- Becoming a homeowner requires careful planning and budgeting.
- It's important to account for some specific numbers like your mortgage payment, property tax bill, and more before diving in.
Don't gloss over any of these.
It's hardly a secret that buying a home is a big deal. When you rent, sure, you have to make your monthly payments to avoid losing your home. But other than your rent, you're pretty much off the hook when it comes to home-related expenses. If things break, it's your landlord's responsibility to fix them.
When you own a home, there are numerous peripheral costs you have to grapple with. And so if you're looking to buy, here are a few key numbers you must factor into your budget.
1. Your mortgage payment
Your monthly mortgage payment will hinge on different factors -- the cost of your home, the amount of money you put down at closing, and the interest rate you manage to secure on your home loan. It's important to run some numbers using a mortgage calculator to see what monthly payment you might be looking at based on your target neighborhood and its average home price.
2. Your property tax bill
When you own a home, property taxes are an inevitable cost you'll have to grapple with. The good thing is that you'll be made aware of what your property taxes look like when you go to buy a home. The bad thing is that property taxes have the potential to rise over time. As such, when you run your numbers, don't assume the tax bill you start out with will stick around. Instead, you may want to pad that number to give yourself a decent cushion.
3. Your homeowners insurance costs
Homeowners insurance is required to get a mortgage. But even if it weren't, it's still an incredibly important thing to have. Just as the cost of your property taxes could rise over time, so too might your insurance costs increase. But if you don't make any major changes to your home, like putting on an addition or installing a swimming pool, your insurance costs shouldn't change too drastically from one year to the next. And if you shop around for rate quotes, you might manage to snag an affordable rate on your homeowners insurance premiums.
4. Your estimated maintenance costs
The cost of maintaining a home can be very tricky to calculate ahead of time. That's because there are different variables that will dictate how much upkeep costs you, including the age and condition of your home and the extent to which you're willing and able to do maintenance yourself versus outsource it. As a general rule, though, you should expect your annual maintenance to cost 1% to 4% of your home's value. That should give you some sort of framework to get started.
Run those numbers
It's important to make sure you're financially prepared before buying a home. If that's a near-term goal, run through some numbers to see how much house you can comfortably afford. You might think you can afford a $450,000 home with a $6,000 annual property tax bill only to realize that's not in reach when you factor in the cost of homeowners insurance and maintenance. You're better off figuring that out before you make an offer, so crunch those numbers ahead of time.
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