First time homebuyers: understanding how much owning a home costs

Posted by  on Mar 16, 2012

When buying your first home, it's easy to focus on qualifying for a mortgage, but mortgage payments are just one expense associated with home ownership. Here are common expenses encountered by homeowners and how to handle them.

  • Property taxes and hazard insurance: If your mortgage amount exceeds 80 percent of your home's appraised value, your mortgage lender requires you to let it collect your taxes and insurance each month and pay them for you several times a year. This is called impounding or escrowing, and it's done to decrease the lender's risk. This might be a good thing, even if your equity exceeds 20 percent and impounds aren't required. You eliminate the risk of forgetting to pay semi-annual or quarterly tax installments. In addition, mortgage lenders may offer lower mortgage rates or reduced loan costs when you agree to impounding.
  • Home repairs: Buying your first home means no more calling your landlord when your roof leaks at 3:00 am. Buying a home warranty may protect you from structural failures for the duration of the warranty, but it doesn't cover repairs. Plan a monthly contribution to a household savings account for unexpected expenses.
  • Home and lawn maintenance: The pride of owning your own place can compel you to put your own unique signature on your home; painting, flooring material and furniture add to your expenses. Renters transitioning to home ownership may also need to buy a lawnmower, snow blower and other yard maintenance equipment. Hiring a lawn care service is also an option but it isn't free.
  • Appliances: Many home sales include some appliances, but you may need to buy a washer, dryer, refrigerator, stove or range. Appliances that are built in are included, but movable things like washers and refrigerators might not be -- check your purchase agreement and budget what you need.
  • Utilities: Homeowners typically pay higher utilities than renters; you may receive bills from water and sewer service, trash collection, electricity, gas, and heating fuel providers.
  • Special assessments: These are additional property taxes assessed for projects that benefit a limited number of people and not the whole town; for example a well, gas line or streetlights; don't assume that lenders pay such assessments even if they pay your property taxes.

Before shopping for homes and mortgages, list potential expenses based on the type of home you're buying. Be realistic when budgeting for your new home. Immediately buying everything you want can cause financial stress and credit card debt.


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