Are you ready for home ownership? Owning a home is a big responsibility. If you don’t consider all of the costs involved and are not prepared for all of the expenses – some day you risk losing your home. Before you buy a new home, be sure to analyze and calculate and analyze again all of the expenses that you will incur. Let’s do a quick review of the real cost of home ownership.
What home ownership really costs:
The Cost of A Low Credit Score.
- A low credit score could cost you double due to higher interest rates over 30 years.
- When you start shopping for a home, one area they you may forget about is your credit. Before you pick out the curtains and paint colors, you absolutely must check your credit score. To just qualify for a loan and then to obtain a good interest rate on that loan, you need to have a good credit score; which is above 750.
- But even if you do qualify for a loan based on poor to average credit, the interest rates you will pay on that mortgage loan will cripple you financially for the next 30 years, you don’t want that. Starting out with a lower interest rate on your mortgage loan will help to make home ownership a lot less costly over the long run.
The Cost Of Monthly Mortgage Payments.
- You could lose your home if you miss your mortgage payment.
- If you miss making your mortgage payments too many times, the bank will just take your home away from you. Keep your life simple, if you cannot afford the cost of the monthly mortgage payment, do not buy the home.
- Work out your figures before you make any commitments. Be absolutely sure that your take-home pay is more than adequate enough to meet ALL of your expenses.
- Do not buy the home expecting to make your monthly mortgage obligation based on a bonus you get every year – or sales commissions on projected sales – because the year that you don’t get that bonus or if the projected sales don’t materialize – you won’t have the funds to be able to make your payments.
- And remember, it’s not your realtors job to make sure you have enough money to meet your monthly expenses, it’s the realtors job to sell you a house. Buy a home within your personal price range, do not over extend, you just risk losing that home someday.
The Cost of Homeowners Insurance
- Miss your payments and the insurance company will drop you.
- You never want to be without homeowners insurance. If you want to find out what your home really costs, have it burn down without having homeowners insurance. For pennies on the dollar you are buying peace of mind.
- With a standard homeowners insurance policy your home is covered for the major perils…fire, wind, hail, theft, lightening and then you can buy additional coverage for other hazards.
- If the replacement cost of your home is $250,000 your annual home insurance cost could range from $600 – $1000. That is cheap peace of mind coverage. Call your personal homeowners insurance agent for quotes and a review of coverages.
- Flood Insurance is an insurance that some homeowners will have to buy while others will not. If you live in a flood plain, by law you will have to buy flood insurance. Check with your realtor and insurance agent.
Don’t Forget the Cost of Association Fees
- If you are a part of a homeowner’s association there will be an association fee.
- Homeowners’ associations take the business of association fees very seriously, and so should you. If you do not pay your association fee every month, the homeowners association can put a lien on your home; and collect when you sell it in the future.
- Homeowners’ associations need your fees to keep the maintenance of the properties up, if there is a pool, the fees cover that maintenance, if there is a sign at the front entrance of the property, the fees pay for that.
- Just remember that it is your obligation to pay your association fee; you agreed to that obligation when you moved in. If you don’t pay it when it’s due every month, the association will eventually get their payments….when you sell.
Real Estate Taxes
- Miss paying your real estate taxes and you could lose your home.
- You cannot control how much your real estate taxes will be; but you better make sure you make that payment every year, if you don’t, you will lose your home.
- Be sure to include the real estate tax amount into your calculations of total expenses before you buy the house….real estate taxes are like your mortgage payment, you cannot miss the payments because you could lose your home. Your mortgage and your real estate taxes are the two largest costs of home ownership….if you have to struggle to make either of those payments, do not buy the house, you will regret it.
Maintenance & Renovation
- The cost of maintaining your home.
- Things will break, that is the cost of home ownership; you cannot get around that. Expenses to maintain your property are unavoidable and sometimes unpredictable. Be ready for the unknown.
- Do yourself a huge favor, make sure you have an “emergency fund account” with money set aside for the what-if’s. Now you own it, now you can change it. Your home is your castle and you want it to express you…guess what…you got it, that costs money. Are you sure you’re ready for home ownership?
- There will be other unexpected, unavoidable expenses along the way. When you own a home it pays to be ready for the unknown. Home ownership can be expensive but with proper planning you can make it less challenging on yourself. Just be prepared.
- Set up a special savings account for yourself with about 6 – 9 months of income in it; you can earmark this money for your unknown expenses and your renovation projects, then if there’s any money leftover, you can invite the neighbors over for a cookout.