While homeownership can have many wonderful advantages, there is often additional costs involved that you may not incur as a renter. Make sure you consider these in your monthly budget before you decide to become a homeowner.
Homeowners Insurance: Most lenders require the purchase of a homeowners insurance policy to protect your home against loss due to legal liability, fire, flood, or natural causes.
Maintenance: It takes time and money to keep a property in top condition. You’ll find that some sellers have kept their homes in great shape, and some in not-so-great shape. This is particularly true with older homes. One way homebuyers protect themselves is with a home warranty. They cost a few hundred dollars a year, depending on the size of your mortgage and where you live, but they cover most of the major appliances and protect you from big expenses. They can be a good value in any homebuying situation, but especially if you have a fondness for older homes.
Taxes: Most communities finance a lot of their schooling and services through property taxes. The tax rate varies from town to town, so speak with your real estate agent to understand what the taxes are on each home you look at. The good news is that property tax payments should be fully deductible at income tax time.
Homeowners Association Dues: Condominiums and planned developments often have homeowners associations. The fees connected to these groups can range from a few dollars to several hundred dollars a month for upscale condos or neighborhoods with lots of amenities. As an owner, getting involved with the association can give you a voice in deciding how much those fees should be.
Closing Costs: The cost of buying a home is more than just the purchase price. Each homebuying transaction requires the services of a large number of professionals from a variety of fields. It’s common for these costs to add up to between 3% and 5% of your total mortgage. When you choose to work with a lender, you will receive a Good Faith Estimate of your closing costs shortly after you apply.
With certain loan programs or down payment assistance programs, a professional mortgage consultant can work with you to include some of your closing costs in your loan amount and/or have it gifted to reduce the amount of out-of-pocket money involved.
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