The True Cost of Owning a Home: From Closing to Maintenance

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When you’re planning to buy a home, it’s natural to prioritize the upfront expenses such as the down payment and closing costs. Nevertheless, the expenses associated with owning a home go way beyond the closing table.

To avoid sticker shock, it’s important to understand the true cost of homeownership. Here are some of the expenses to consider.

one-time homebuying expenses

To start, let’s talk about the big, one-time expenses you need to prepare for when buying a home. These upfront costs include your down payment and closing costs.

  • Down payment: To buy a home, you need to pay a down payment at closing. Typically, down payments range from 3% to 20% of the home’s price. However, if you’re applying for a VA or USDA loan, you may not have to pay a down payment. If you don’t qualify for these loans, you’ll likely need to have at least a few thousand dollars saved up to purchase a home.
  • Closing costs: Closing costs are fees due at closing in addition to the property’s purchase price. Usually, these costs add up to 2% to 6% of the mortgage loan amount. These charges cover a range of services related to applying for a mortgage loan and finalizing a real estate sale, including legal fees, escrow fees, and underwriting costs.

Ongoing homeownership costs

The actual cost of owning a home is more than just paying the mortgage payment every month. Once you’re in the home, there are other expenses you’ll be responsible for.

What are the other costs you should expect as a homeowner?

  • Mortgage payment: The most obvious expense when buying a house is the monthly mortgage payment. It’s important to note that your mortgage payment doesn’t just include the repayment of the loan, it also includes things like taxes and insurance. An easy way to remember what makes up your mortgage payment is the acronym PITI: principal, interest, taxes and insurance.
  • Property taxes: When you own a home, you’ll be responsible for paying property taxes, which are levied by your local government and based on your home’s value and location. The average homeowner in the U.S. pays around $2,900 per year in property taxes. If you have a mortgage, your lender will likely collect property tax payments from you each month and put the funds into an escrow account. Then, when your property tax bill is due, your lender will pay the full amount on your behalf.
  • Homeowners insurance: To get a mortgage, you’ll be required to purchase homeowners insurance. Mortgage companies and banks require it before issuing a loan, and the premiums are likely to be included in your mortgage payment. The price of homeowners insurance can vary significantly based on your state, ranging from less than $1,000 to nearly $2,000 per year.
  • Private Mortgage Insurance (PMI): If you make a down payment of less than 20%, your lender may require you to have private mortgage insurance, which will also be included in your monthly mortgage payment. Once you reach 20% equity in your home, you may be able to cancel it.
  • Homeowners association dues: If you buy a home within a homeowners’ association (HOA) or condominium association, you’ll be required to pay a monthly or quarterly fee. These dues, also known as HOA fees, can vary drastically depending on the property or community and usually range from $200 to $300 per month.
  • Utilities: Utilities are an essential part of homeownership. From electricity to water, air conditioning to heating, and even WiFi, these services are crucial for daily living. On average, homeowners can expect to pay around $400 per month for utilities.
  • Maintenance and repairs: One of the biggest unpredictable expenses you need to prepare for is maintenance and repairs. As a homeowner, you’re responsible for maintaining your property, and that includes minor expenses like changing air filters or major expenses like a roof replacement. A general rule of thumb is to set aside 1% of your home’s value each year to cover these costs.

Before you decide to buy a home, you’ll need to make sure you’re financially prepared. This means planning ahead, saving up, and making sure you can genuinely afford all the costs associated with owning a home.

Once you have an idea of how much money you’ll need to budget, you can step into the realm of homeownership with confidence and be equipped to handle any challenge that comes your way.

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