We work with many first-time homebuyers. In fact, it’s one of our specialities. And one of the most important questions that first-time homebuyers have to answer is: Can I afford to own a home? Mortgage calculators found online, like this one, can help you predict what your mortgage payment will be. But there are other costs of owning a home and you should be sure that you can foot the bill for these costs before making the plunge into homeownership.
You’ll be hard-pressed to find a loan that doesn’t require a down payment these days. Depending on the type of loan you get, the percentage will range from 3% to 20% of the total cost of the home. In order to avoid paying mortgage insurance you’ll need to cover 20% of the cost.
Closing costs are the standard fees associated with processing your loan and title company services. Closing costs vary between lenders, but you can expect to pay at least 3% of the total price of your home. If you choose to hire a mortgage broker you should plan on spending a little more to pay them for the extra services.
Property taxes are used to fund police and fire departments, maintain infrastructure, and to fund schools, among other things. Your home will be examined by an assessor to determine its value, then you’ll figure in some deductions (like the Homestead Standard Deduction), and finally all this information will get plugged into a formula to determine your taxes. Visit the In.gov website for detailed instructions on how property taxes are calculated in Indiana.
Unlike many apartment complexes, utilities will not included be included your monthly payment. Figure on paying for water, sewage, gas, electric, and trash. If you wish to recycle, have a home phone, and have internet, figure these costs in too. You can contact the local utility companies to get information on how much a home has cost in utilities over the past year. This is especially important information to gather for gas-heated houses since gas can be one of the most expensive utilities.
Homeowner’s insurance not only protects your home and belongings, it gives you peace of mind. You’ll want to invest in a good homeowner’s policy as soon as you purchase a home. You’ll find that many lenders even require it, depending on the mortgage you choose. Do your research before picking a policy and keep in mind that covering certain disasters, such as earthquakes and floods, will cost you extra. Go here for more information on homeowner’s insurance.
Repairs and Maintenance
No matter how new the home, there will be repair and maintenance costs. When you rent, you call your landlord when the toilet clogs or the furnace goes out. When you own your own home, those problems and associated costs are entirely your responsibility. Some homeowners choose to invest in a home warranty, but even with this protection you’ll still incur home upkeep costs that are not covered. There’s no way to predict much a home will cost you in repairs, but a good rule of thumb is to budget for 1% of the home’s value (i.e. $2,000/year for a $200,000 home). Go here for more information on budgeting for home repairs.
If you purchase a move-in ready home, home upgrades can typically wait while you save up the cash. But if you plan to buy a fixer-upper, do your research and find out how much each necessary project will cost and make sure you have the budget for them all. You can always wait on that deck, but if you need to convert the garage into a nursery, you probably won't have the luxury of waiting and saving up cash.
Furniture and Decor
As is the case with elective home upgrades, many decor items can wait. But you will want to have a few basic furniture and decor items such as blinds, a kitchen table, a living room couch, and beds for each family member. Don’t assume that the kitchen appliances come with the house. Always ask first!
Other Possible Costs
There are other possible costs to owning a home, depending on your situation. For example, if you purchase a home in a less than desirable school district, you may need to figure in tuition for private school. If you have small children or pets, you may need to invest in a fence right away.
We love helping first-time homebuyers find the home of their dreams! But a dream home that you can’t afford will quickly turn into a nightmare. Make sure you consider all the costs of owning a home before you take the leap into homeownership.
What costs of homeownership did we miss? Leave them in the comments section below.