Compared to renting, owning a home can be a great deal and a wise investment. With today’s low mortgage rates, many people are buying their first homes or making moves to new ones, but buying and owning a home comes with more costs than just a down payment and monthly mortgage statement. As you begin planning your purchase, be sure to include the complete costs in your budget. Here are some expenses you should anticipate.
Down payment and closing costs
When buying and financing a home, a down payment and closing costs are the typical upfront expenses. The down payment usually ranges from 3% to 20% of the home’s purchase price, but some mortgage programs require no down payment at all. Typically, you can also expect to pay about 2% to 5% of the purchase price of your home in closing costs. Your lender and real estate agent may be able to recommend options for covering or lowering these costs.
Your lender will likely require you to obtain homeowner’s insurance for your home. Even if they don’t, it’s wise to have insurance for when the unexpected occurs. Basic policies usually cover your dwelling, other structures (like a fence or shed), personal property and personal liability. Typical annual homeowners insurance costs vary between $1,000 and $2,500 based on insurance rates for the area and the value of the property being covered.
Owning a home comes with the cost of paying property taxes. Tax rates vary widely by locality and are typically based on your home’s value. If you itemize your federal income taxes, it may be possible to deduct your property taxes for some savings.
Rental properties often include at least some utilities in the cost of rent, but owning a home means you’ll be paying most or all the utilities yourself. These may include water/sewer, heating/cooling, electricity/gas, trash/recycling and TV/Internet/phone service. The average American household pays just over $2,000 a year in utilities.
Owning a home means being responsible for the cost of maintaining it as well. A popular rule of thumb is to set aside 1% of your home’s value per year to cover repair, replacement and upkeep expenses.
If your property is part of a condominium, cooperative or homeowners association, you’ll likely have to pay them monthly dues. These costs generally vary based on the services and amenities provided by the association and may range from less than a hundred dollars to over a thousand dollars a month.
Don’t be caught off guard by the complete costs of buying and owning a home. By planning for your expected expenses, you can help ensure a smooth purchase and a rewarding homeownership experience.