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So you’ve decided to take the leap and buy your first house. Congratulations! This is one of those momentous “life events” that you’ve always dreamed about – finally a home that is all yours! Now, the next step is starting your house search. This can be both exciting and ridiculously daunting at the same time. Here are several monthly housing costs you may not have considered before.
This one seems pretty obvious, but it’s something we didn’t realize right away as first time home buyers. Those fancy (actually pretty basic) mortgage calculators you see on most home-buying websites allow you to plug in the total cost of the house, your down payment amount, and the mortgage interest rate, and it magically calculates your expected monthly payment based on these 3 numbers. The problem is, there a few other numbers that go into your mortgage payment than just how much you need to borrow from the bank.
Home Insurance is one of those things that you really can’t avoid. And by this I mean, good luck finding a bank that will give you a loan without proof of Home Insurance. The cost of home insurance varies between different companies and is also based on the amount of coverage you want to purchase. When you’re talking about hard-earned money, saving even $20/month is a big deal. So do yourself a favor and take some time to shop around.
Property taxes are another cost that you really can’t avoid. Whether your taxes are paid in one lump sum (usually every 6 months), or divided over the course of 12 months, your property taxes will be the same. If you choose the latter, you will essentially be placing your money into a “holding account”, or an escrow account, every month. This account is set up with your lender, and when your property taxes are due, your lender will pay the bill on your behalf out of your escrow account. Property taxes can vary greatly depending on the state, city or even neighborhood that you live in.
If you don’t have a full 20% down payment to put down on your home purchase, that’s no problem. But be prepared to pay a little extra to the bank every month. This amount is in addition to the mortgage interest rate on your loan. According to Nerd Wallet, the average Private Mortgage Insurance rate is 0.58% to 1.86% of the original loan amount per year. While paying PMI may allow you to buy a house a little sooner, if the added cost pushes you over your monthly budget, you may need to start searching in a lower price range.
Depending on the house you choose to purchase, your home may be part of a Homeowners Association that requires monthly or yearly dues. These usually cover upkeep of common spaces, use of neighborhood pools or clubhouses, or even building maintenance for properties in the division. This is something that is usually advertised on the listing, but it never hurts to ask if you aren’t sure. According to Forbes Advisor the average HOA Fee is $300 per month, ranging between $100-$600 per month depending on the area you live.
This is another cost that will depend largely on when your home is located. Flood damage is almost never covered by your regular Home Insurance Policy. If you home is located in a high-risk flood area, your lender is federally required to ensure you have flood insurance before approving your loan. Even if your home falls in a moderate-to-low risk area, your lender may require you to hold flood insurance, even if it’s not federally mandated. The cost of Flood Insurance, like Home Insurance, varies based on your home price and the amount of coverage you choose to purchase (usually up to $250,000).
In addition to the required monthly costs of buying a home (as mentioned above), there are other costs you need to consider that will definitely impact your housing budget.
You’re probably used to paying monthly utilities, so this seems like a no-brainer. But if you’re moving from a 2 bedroom, 900 square foot apartment into a 4 bedroom, 3 bathroom, 2,500 square foot house, you can expect to pay more in monthly utilities (particularly on your heating and cooling bill). More space means more energy to keep that space at the right temperature! While this may not seem like a huge deal, an extra $30-50 per month can really start to add up.
Remember the leaking toilet at your rental place, or that time you went to take a shower and realized you only had cold water because the water heater broke? You probably called up your landlord and hopefully had it fixed in a timely manner (at no additional cost to you). That’s one of the benefits of renting, right? Well, now YOU are the landlord, and all those nuisance problems are now YOUR problem to fix – on your hard earned dollar. This is one of the harder pills to swallow, especially when your first big appliance burns out and you’re faced with a $2,000 bill to replace it. You can never plan when repairs need to happen, so the easiest way to be prepared is by setting aside a little money each month into a “maintenance fund”. That way, when crap hits the fan(and it will), it’s slightly less stressful on your mind and wallet.
Now for the non-essential, wants-versus-needs part of your budget. This includes things like home remodeling, general upgrades, interior decorating, landscaping or lawn care services… you get the idea. These are the things you don’t necessarily need, but you certainly may want to budget for. The worst think you can do when purchasing your new home is start spending frivolously on these extra “wants” (unless you’ve already planned and budgeted for this ahead of time). Whether is remodeling, re-decorating, or re-landscaping, give yourself a few months to get used to the layout of your house and decide what you REALLY want to do. You’d be surprised how often your mind can change after you’ve lived in a space for some time.
You may be feeling a bit discouraged after reading this list. Maybe the home price you thought you could afford now seems too expensive for your budget. I promise you, this is not my intention! If anything, I hope this gives you a little more insight to prepare and be budget-ready for homeownership. Part of being financially responsible is understanding where every dollar you earn is going. We learned the hard way with our first house, and although we were still able to make our home-owning dreams come true, we had to adjust our budget in other areas to make it work. Whether you need to wait a big longer and save a little more moolah before buying your first house, start searching for your home in a lower price range, or rearrange your monthly budget/expenses to make it work, trust me – YOU CAN DO IT!
July 13, 2021