When a potential homebuyer is considering their home budget and just how much home they can afford it is important to anticipate potential expenses so that it is not difficult to make payments each month. No home buyer sets out to buy a home that is so expensive they can barely make payments or that force them to fall behind on payments of other bills. Many homebuyers enter the process thinking that if they figure out what their mortgage payment will be including principal and interest that they know how much home they can afford. Unfortunately, that is not the case. There are many other expenses that homebuyers need to think about and factor in to ensure that they are only looking at homes in their price range and that will allow them to comfortably make their payments. Below are 5 expenses that homebuyers should know about before buying a home.
1. Homeowners Insurance
In addition to paying your principal and interest each month every homeowner must pay homeowners insurance. Staying current on your homeowners insurance is a critical protection for you as a homeowner because, should something like a fire or flood happen in your home, your insurance will help you pay for the costs of repair. If you do not have homeowners insurance you will be faced with paying the bill out of pocket which could be equivalent to the cost of your home depending on the specifics of the problem.
2. HOA Fees
Not every home will have HOA fees but if you live in a community that does it is important to know what the fees will be. Some HOA fees are very small ($30 per month) while others could be hundreds of dollars per month depending on the services the HOA provides. Be certain to find out if you will have HOA fees and how much they will be.
3. Private Mortgage Insurance (PMI)
If you put less than 20% down when purchasing your home you will have to pay private mortgage insurance (PMI). PMI is a percentage of the purchase price of your home – usually somewhere in the range of 0.3% to about 1.5% depending on your credit and how much your down payment was. Though it eventually can go away (usually after about 10 years), you will have to pay your PMI each month with your mortgage and the payment
4. Maintenance Costs
Every home, regardless of age, requires yearly maintenance. This includes things like landscaping, paint, repairs to critical components (for example: your water heater breaks and you need a repair or replacement), maintenance of things like your pool or air conditioning unit, etc. Depending on the features of your home there may be many hidden costs in maintenance.
No two homeowner’s utility bills are the same, even if they live in the same size home right next door. That is because people use things like power and water very differently. Additionally, some homes have energy efficient features like dual pane windows, energy efficient appliances, etc. Because of that, even if you get a great deal on your home you could be faced with hefty utility bills each month. To help anticipate the cost of what your utility bills will be so that you can know if you can afford the payments, ask to see the homeowner’s last 3 months of utility bills which will give you a good picture of what to expect.