5 Costs That Could Double Your Mortgage Payment
If you’re tired of feeling like you’re throwing money away by renting and sick of hopping from rental to rental every few years, you’re not alone, according to a recent survey1 of Millennial renters: 79 percent aspire to own their own home.
It’s true that owning has its advantages, but as a first-time home buyer you may be surprised at all of the additional costs that add to your monthly housing payment. Avoid sticker shock and know what you need to plan for by considering these five additional costs of home ownership.
1. Homeowner’s Insurance. Once you’ve purchased your home, you’ll need to insure it. Aside from being a smart thing to do, it also may be non-negotiable, as most lenders require proof of homeowner’s insurance before closing. Renter’s insurance may have run you about $100 per year; and although the cost of homeowner’s insurance varies from state to state, you could be looking at $1,000 annually to protect your investment. To ensure both insurance and taxes are paid on time, many homeowners choose to pay for their insurance through an escrow account arranged through the lender.
2. Property Taxes. Are you looking to plant roots in the latest “it” place to live, or do you prefer an area with a good school district for resale value? Make sure you’re considering property taxes, which are likely higher in more desirable areas. According to a report released by WalletHub, the U.S. Census Bureau cites the average American household spends $2,127 on property taxes each year.2 Along with homeowner’s insurance, many owners have property taxes added to their monthly mortgage payment through an escrow account.
BONUS: Even though property taxes are unavoidable, at year-end you can typically write these off on your taxes; and depending on other factors, such as your income, other deductions and tax bracket, you may potentially receive a portion of the money back.
3. Utilities. If your landlord currently factors utilities into your rent, this ends when you become a homeowner. Heat, electricity, air conditioning, water, recycling and trash collection costs add up quickly. If you’re looking at a specific home, ask the sellers what they pay for utilities, or call the local utility company and ask for general usage for that address.
4. Closing Costs. If you’re a first-time home buyer, you may be shocked to find out how much money you’re shelling out before closing. Some of that cash comes in the form of closing costs—typically 2 to 7 percent of the purchase price.3
5. Maintenance. When renting, if your appliances break, roof leaks or furnace goes kaput, you call the landlord. As a homeowner, all of these issues—and some you haven’t even thought of—are now your financial responsibility. You may be wise to set aside 1 percent of your purchase price for annual upkeep. You could also offset some potential maintenance costs by negotiating a home warranty into your agreement with the sellers.
Knowing these costs up front can help you make an informed decision that you’ll be proud of for years to come.
1Apartment List (2016), https://www.apartmentlist.com/rentonomics/millennials-and-homeownership-2016/