The biggest challenge for home buyers is anticipating costs of home ownership. Besides the purchase price, there are many so-called hidden costs involved in the purchase. There are also many recurring costs that home buyers need to anticipate after the transaction is completed.
Here are some of the often-overlooked costs of homeownership that you need to be aware of when considering that purchase:
ANTICIPATING COST OF HOME OWNERSHIP: CLOSING COSTS
- That meeting at the lawyer’s office or title company, with documents flying and experts talking, is no place to try to understand all that is involved at this stressful meeting.
- Points/origination fees These is an upfront payment of interest to your lender, due at closing. Points are usually assessed as a way to get a lower interest rate, making it easier for marginal borrowers to qualify for their loan. Depending on how motivated the seller is, points can be a subject of negotiation, with the seller paying all or part of them.
- Homeowner’s Insurance Depending on the value of your new home and the extent of your coverage (which can be dictated by your lender), this insurance can cost anywhere from several hundred to several thousand dollars. The premium for your first year of coverage is often collected at closing.
- Title Insurance. Required by your lender, this is your guarantee that the home you are buying does not have liens or claims filed against its title. Title insurance costs are linked to the size of the transaction and could cost several thousand dollars. Again, due at closing.
- Property Taxes. Your portion of property taxes for the year of the transaction will also be collected at closing. This may include any taxes the seller had prepaid as well as taxes owed for the remainder of the year. You should also remember to include your monthly pro-rated tax amount into your monthly payments when calculating your obligation for mortgage qualifying purposes.
- Legal Fees. Purchase of a home is usually an individual’s largest single lifetime transaction. Many people are represented by a lawyer in this transaction. Often, at closing, there are lawyers representing both the buyer and the seller. Other times, both parties are comfortable with just the real estate agents and title company representatives. It depends on how difficult the transaction is and what each party’s level of comfort is. If you are represented by a lawyer, you can expect to have legal fees included in the calculation on your closing statement.
- Private Mortgage Insurance (PMI). Banks used to require 20% down for every home purchase. Over time, they developed a system for protecting them in property transactions where the buyers don’t have to come up with such a large portion of the purchase price themselves. This is private mortgage insurance – basically, insurance for the bank against default of the loan. This will be added to your monthly payment and will be included in the amount used to qualify you against your income.
- Miscellaneous. There are a large variety of smaller miscellaneous fees that can also add up to quite a bit of money that you need to anticipate at closing. These include but are not limited to document prep fees, inspections, surveys, notary fees, appraisal, credit reports, tax service fees and others. Ask your lender for a copy of the closing report before closing so you can ask questions and understand what you are being asked to pay prior to dealing with it in the stress and limelight of the actual closing meeting.
ANTICIPATING COST OF HOME OWNERSHIP: AFTER CLOSING
- Avoiding surprises is the best way to enjoy your new home. Homebuyers, especially first-time homebuyers, are often taken by surprise by many of the unexpected costs of owning their home. Many of these hidden costs create financial strain later if not fully understood and anticipated by the homebuyer.
- Home Maintenance. Renters who become homeowners are not used to being responsible for things like painting, plumbing, electrical and other costs associated with owning your own home. Although those costs are included in your rent, the direct out-of-pocket cost of home maintenance is something homebuyers need to anticipate and prepare for as they move towards purchasing their first home. Many of these costs are “property dependent” – a “fixer-upper” may have a low purchase price, but the cost of repair and maintenance can be significantly higher. Larger homes often require higher maintenance budgets based on the square footage of the property.
- Insurance. Homeowners insurance premiums are based upon the amount of coverage you purchase (can be dictated by your mortgage holder). These costs are normally substantially higher than what renters are required to pay to cover their belongings in a property they do not own. In addition, some homeowners purchase supplemental coverage. If your property is in a flood plain, you will want (and possibly be required) to purchase flood insurance. Other insurance upgrades are available to address your specific concerns – natural disasters like tornadoes, plumbing issues, roof leaks, water backups, etc.)
- Landscaping/Lawn Care. When you own a home, you will need to care for the land surrounding the building. You need to anticipate costs for lawncare services and snow removal (definitely necessary if you live in Kenosha.). Even if you are planning to do these things yourself, you need to consider the cost of lawn mowers, snow blowers and other equipment necessary for you to keep your property clean and attractive.
Utilities. Oftentimes, the cost of utilities is included in the monthly rent of people who lives in apartments. This can be a significant cost. Homebuyers should get estimates of electric, gas, and water that they will be responsible for. If cable tv or computer access were included in your rent, you will need to include those in your estimate of costs as well.
- Homeowners Association Fees. If you are purchasing a condominium or a home in a development that assesses association fees, you need to understand the amount and what is covered. Most often, association fees will cover maintenance of “common” areas, but the homeowner will still be required to do the landscaping and care of their individual property.
A happy homeowner is a homeowner who understands and anticipates all of the costs as well as the benefits of having a home of their own. Linda Swan is an expert at helping her customers gain a full appreciation of everything that is involved in having a seamless transaction as well as a happy home after you move in.
The best real estate agents do a lot more than simply help you sell or buy a house and then walk away. Linda Swan at ReMax Elite Kenosha prides herself in being a partner for you throughout the home-buying process.
Whether you are a first-time buyer or a long-time homeowner who has lived in the same home for three or four decades, Linda Swan will help you anticipate your needs and help you navigate the entire home-buying or selling process.