Buying a home is one of the most rewarding accomplishments in life. But that new homeowner feeling is even sweeter when you fully prepare yourself for the costs of owning a home. That way, you won’t be surprised when typical home expenses arise. Understanding the many financial considerations of homeownership is also important. During the home-buying process, you can make confident decisions within your budget.
What are the upfront costs associated with owning a home?
The down payment and mortgage are the homeownership costs you probably already know. The mortgage is a loan that becomes a recurring expense to pay off. It’s not technically an upfront cost, but since mortgage payments go on for a long time, you’ll want to know upfront what you can expect those monthly payments to be.
Other initial homeownership costs besides the down payment include closing costs, taxes and homeowners insurance cost. The closing costs are usually between two and five percent of the purchase price. These costs go toward inspection, appraisal, lender’s fees, broker’s fees, and other necessary services. Taxes vary by state, and fees vary by transaction. Many mortgage lenders also require buyers to purchase the first year of homeowners insurance before closing. It’s important to understand how much homeowners insurance you need when purchasing a policy.
Types of homeownership costs
Monthly homeowner expenses
Once you’ve moved into your new home, certain homeownership costs may be new to you, such as:
- Mortgage payment
- Condo or homeowners association (HOA) fees
- Seasonal maintenance to your home
- Front yard and backyard landscaping
Annual homeowner expenses
If there’s one thing that surprises new homeowners the most, it’s often the property tax. Property taxes can add thousands of dollars to the cost of homeownership in some states annually. Therefore, lenders usually include taxes in mortgage payments and will hold funds in escrow each month to pay the annual property tax at the end of the year. Knowing what your monthly costs add up to over the year can also be helpful for big-picture budgeting.
Unexpected home expenses
You’ll be able to enjoy and embrace being a homeowner when you have a strong handle on the costs of owning a home beyond the down payment and mortgage. Still, there will always be unexpected home expenses — namely, repairs. Roof, plumbing, electric, heating, and cooling issues are those pop-up costs that hurt homeowners’ hearts and wallets.
Especially early on as a new homeowner, consider setting aside an emergency home expense fund separately from any emergency fund you might already have. With time, you’ll learn to expect the unexpected and become more comfortable with the true cost of homeownership. Learn more about how to prepare to buy a home and how to make an offer on a home.