When it comes to home ownership, your down payment, closing costs, and mortgage payments are just the beginning. To accurately determine how large of a house payment you can comfortably work into your budget, you need to make sure you are factoring other potential expenses into the equation as well.
1. Insurance – Homeowners insurance and hazard insurance will be necessary. Homeowners can run between $500 and $1,500 per year. Hazard varies greatly depending on your location. Don’t skip hazard insurance just because your area is not prone to flash floods or tornadoes. No one is exempt from being the victim of a natural disaster.
2. HOAs – Homeowners association fees, aka HOAs, may be required, depending on your subdivision. Usually, if there is gated access with a guard and/or common property, such as a pool, playground, tennis courts, or clubhouse, you will have these fees to pay monthly or annually.
3. Property Tax Payments – Property taxes generally get paid twice per year. The percentage varies by state. In some cases, counties within the same state have different taxes.
4. Condo Fees – If you are moving into a condo or townhouse, you may have some unique expenses. Similar to HOAs, you will probably have condo or co-op association fees. You should also be prepared for special assessment fees because if 75 percent or more owners of the community approve then special fees will be collected to cover specific needs or upgrades. A new swimming pool is a great example.
5. Utilities – Water, sewer, trash removal, electric, and gas should be factored into your budget. If you plan on having cable and Internet, they will get added to your list, too.
6. Maintenance – You never know when your roof will start leaking, sump pump will stop working, or the furnace will need replacing. You will need to be prepared to handle these unexpected expenses. Unlike being a renter, you won’t have the luxury of calling your landlord to fix things.
7. Outdoor Maintenance – Lawns, gardens, flower beds, pools, etc. will also add to your budget. Even if you decide to handle maintenance yourself, you will still have expenses to consider.
8. Other Loans – Whether you borrowed money from your IRA for your down payment or you borrowed from your parents, who in return borrowed against their retirement money, you will have these debts to pay off.
There are a lot of expenses that you need to take care of as a homeowner. Having a general ideal of what your expenses will be before deciding on the price range of a house you can afford will put you in the best position when settling into your new home.