When looking at blogs about buying a home, you’ll often find them discussing how you can budget to afford a new home. The problem with many of these blogs is that they fail to mention how you can actually figure out what you can afford. I just recently published a blog about budgeting for a new home and did the same thing. As mentioned in that blog, one of the first parts of figuring out how much you can afford is by understanding that homeownership is made up of several costs outside of your mortgage payment. So what are these additional costs?
As with many things in life, you have to pay taxes on the property you own. Property taxes are different everywhere and tend to vary from .3% to 2.5% of the value of your home annually across the United States. If you want to get an idea of how much property taxes you’d pay for your potential new home, you can usually easily get an idea about your area via the Internet as well as by asking your real estate agent. A property’s historical property taxes are also disclosed in listings and can give you an idea of how they may fluctuate over the course of your time owning the property.
Private Mortgage Insurance
While not everybody has to pay for this, private mortgage insurance can be a potential cost when buying your new home. When making a down payment for your mortgage, it’s often recommended to put at least 20% of the overall cost of the home down and then pay the other 80% as your mortgage. If you can’t afford to put down 20%, you’ll likely have to pay for PMI. Putting down less than 20% makes you out to be more of a risk to lenders, resulting in them requiring you to pay for an insurance policy to ensure that if you miss a payment, the insurance policy will get them their money. PMI typically costs between .5 and 1% of your overall mortgage annually.
Another one that some homeowners don’t have to worry about – Home Owner’s Association fees. If you’re buying a home that is part of the HOA, you’ll typically have a monthly cost of anywhere between $100 to $700 depending on numerous factors.
When taking out a mortgage you’ll be required to have property insurance. The premiums for this insurance are yearly like many of the other costs and the prices will vary depending on your location. They often take the value of your home, the liability coverage, and then any other risks in your area (such as natural disasters), and then determine a price from there.
Maintenance and Utilities
Having some money put aside for any potential maintenance your house might need is always a good idea. It’s often recommended to put away about 1 or 2% of the overall yearly cost of your home. On top of that, you’ll have to pay for utilities such as electricity, water, garbage, sewage, and the Internet, among other things. Be sure you’re prepared to include these in what are usually monthly or quarterly bills.
Once you’ve got an idea of how much each of these additional costs will come out to, you can easily find a calculator on the Internet that will allow you to punch all of the numbers in and get an idea of how much you’ll have to pay each month as a homeowner.