Everyone dreams of buying a home. First, you figure out exactly how much house you can afford, then you save for the down payment. However, there are other cost factors that you must take into consideration when outlining your real estate budget. There will be additional expenses both when you purchase the home and every month after that. Some people refer to these as the ‘hidden expenses’ of home ownership.
5 Real Estate Budget Considerations (Beyond the Down Payment)
1. Mortgage Payments
This one is a bit obvious, but it is definitely one of the most important things to factor into your budget. When financing a home, you will have monthly payments – and there isn’t really a way around that unless you can buy your home in full with cash. Your mortgage is typically the most predictable cost of buying a home. However, many first time homeowners mistakenly believe that the mortgage is just like a rent payment and will be the total they owe every month. However, on top of your mortgage payment are other costs.
2. Property Taxes
In many locations, taxes occur twice a year. However, property tax laws vary significantly by county and state. Your real estate agent will know the laws in your area and can let you know what these costs look like. Remember, local governments can often raise property taxes each year to cover a variety of municipal expenses. In addition, increases in your home’s assessed value that occur as a result of renovations or market conditions will also cause your property taxes to increase.
3. Closing costs
Any time you purchase a home, you will almost always have to pay closing costs which are the lender and third-party fees that must be paid at the close of the transaction.
- Survey expense
- Appraisal fee
- Origination fees
- Wire transfers
- Document preparation
- Discount points
- Title insurance
- Credit report
- Recording fees
Insurance is a big part of homeownership. Here are the necessary insurances that you may be required to carry:
- Homeowners and hazard insurance. The cost of homeowners and hazard insurance varies significantly by state and geographic location. Hazard insurance also focuses on the natural disasters that occur within your region. As an example, owners in California often need earthquake insurance, and in Florida, they require hurricane, wind, and flood policies. All of these must be considered in your monthly real estate budget.
- Private mortgage insurance: If you do not put at least 20 percent down on your home then you will be required to pay private mortgage insurance (PMI) which is usually figured at up to one percent of the loan PMI insurance helps protect the mortgage lender. The payments for PMI are made each month and included in your mortgage payment. When your principal valance drops below 80 percent of your home’s value, then your lender will automatically cancel the PMI charges.
Anytime you purchase a home in a planned development; you might be faced with monthly HOA (homeowner’s association) assessment fees. The fees help ensure that all landscaping, painting, guard shacks and other upkeep are maintained regularly.
Utilities are another factor that new homeowners often don’t add to their total monthly expense spreadsheet. If you are moving into a larger home, then your energy bill may increase. You can request an estimate of the property’s monthly utility costs prior to buying so you can make sure that you can afford the bill.
All of the above fees can add up to a hefty sum so you should always carefully evaluate your savings and real estate budget to guarantee that you can afford the home that you want to buy.
Are you looking to buy a home in Kansas City? Let our team help guide you through the entire process from house hunting to negotiating closing costs. Give us a call today! You can reach our team at 913.521.8806. You can also come visit our office at 5000 W. 135th St. Leawood, KS 66224.