Having just started my career, I look forward to the day that I am in the financial position to be able to sign the contract and be handed the keys to my first home. Currently renting, I often consider how the money I am paying in rent could instead be going toward paying down a mortgage. While the amount I am paying in rent may be comparable to that of a mortgage, I often forget the additional expenses that come along with buying and owning a home.
- Down Payment: While the actual amount you will need to save in order to qualify for a mortgage will depend on your lender, you should plan to save between 15 to 20% of the purchase price, which will lower monthly payments and immediately add equity in your home. Along with the initial lump sum down payment, you must also consider closing costs on your home and fees charged by your mortgage provider, which can be quite expensive.
- Home Maintenance: Say goodbye to the days of calling property management and having them send out a handyman to fix your household problems such as broken appliances and leaky pipes. Once you own a home, those issues are on you and your wallet to fix. When planning, we often estimate that annual home maintenance expenses will be around 1% of your home’s value.
- Property Taxes* and HOA Dues: Toward the end of each year, don’t be surprised to see a tax bill in your mailbox. This tax is assessed to help maintain your local community and is based on the value of your property. Depending on the neighborhood you plan on moving to, homeowner’s association dues may also need to be considered.
- Homeowner’s Insurance*: While many apartment complexes require tenants to carry some form of renter’s insurance, the premium is much lower than the amount you will have to pay for homeowner’s insurance. Depending on the location of your home, insurance premiums vary greatly, so make sure to research to get an idea of the cost of coverage in your area.
*Property taxes and insurance are often paid through your mortgage using an escrow account
You will also want to consider the amount of time you plan on staying in the home. The longer you plan to live in a certain area, the better the option of buying will become as upfront fees and closing costs will be spread out over more time.
Additionally, it is important to remember that mortgage interest and property taxes are tax-deductible, a tax benefit only homeowner’s get to experience.
The idea of buying your first home may be a dream of yours, but it is important to remember the costs that come along with it. It may seem difficult to evaluate if you are ready to buy, so contact us today to develop a comprehensive financial plan to help you prepare for the next big step in your life.
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