What is the Actual Cost of Home Ownership

Beyond the mortgage, what other costs are associated with owning a home?

If you are renting now and plan to purchase your first home, knowing the real costs you will face as a home owner is the key to your long-term financial stability. While there are great tax savings to owning your own home, the monthly cost of owning a home is much more than your monthly mortgage payment. Renters need to understand the additional costs they are signing up for when buying a home.

Mortgage lenders and Realtors normally tell home buyers that their monthly payments will include their mortgage principal and interest, property taxes and homeowners insurance. These payments are referred to as your PITI payment. If you get a fixed rate mortgage, your principal and interest payments are guaranteed not to change for the entire life of your loan until it is paid off in full.

You may think that getting a great low mortgage rate is the key to low monthly housing payments, but there are other issues to consider when buying a home.

Costs To Consider when owning a home

While your homeowners insurance payments will remain relatively stable over the years and should not increase more than a few dollars per year, property taxes can and will always go up each year. Depending on where you are located, your property tax bill could increase each year anywhere from 1% to 10%, with 3% to 5% being the normal range just to keep up with inflation. While that may not sound like a lot, a $500 per month tax bill growing 4% per year will become $750 per month within 10 years and over $1,000 per month within 20 years. Buyers should research their town or city history of tax increases to get an idea of your estimated future higher tax payments.

Service Expenses

Renters may be used to paying for some utilities but as home owners they are responsible for all utilities and services. In many cases, tenants are responsible for electricity, heat, hot water heating, cable, Internet and phone services. Home owners, however are also responsible for water and sewer (or well and septic) costs, garbage collection and snow removal. Many home buyers do not factor in services expenses when budgeting for their new home.

Home Repairs

Another area where home buyers traditionally underestimate costs is for home repairs. For example, most of the equipment in your home, such as furnaces, cooling systems and appliances should probably under some type of maintenance agreement. Alternatively, you will have to budget for repairs on these systems so you will funds to fix them when they break. In addition, home owners need to also budget for replacement of systems such as roofs and windows. There are no more landlords to cover the cost of these items.

Other home owner fees

Finally, home owners may be subjected to minor condo association fees, road maintenance fees and special assessments. For example, when you own a condominium, you will be responsible for monthly condo association fees. But in some cases condominiums have under-budgeted for expenses and are forced to impose special assessments on owners that can add to your condominium fees for years.

Tax deductions and the ability to build up equity in your home are the two main benefits of home ownership. Properly budgeting for the true costs of home ownership will help renters manage as home owners.

For a free mortgage pre-approval and an exact rate quote to help you purchase your next home, please email us or call us at 1-877-868-2503.

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If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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