The Hidden Costs of Buying a Home
In 2019, 65.1 percent of Americans owned their homes, but for many more people homeownership remains a dream. While interest rates are low, many people will be looking into how to make that dream a reality, but it’s important that anyone calculating a budget takes note of the hidden costs of buying a home and maintenance expenses that can add up to $9,000 a year. Extra costs associated with buying a home such as one-time legal, inspection and appraisal fees, can leave a real dent in your disposable income.
Property taxes can eat up a substantial amount of your income. A source of income for local governments to provide public transport, schools, parks, libraries and emergency services can vary greatly depending on where you live.
Find out what your taxes will be by visiting your municipality’s website or by checking it on publicrecords.netronline.com. Once you have an amount, divide it by 12 and factor it into your monthly bills. These taxes can add up to $500 or $1,000 per month, and it’s important to remember that they may increase over time.
The Cost of Maintenance
According to the Harvard University Joint Center on Housing Studies, maintenance costs will set you back between 1 and 2 percent of the value of your home, every year. So for a home worth $300,000, you could be looking at $6,000 a year. These costs can include repairs to the electrics, drains and plumbing, the Heating, Ventilation and Air Conditioning (HVAC) system, as well as things like roof repair and pest control.
Many mortgage lenders will require you to take out insurance as a condition of providing the loan. While you may be used to paying for renters’ insurance, homeowners’ insurance can be substantially more. The national average amount is $1,211.
Most policies won’t include ‘acts of God’, which include earthquakes, floods and hurricanes – in other words, many things you’ll definitely need to insure against. An additional policy will be needed, which will likely cost between $1000-4000 a year.
Homeowners Association (HOA) or Condo Fees
These fees will cover the costs of maintaining community areas as well as building repairs. The swankier your building, the higher the fee will be—after all, someone needs to cover the cost of servicing the pool or providing a concierge service.
Interest on Your Mortgage
Paying an interest rate of 4 percent or so may not seem like a huge sacrifice in order to own your own home, but over the years it amounts to a substantial sum. A 30-year mortgage at 4 percent on a house that costs $200,000 will incur $140,000 in interest, due to the impact of compounding interest.
Like so many things in life, your credit score will affect the likelihood of securing a good deal on a mortgage. About 4 in 10 Americans don’t know how their credit score is determined, but monitoring and maintaining your score is the key to unlocking many financial freedoms. With SmartCredit, you can do everything from taking action on a negative account, to achieving your best possible score with a fun to use, gamified dashboard. It’s an easy way to control your future credit score.