Wednesday, February 22, 2012

Know Your Expenses Before You Buy

For many, homeownership is still a dream. Moving from renting can seem like it’s an impossible mission. But if you plan ahead and carefully budget, the goal of homeownership can be yours.

When budgeting how much you can afford, it’s important to understand the costs of owning and maintaining a home. Here are a few things that some first-time buyers forget:

1. Private Mortgage Insurance or PMI

This is added on to your mortgage when the down payment is less than 20 percent. You can buy a home with less money but you’ll pay the PMI which covers the lender should a homebuyer default on the loan. As you build up equity, your PMI drops off.

2. Property Taxes

Property taxes generate revenue for municipalities, counties, and schools. It’s an expense that can vary across the U.S. Make sure to ask what they are for the home you are considering.

3. HOA

Homeowners’ Association fees (HOA) can add several hundred dollars to the monthly household expense. HOA's help to maintain common areas. They also govern what can be done to the home and the surrounding area.

4. Homeowner’s insurance

Lenders require homeowner’s insurance on your property. The amount you’ll pay depends on many variables including: where you live, the age, type, size of your home.

5. Utilities

You can contact the local utility company to get an average for monthly costs based on other homes with the approximate square footage as the home you are considering. While individual usage will vary this will give you a good idea of the cost.

6. Inspections, appraisals, and closing costs

Many buyer realize they will have to pay closing costs and for a appraisal. However, some fail to budget for a home inspection on a resale home. Sometimes inspections are paid for by the seller but it’s usually the buyer who pays for the inspection.

While the extra expenses do add up, if you carefully budget and plan ahead, the goal of homeownership is achievable and very satisfying.