Six Costs to Consider When Buying a Home
Buying a home is a big step and one that many people work toward for years. In many cases, a mortgage costs about the same (or even less) than rent, so buying a home seems like the much smarter choice for your money. And, while all of this is true, there are also expenses on top of the mortgage that you should consider before you buy.
- Escrow accounts – In many cases, a mortgage will be set up to include an escrow account. This account collects money from your payment each month and sets it aside to pay your property taxes and insurance. An escrow account makes it easy to pay these large annual expenses, but you do need to factor this in to your budget considerations, as it will add to your monthly mortgage payment.
- PMI – Private Mortgage Insurance (PMI) is a type of insurance you must pay if you put less than 20 percent down on a house. The policy is designed to protect the mortgage lender in case you default on the loan. In some cases, you can have PMI removed from your mortgage once you have at least 20 percent equity in the home. The cost of PMI varies according to your loan amount, but can be $50 to $100 a month or more.
- Homeowner’s insurance – If you have a mortgage on your home, you are required to carry homeowner’s insurance – and you’ll want a good homeowner’s policy to protect you against fire, theft, liability due to accidents and other unfortunate events. Homeowner’s insurance premiums can be up to $900 a year depending on your coverage and the replacement cost of your home, but there are competitive rates so you should shop around and talk to a few agents before you decide.
- Property taxes – Real estate taxes are collected annually to pay for parks, sidewalks, schools and other public expenses. Tax rates depend on the assessed value of your home and the tax structure of your local area, but property taxes can be $1,500 to $3,000 or more. Before you buy a home, the seller or seller’s agent can tell you the amount of property taxes owed for that home.
- Utilities – When you buy a home, you will, of course, be responsible for all of the utilities, including electric, water and natural gas (if applicable). Depending on the age and condition of the home, the utilities can be a fairly large monthly expense. For example, if your home is not energy efficient, your heating and cooling costs could be $400 a month or more. Before you purchase a home, contact the seller or the local utility companies to get an estimated monthly cost for that home. Make sure to check costs for both winter and summer months.
- Maintenance – Home ownership means that you are responsible for all of the maintenance on your home. So, if the roof is leaking or your HVAC suddenly stops working, you will have to pay for the repair or replacement. As an example, HVAC service can cost $65 or more per hour, not including any parts your system might need. If you have to replace an HVAC unit, this can cost $3,000 or more. It’s a good idea to have savings in reserve for these potential expenses. In some cases, you may pay Home Ownership Association (HOA) fees, which will cover the cost of some maintenance items. However, you will need to factor the HOA fees as an additional monthly or annual expense.
While buying a home is often a very smart financial decision, be aware that there are costs associated with home ownership. Be sure that you think about and plan for these expenses as you consider buying a home. If you have questions about the home buying process or saving for these expenses, talk to a Uwharrie Bank Mortgage representative.