PT Money Guest Post: The True Cost of Owning a Home

One of the top reasons people start saving extra money is to eventually buy their own home. Have you started a savings account specifically for a down payment on a house? If so, kudos to you for preparing for such a big financial commitment.

I purchased my first home a few years ago. I love our home and really enjoyed the process of buying the place. I have to admit though, I was a bit surprised at how much a home costs, both in terms of monthly expenses and overall ownership.

Every new home buyer needs to fully understand all the costs involved with buying their first home. This will help to ensure that the expense of the home can fit within your monthly budget, and help you avoid paying too much overall for a home.

Making the Jump from Renting to Buying

If you’re currently renting, it’s easy to look at your rent payment and think that you can afford a similar mortgage payment. But a mortgage payment (principle and interest) is only one of the costs of owning a home. Be sure to factor in other expenses.

Typical Expenses

Beyond the principle and interests involved with the mortgage you will need to budget to pay closing costs on the loan, real estate taxes, homeowners insurance, homeowners association fees, and possibly private mortgage insurance. Most of these expenses vary by state and can be paid either monthly or annually.

Not-So-Obvious Expenses

On top of those typical expenses, you may need to budget to pay for things like:

• Furnishings and Appliances – When you move into your new place, you may have some empty rooms to fill. Or that old sofa might not look as good in the new pad, and you want to replace it. Make sure you account for these costs.
• Regular Maintenance – You’ve got to maintain your most valuable asset. There will be monthly maintenance (e.g. lawn care) as well as annual maintenance (e.g. filter and bulb replacement) costs to consider.
• Emergency Maintenance – Be sure to factor in expenses related to any emergency repairs you’ll need to make. There won’t be a landlord to turn to anymore. You’ll need to pay to fix the faucet and the broken A/C. The older the home, the more you will need to budget for these expenses.
• Utilities and Trash – If your new home is bigger than your current rental, you need to factor in the potential increase in utilities. It costs more to cool a bigger home. Also, since you own your home, you will be responsible for city services like trash pickup, which comes at an extra expense.

Ways to Reduce the Overall Cost of Your First Home

I’m not going to leave you depressed with a list of expenses. Here are a few ways I’m going to challenge you to reduce costs.

Put at least 20% down. With at least 20% down payment you can avoid the extra cost of private mortgage insurance. And the greater your down payment, the lower the interest payments you will be paying to the bank.

Five, seven, 10 or 30 year mortgage. Pick a mortgage that’s right for you. Think about how long you’ll live in that house. Weigh the pros and cons of lower rates for a shorter term mortgage. And keep in mind how much you’re going to pay in interest over the long term.

You could simply buy less house. I know that seems obvious. But when you start shopping for a home, you will have lenders telling you the highest dollar amount they will lend you. Then, you will likely have realtors pushing you towards houses at the top of that range. Throughout the process be mindful what lenders will loan you isn’t necessarily what you should borrow.

Pay some costs annually. Consider paying your homeowners insurance and real estate taxes on an annual basis and you could avoid installment fees. Also, if you save up for these expenses in an online savings account, you can earn interest on your money until you need to pay it.

Consider furnishing the home as you go. My last suggestion would be to avoid the typical move of financing your home furnishings just to have the house “complete”. You don’t need to fill every room in the house from day one. Use your old stuff or shop Craigslist to help fill the space till you can save up for the dining room table of your dreams.

After seeing all these expenses it’s easy to get discouraged. Don’t be. Home ownership is definitely something worth striving for regardless of these costs. Once you’re enjoying your new place, you won’t regret having saved for all those expenses.

Phil Taylor blogs about personal finance at PTMoney.com.

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