you catch a problem, you can save yourself a lot of trouble (and expense) down the road. One reason to catch trouble earlier is because you can include taking care of the problem as part of your negotiations with the seller. Perhaps they can pay to have damaged wood replaced, for example.
3. Appraisal fees. It might feel unnecessary to you, but before you can purchase a home, your lender will require you to have the property valued by a professional real estate appraiser. Lenders use such appraisals, which typically range between $350 and $400, when determining the amount of money to offer mortgage borrowers.
4. Closing costs. When you arrive to sign your closing documents, be prepared to pony up thousands of dollars for assorted fees. Such expenses, known as closing costs, can include processing fees, underwriting fees, recording fees, survey fees and title insurance fees. Closing costs usually range between 2 to 3 percent of the mortgage loan amount.
5. Moving expenses. Unless your new house is around the corner or you have a large group of helpful friends, you'll likely need some professional help to transport your belongings. Such expenses can reach several thousand dollars or more, depending on the distance of the move.
6. Furniture. Once you've lugged all your furniture into your new home, you may find that your old sofa and dining room table aren't nearly enough to fill out the house. The beds, lamps and tables often needed to furnish additional rooms can add up quickly. And if you're upgrading from an apartment into a home, you might also be tempted to splurge on nicer items, all of which can strain your budget.
7. Property taxes and homeowners insurance. If you've never had a mortgage before, be aware that your monthly bill won't simply reflect the loan amount plus interest. It will also reflect property taxes and premiums for homeowners insurance, which all mortgage borrowers are required to obtain. While homeowners are also eligible to deduce their mortgage interest on their taxes, that benefit isn't likely to offset the increased monthly expenses that come with your new mortgage.
8. Supplemental insurance. Depending on where you live, you might want to consider other types of insurance related to your home, including umbrella insurance and flood insurance. Some insurance add-ons, like for valuable jewelry, can be done through your primary homeowners insurance. When you're shopping around for policies, be sure to compare not just prices but also the fine print describing what's included in coverage.
9. Homeowners association/condo fees. Consumers who buy into certain developments will have an additional monthly fee on top of their payments for principal, interest, taxes and insurance. Condominium and single-family developments often charge residents for services that benefit the entire community, like lawn mowing or employing a front desk attendant. Even if you find the services well worth the cost, you still don't want to forget to factor them into your budget, because they can be significant.
10. Utilities. You may be surprised by how much you'll need to budget to keep the house warm and the water running. Utility costs will vary by region and consumption. To get a sense of the costs, homebuyers should ask sellers for monthly utilities estimates before they close the transaction. You can also look into adding insulation, an adjustable thermostat and other measures to reduce the costs.
11. Ongoing maintenance. Although that big backyard might be a great place to grill burgers, it's also an expense. As a homeowner, it's your responsibility to keep your property maintained. That means raking the leaves, mowing the lawn, trimming the hedges and clearing out the gutters, among other tasks. If you don't do it yourself, then you'll have to pay someone to handle those tasks for you.
12. Repairs. Remember, when you move out of that apartment, there's no longer a landlord to call when the sink backs up. Instead, it's up to you to contact and pay for the plumber. And the sink is just one of the many home features or appliances that homeowners may one day need to repair. If you have to replace a dishwasher or even an entire roof, that cost is on you.
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