After a few years, renting can add up to be pretty expensive. If you’ve got the money saved up for a down payment, you might be thinking about purchasing a home instead. After all, home ownership is the better option long-term, right? Well, if you’re not careful, owning a home can get expensive very quickly. Be sure you’re accounting for these extra expenses when you’re looking to buy a home.
When you’re looking at the listing price of a home, expect to pay a few thousand dollars over the number you initially see. Even if you negotiate on the price of the home, closing costs and fees can drive the price back up. Try to budget an extra 2% to 5% of the home’s cost for closing fees.
Even if you’ve toured the home, you could be buying into unexpected home damage. Wood only needs three things to rot: water, oxygen, and favorable temperature between 40 and 105 degrees Fahrenheit. If there’s structural damage to the home, like rotting wood, you might not always see it right away, and home inspections are another cost you’ll need to factor in.
Once the home is finally yours, you’ll be responsible for a few extra maintenance costs you likely haven’t had to worry about while renting, like major home and appliance repairs. A standard water heater only lasts 10 to 15 years before corrosion attacks the tank walls; you might not have had to pay for repairs like that before, and this is a cost you’ll need to save up for when things break down in your home.
Depending on the neighborhood you live in, you might have another recurring, regular payment to consider: community and home ownership association fees. U.S. homeowners paid approximately $88 billion in assessments toward community associations in 2016. Make sure you’re aware of any home ownership association fees before you settle on your new home’s location. While these fees usually mean neighborhood benefits, they can be an unpleasant surprise if money is already tight.
Taxes And Insurance
Your mortgage isn’t the only regular payment you’ll be making for your home, even if you don’t live in a neighborhood with community-related costs and fees. Real estate taxes and homeowner’s insurance (which provides financial protection against disasters) can be another regular expense that you’re not used to. Determining the exact amount you’ll be paying for these can be difficult since taxes vary state by state, county by county, and even house by house. Insurance will also differ on several factors, and if you’re not careful it can end up costing you a lot. Plan for these in advance when calculating how much you’ll save by purchasing your home instead of renting.
While home ownership is still generally the more affordable option if you’re staying in the same place for several years, the costs might be higher than you expect. Plan ahead and save up more than you think you need to avoid getting caught in an expensive situation.