Before transitioning from renter to homeowner, it’s important to consider the true costs of home ownership. To find out what you can really afford, make sure to include items from the list below in addition to the sale price of the home.
- Private Mortgage Insurance (PMI) – If your down payment on the home is less than 20%, you’ll have to pay PMI. PMI protects the lender in the event of someone defaulting on his or her loan. Once the loan balance reaches 80% of the home’s original value, you can ask your lender to cancel the insurance. Legally, the lender must cancel it once it reaches 78%.
- Homeowner’s Insurance – Most lenders require that you have homeowner’s insurance to protect your home in case of unintentional damage, fire, natural disasters, or theft.
- Property Taxes – A property tax is levied by the governing authority of the jurisdiction where the property is located, and the amount is based on the mill levy and the assessed property value. This tax pays for services like education, transportation, emergency services, libraries, and parks.
- Maintenance/Repairs – Whether you need to repair the roof or fix a leaky faucet, it will be your responsibility to maintain the property. Plus, you’ll have regular maintenance costs that will add up such as lawn care, gutter cleaning, heating and cooling maintenance, and more.
- Condo or Homeowner’s Association Fees – Many communities charge a monthly or quarterly fee for services that benefit the whole community. Services may include lawn mowing, pool maintenance, snow removal, and trash removal.
- Decorating/Furnishing – While you may not intend to spend any money on decorating or furnishing, many people find that they have additional space they want to fill out once they move in.
- Utilities – Don’t forget to account for all of those utility bills: gas, electricity, sewer, and water. To get an idea of the costs, you can ask the seller for monthly utility estimates before you close.
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Categories: Finances, Homeownership, Planning