One of the most important, if not the most important, personal finance decisions you’ll make in your life happens when you decide to buy a home. It’s an important time for your entire family, particularly if you’re planning to search for your forever home.
Unfortunately, so many people either jump into homeownership too quickly without understanding all of the real costs that come with it, or they overbuy, meaning they purchase too much house and they’re left with the consequences for years to come.
That doesn’t mean you should count buying a home out, but instead that you should be financially savvy and understand all of those “hidden” costs that go along with it.
The thought of buying homeowners insurance might not be quite as glamorous as the purchase of a beautiful new home for your family, but you’re going to need it. Homeowners insurance is designed to not only protect you if your home is damaged but also to protect you against legal liability if someone is injured on your property. It can run from hundreds of dollars a year to thousands, and it’s a little expense that’s tacked onto homeownership, and all those little costs eventually add up.
Taxes are a fact of life, and your home is no exception. Property taxes are based on the value of your home and the assessment rate of your tax jurisdiction in most cases, although some areas might have different ways of calculating the amount. Regardless, they’re due each year, and before making a decision to buy a home, you should see how much your potential property tax liability would be. Being unable to pay property taxes is one of the reasons people have to either sell or foreclose on their home, so plan ahead to avoid this.
Closing costs are critical to think about before you buy a home because they usually have to be paid upfront and it can amount to thousands of dollars in fees for everything from underwriting fees to recording fees. It’s usually anywhere from 2 to 3 percent of the sum of the mortgage loan, which is a very significant expense.
You’ve found the dream home for your family, but there’s just one problem. It’s in a neighborhood with homeowners association fees. These fees are charged to buyers in certain communities, and it’s in addition to their mortgage payment. These payments are used to cover things like neighborhood amenities and lawn care, but in some cases, they can be as much as the monthly mortgage, so be clear on HOA fees before you fall in love with a new property.
Utilities aren’t necessarily a hidden cost, but they’re something that people often underestimate or don’t include when they’re deciding whether or not they can afford a house. Depending on the size of the house and where you live, these costs can creep up very quickly. If you want to get a handle on exactly what you’ll be paying, ask the seller for utility estimates before making a deal.
Homeownership is a great thing, but it’s not without costs and those costs extend well beyond the mortgage payments you’ll be making every month. Make sure you’re factoring everything in before you make a buying decision, so you’ll be financially comfortable in the long term.