There are a few obvious expenses associated with buying and owning a home – mortgage payment (principal and interest) and utilities. But there are also other fees, costs, bills and charges that add up quickly. To save you the headache of finding out about these costs later in your home shopping and buying process, here is a quick run down of lesser-known expenses and costs related to home buying and ownership:
Your monthly payment is perhaps the most obvious of housing costs, aside from your purchase price. However, there are certain expenses included in your monthly payment of which you may be unaware. Your principal and interest are the bulk of your payment, but if you’ve put down less than 20% of your purchase price, you will be paying PMI, Private Mortgage Insurance, which essentially “makes up” the difference between what you’ve put down and 20%. This can be significant – over $100 a month in some cases. Keep this in mind. You will stop incurring this monthly payment once you’ve paid your principal down to less than 80% of your purchase price, but that could take years. You will also pay into an escrow account every month to cover your home owner’s insurance and annual property taxes (you can estimate this by looking at tax records for the property available on the assessor’s website – see my previous post Be a Know-it-All). You will be expected to make up the difference if what you’ve contributed to your escrow account does not cover your taxes.
In addition to your monthly payment, you’ll pay for utilities. This includes: water, sewer, gas (if applicable), electricity, trash and any cable, internet and phone services you want. Some of these may not apply – for example, if you’re on septic, you won’t have a sewer bill, but you will have to pay to have your system pumped occasionally. You may be on strictly electric (no gas). However, these costs can definitely add up. Unfortunately, utility companies are not allowed to give you any information pertaining to what prior owners have paid – that information is now covered under privacy laws. But you can ask friends and other people you know for some estimates and ball park your costs from there. If you live in an HOA, your trash may be covered in your dues. HOA dues are also recurring fees that you need to be aware of and for which you need to budget. Cable, internet and phone bills seem to be on the constant rise and I think you can expect to pay $150 per month for a mid-level package (*this is only an estimate – there are ways to lower this payment, and believe me, there are ways to make it higher)!
When purchasing a home, you again are aware of the cost of the house – the purchase price (if you’re not aware of this expense, I’d like to live in your world for a day). The good news is, your fees are less than those associated with selling your house. You shouldn’t be responsible for paying your agent’s fees. You will need to pay for your inspection, appraisal and any other similar services (a sewer scope, for example). You may also need to pay for an ILC (Improvement Location Certificate), which is just a basic survey. Your lender/title company can give your more information on this, if it’s needed. Some of these charges are part of your closing costs, but will be paid for in advance. Some are entirely independent but recommended. You can offset some of your fees by asking for closing costs from the seller. If you’re using an agent, they should explain all of these options to you in further detail. Certain fees (title, survey, closing) can be negotiated in a offer.
You will be required to put a certain amount of money down. And, here’s the kicker: it’s got to be YOUR money. Your lender can give you further detail, and fill you in on applicable laws, but it’s worth knowing that you have to have proof of funds for your down payment, and in today’s financial world, chances are you’ll have to justify any deposit that is not salary related. So, if your down payment is a “gift” from a family member, you may run into some trouble.
Hopefully, some of this information will give you a heads up on what can be associated with house-buying and ownership, and it’s definitely worth crunching and recrunching the numbers. But, I’d rather know ahead of time what I’m getting myself into (it’s usually nothing good) than have awful surprises down the road. Good luck!