Buying a home is one of the largest financial decisions you’ll ever make in your life. So, it makes sense that you’d want to know what all of your money is going toward, right? It’s important to understand the full costs of homeownership by knowing what’s coming and creating a comprehensive budget that accounts for the entire package. Here, realtor.com discusses the monthly expenses a homeowner likely will encounter far beyond just the principal and interest on the actual house.
1. Mortgage
If you aren’t paying cash for your home, you’ll have to finance it. Your monthly mortgage payment goes toward the amount you originally borrowed (principal) and the interest on that principal. The amount is calculated based on how much you borrowed, the interest rate on which you and your lender agreed, and the length of the loan. Your credit standing has a big influence on what your interest rate will be and the size of your payments. That’s why it’s wise to check your credit before you shop for a home. (You can obtain a free credit report summary, updated every 30 days, at Credit.com.)
2. Property tax
Although taxes can add hundreds of dollars to your monthly bills, they help cover valuable public expenses such as community safety, schools and infrastructure. You’ll incur different tax rates, depending on where you live. Property taxes are calculated by local government, and they usually are based on your home’s assessed value.
3. Insurance
Between basic homeowner’s insurance—which offers protection against fire and theft—and private mortgage insurance—which protects your lender against your defaulting on the loan if your down payment was less than 20 percent of the mortgage value—insurance can be a big item in your monthly budget. And don’t forget that you may need additional coverage against natural disasters, such as floods or earthquakes, depending on where your home is located.
4. Maintenance
Unlike when you rent, owning a home means you are responsible for repairs and upkeep. So, it’s important to have money set aside in your budget to cover everything from small do-it-yourself jobs to the serious issues that inevitably crop up from time to time. Hopefully, your home inspection can help prepare you for the life expectancy of major components, such as the roof, plumbing, and electrical system.
5. Utilities
Every month, you have to pay for utilities (including heating and cooling, electricity, natural gas, and water). These bills can fluctuate throughout the year based on outside conditions such as temperature and humidity, so it’s a good idea to budget for this variable expense by looking at the previous year’s usage.
6. HOA fees
If you purchase property in a condominium- or townhome-type community covered by a homeowner’s association, you will have to pay yearly or monthly fees to maintain common areas and other shared expenses.
