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When most people think of what it costs to own a home, mortgage payments usually come to mind first. It's important to remember that in addition to monthly mortgage payments, you'll have a variety of other expenses as a homeowner.
By being aware of these additional home-related expenses, you can budget accordingly and avoid surprises that lead to financial difficulties down the road. Let's dive deeper into the costs of homeownership beyond the mortgage.
The value of your home as well as your community services will dictate how much you pay in property taxes. While you may pay property taxes directly, they're often included in your monthly mortgage payment. If you're not sure what your local property tax rate is, check with your county assessor's office.
Make sure your budget can accommodate increases in property taxes, as the amount may go up if your home increases in value over time. Look at comparable homes in your area to find out if tax increases are common.
Homeowners insurance will protect your home in the event of a fire, theft or another costly disaster. This may also be included in your monthly mortgage payment along with your property taxes. If you buy an older home or a home in a flood, earthquake or volcano zone, you may pay extra for homeowners insurance. Some policies may not cover specific disasters common to your area, such as earthquakes, so you may want to supplement your primary policy with one that covers these occurrences. Costs for homeowners insurance depend on your location, but you'll typically pay around $35 per month for each $100,000 in home value.
Private Mortgage Insurance
If you put down less than a 20% downpayment on your house, you may have to pay for private mortgage insurance, or PMI. PMI protects your lender if you default on your mortgage and your home goes into foreclosure. If you have a low credit score or have gone through a bankruptcy or foreclosure prior to your new mortgage, you'll likely have to pay PMI even if your down payment exceeds 20%.
PMI will typically cost you anywhere between 0.5% and 1% of your entire loan amount, every year. There are a few ways to pay your PMI, though the most common is to pay for it as part of your monthly mortgage payment.
Homeowners Association Fees
Depending on where your property is, you may need to pay homeowners association, or HOA, fees. These fees are levied as monthly dues and are used to pay for community amenities such as swimming pools, gyms and guarded gates. They may also help pay for things like landscaping and snow removal. The more community amenities your home comes with, the more you can expect to pay in HOA fees.
The costs of gas, electricity and water can add up quickly. That's why it's a good idea to ask your sellers for copies of previous utility bills so you can get an idea of what they paid before you commit to a home. Keep in mind that these amounts will vary based on personal use, such as how warm or cool you keep your house or how long you shower.
While some appliances like a dishwasher or oven may be included in your sale price, you may be responsible for buying portable appliances such as refrigerators, washers and dryers. If you're buying an older home and some included appliances are on their last leg, you may want to replace them as well.
Furniture and Home Furnishings
If you're a first-time homebuyer or moving from somewhere smaller, you may need to fill your home with furniture. The costs of bedroom furniture sets, kitchen and dining room tables, couches, recliners and other furniture can add up quickly if you're not prepared for them.
In addition to furniture, you may also want to buy home furnishings like curtains, bedding and rugs to decorate your home and make it feel like your own unique space. While these costs are not typically ongoing, they're an important part of getting established in your new home and so should be worked into your move-in budget.
Unfortunately, repair costs are difficult to predict and plan for. While some repair costs that come from natural disasters like floods and earthquakes are typically covered by homeowners insurance, you may still have to meet the deductible and pay for the excess expenses out of pocket. Some of the most common and expensive home repairs include roof repairs, septic tank replacements and basement waterproofing. That's why it's a good idea to maintain an emergency fund to protect you in case of unexpected repairs.
Maintaining your yard, cleaning your rain gutters and servicing your HVAC systems are all examples of maintenance costs you'll face as a homeowner. While you can maintain your home on your own, doing so requires some time and skill as well as material costs. If you hire professionals for maintenance work, understand that labor often comes with a high price tag.
Unless you build, the home you buy probably won't be perfect and contain every feature you want. That's where remodeling come in. If you want a new kitchen or master bathroom, expect to pay big money, even if you do it yourself. The good news is that there are loans you can take out to help you pay for remodeling projects if you don't have the cash on hand.
When you're shopping for a home, look past the monthly mortgage payment you may see online and keep all of these additional costs in mind. By understanding the common costs of homeownership beyond the mortgage, you'll be able to choose a home that aligns well with your budget and lifestyle needs.