(DailyChive.com) – We define owning a home as the American dream. But, for many homeowners, that dream sometimes becomes a nightmare. Especially for first-time homebuyers, the eagerness to take the plunge often leaves them ill-prepared for what signing those mortgage papers means for their financial future.
And foreclosures are on the rise. In March of 2023, 24,234 properties in the United States started the foreclosure process. The number of homeowners defaulting on their mortgages increased 19% from February of 2023 and way up eight percent from March 2022.
Understanding how owning a home will impact your budget represents the first step in avoiding financial stress in your future.
Costs Your Real Estate Agent Isn’t Revealing
The two people you deal with when buying a home are your real estate agent and the house seller. Let’s face it; both parties want to make as much money as possible on the deal. Unless you employ a close relative as a real estate agent, their focus will involve the commission check and not your need to sell a car to cover emergency maintenance repairs a few months later.
Hidden costs may start as soon as you sign the purchase agreement, continue into the closing, and with recurring costs for as long as you own your home. Below, you’ll find some of the costs of owning a home that may surprise you or perhaps you didn’t consider as you pursued one of life’s milestone goals.
Closing Costs
Depending on the type of mortgage, closing costs could amount to three to six percent of the total loan amount. Closing costs include the following:
- Application fees
- Appraisal fees
- Flood certification
- Lead-based paint inspection
- Loan origination fee
- Pest inspection
- Real estate attorney fees
- Real estate broker fees
- Title insurance and search fees
- Transfer taxes
- Underwriting
Recurring Costs
After the closing, recurring fees cost homeowners hundreds of dollars every month. You’ll find a few examples of recurring costs listed below:
- HOA fees- If you purchase a condo or a home in a gated community, your home association fees could range from $100 to over $1000.
- Maintenance expenses cover everything from plumbing to electrical repairs to interior and exterior finishes. You’ll also need to consider replacing kitchen appliances, water heaters, and furnaces in the long term.
- Private mortgage insurance- PMI will typically be added to your mortgage payment.
- Property taxes- Depending on your area and school district, your property taxes will increase over the years.
- Utilities- New homeowners will find that many utility costs covered in a rental property now become their responsibility, such as water, garbage and trash removal, and heat.
Preparing for Homeownership
If your goals include owning a home, making some intelligent decisions will help you realize your dream. Consider these preliminary steps to achieve your goal:
- Don’t live above your means. Live in a rental that allows you to save for a down payment. Follow a budget and take care when spending money on entertainment and vacations.
- Work on your credit score. Most credit card companies will advise you on how to raise your score.
- Research the process to obtain a mortgage. Focus on the types of mortgages that best meet your needs, like a VA, Conventional, or FHA loan.
- Take a community or online course on obtaining a mortgage. An established course will outline the process and provide information on down payment assistance and the pros and cons of different types of mortgages.
- Crunch the numbers with all the hidden costs in mind. A realistic budget will help you seek a home that will work for your future without making you house poor.
Adapting Your Budget as a Homeowner-Is it Worth It?
Homeownership doesn’t make sense for everyone. Many factors, such as age, career path, income, and logistical plans, play a part in deciding when to purchase a house or condo.
Many must make lifestyle sacrifices to cover the additional costs of owning a new house. You may find yourself eating out less or skipping a vacation.
When you own your home, however, beyond the pride of ownership, you are also building equity and protecting yourself from the cost of inflated rental prices. So, for many couples and individuals, buying a home represents a financially wise decision. The key to success involves educating yourself about the process and preparing accordingly.
Copyright 2023, DailyChive.com
