Understanding the Realities of Homeownership
The collapse and slow recovery of the housing market has driven home prices to ridiculous lows, leading many people to believe that the dream of homeownership may finally be within their reach. The real estate industry has fed this flame by telling consumers that the monthly payments on a mortgage would likely be cheaper than their monthly rent.
Unfortunately, potential homebuyers aren’t informed about the expenses that they will continue to have to bear after they’ve closed on a house. Understanding the continuing costs of owning property is the only way to ensure that the amount of money borrowed doesn’t exceed the amount that can be repaid.
• Most people know that they will be required to purchase homeowners’ insurance, but few factor it into their calculations when deciding whether or not they can afford to take the plunge. The average cost for most homeowners will be around $25 per month, per $100,000 of home loan, on top of your monthly mortgage payments. While it may sound small, the amount you pay each month can vary drastically based on your credit and whether or not the lender feels that the home is a good investment.
• Another important factor that may impact your monthly expenses is the amount of money you’re able to put down on the house. After the irresponsible lending of the previous years destroyed our economy, a regulation was passed requiring that anyone who purchased a home with less than 20% down payment would have to carry private mortgage insurance, which will be an additional $45 per month per $100,000 loan.
• Many people also fail to consider the cost of property taxes. This is a difficult thing to generalize, as property taxes vary wildly from state to state. For example, in Boise, ID a homeowner can expect to pay around $770 in property taxes per $100,000 of home value. Someone in Chicago will be looking at something more like $1510. Use a property tax calculator to get an idea of what you can expect in the area where you plan to own.
• There are two distinct advantages to renting that buying cannot claim, and they’re both financial. One is the cost of repairs and required maintenance, which is usually borne by the property management. Former renters are often taken by surprise the first time they have to replace a water heater or pay for air conditioner services. Common wisdom recommends saving about $100 every month as an emergency repair fund.
• The other benefit to renting your home is the fact that most renters are only responsible for some of their monthly utility costs, and sometimes an estimate of those is included in the rent. This means that they never see the cost of water, sewer, trash, and sometimes even power and gas bills until they own their own home. In most cases first time homeowners buy houses that are larger than their rentals, meaning that the utility costs will also go up.
About the Author
Frank Newhouse is a freelance writer with expertise in property management and personal finance. He currently writes for AC Florida, which helps people in the Miami area find the air conditioning services they need.