When you’re buying a home, there are several upfront and ongoing costs of home ownership outside of your mortgage payment that you’ll want to consider ahead of time, so you can budget accordingly and remain stress-free.
Beyond The Purchase Price: Planning For Future Costs
You’ll want to use this time to start a budget if you haven’t already. Consider what you make vs. your expenses and figure out how much you will have to spend monthly.
Now would also be a good time to set up a designated savings account specifically for your home ownership costs.
Upfront Home Ownership Costs To Consider
When you first buy a home, there will be some upfront costs that you’ll want to keep in mind:
- Down payment. You’ll likely need to come up with a down payment. This is typically a percentage of the home’s purchase price and can range from 3% to 20% or more, depending on the type of loan you’re using.If you choose a specialized loan like a Physician Home Loan, these loans are typically a lot more lenient and can offer little to no down payment requirement. Learn more about Physician Bank’s Physician Loans.
- Closing costs. Another upfront cost is your closing costs, which can include things like appraisal fees, title insurance, and attorney fees. These costs can vary depending on where you live and the size of the home you’re purchasing. Your Mortgage Loan Originator will help you calculate these costs.
- Cash reserves. In addition to the down payment and closing costs, you’ll also want to have reserves set aside in your checking or savings account. Mortgage reserves show the financial institution that you have money aside that can help cover your mortgage payments if needed. This money would be what you have left over after you make a down payment and pay closing costs.Also, cash reserves can often be required in order to be approved. Even if you’re making a substantial down payment, it could still be required to have mortgage reserves if your credit score is lower than 600-700. Having cash reserves to cover anywhere from two to six months of mortgage payments may be required, and your Mortgage Loan Originator can help you determine what you’ll need set aside for this.
Budgeting For Ongoing Home Ownership Expenses
Once you’ve moved into your new home, there are several ongoing expenses you’ll need to budget for:
- Maintenance and upkeep. One of the biggest expenses of home ownership is maintenance and upkeep. This can include things like lawn care, cleaning, and repairs. Setting aside money each month can help you prepare for any unexpected maintenance emergencies as well.
- Property taxes. Another ongoing expense to consider is property taxes. Property taxes can vary depending on where you live and the value of your home. Make sure to budget for these expenses, so you are not caught off guard when tax season rolls around.
- Homeowner Association (HOA) fees. If you’re buying a condo or a home in a planned community, you may also need to pay homeowner association (HOA) fees. These fees can cover things like maintenance, landscaping, and community amenities. Make sure to factor these fees into your budget when you’re house hunting.
- Homeowner’s insurance. Lastly, you’ll need to budget for homeowner’s insurance. Homeowner’s insurance can help protect you in the event of damage to your home or personal property. Make sure to shop around for the best rates and coverage options.
The Top Costs Of Buying a Home
In addition to the upfront costs and ongoing expenses mentioned above, there are several other costs you’ll need to consider when buying a home. Here are some of the top costs you should be aware of:
- Home inspection. Before you finalize your purchase, you’ll want to have a professional home inspector look at the property to identify any potential issues that may need to be addressed. The cost of a home inspection typically ranges from $300 to $500, depending on the size and location of the home.
- Appraisal. Your lender may require an appraisal to determine the value of the property you’re buying. This can cost anywhere from $300 to $500, depending on the location and size of the home.
- Title search and insurance. Before you can close on your home, you’ll need to have a title search conducted to ensure that there are no liens or other issues with the property’s title. You’ll also need to purchase title insurance to protect yourself in case any issues arise later. The cost of these services can vary widely depending on the location of the property and other factors.
- Moving expenses. Once you’ve closed on your new home, you’ll need to move all your belongings to your new place. The cost of moving can vary widely depending on how far you’re moving, how much you have to move, and whether you hire professional movers or do it yourself.
- Renovations and repairs. Depending on the condition of the home you’re buying, you may need to make some repairs or renovations before you can move in. The cost of these projects can vary widely depending on the scope of the work you need to do.
Tips For Managing Home Ownership Expenses
Now that you know some of the costs associated with home ownership, here are some tips for managing these expenses:
- Create a budget. Take stock of all the costs associated with home ownership and create a budget that includes these expenses. This can help you stay on track financially and avoid surprises down the road.
- Set aside an emergency fund. It’s a good idea to have an emergency fund set aside in case unexpected expenses arise. This can help you avoid going into debt or dipping into your long-term savings.
- Do regular maintenance. Regular maintenance can help prevent costly repairs down the road. Make sure to keep up with things like cleaning, lawn care, and minor repairs.
- Shop around for insurance. Homeowner’s insurance can vary widely in terms of cost and coverage options. Shop around for the best rates and coverage options to make sure you’re getting the best deal.
- Consider a home warranty. A home warranty can help protect you from unexpected repairs and maintenance costs. Make sure to read the fine print and understand what’s covered before signing up for a home warranty. You can purchase a warranty as the homebuyer, or you can request that the seller purchase it in your purchase agreement.
Preparing for the costs of home ownership is key to a smooth and stress-free homebuying experience. By considering all upfront and ongoing expenses, and budgeting accordingly, you’ll be on your way to building a comfortable and secure life in your new home!
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