Blog posted On June 13, 2018
Homeownership advocates will often tell you that owning a home is less expensive than long-term renting. This argument, one of the oldest debates in real estate, holds true in most metros around the country where the average monthly mortgage payment is cheaper than the average monthly rental rate. However, owning a home will come with other expenses that the home buyer should know account for before purchasing. Planning ahead with the right mortgage and homeowner’s insurance and setting aside savings for maintenance and repairs can save you from unexpected costs down the line.
Maintenance and Repairs
One of the advantages of renting is that the property manager or landlord typically pays for repairs needed at the rental home. In some cases, damages that occur will eventually be deducted from the renter’s initial security deposit. When you own your own home, you are responsible for almost all repair costs (unless the damage is covered by homeowner’s insurance or other federal assistance program because of a natural disaster like a flood or hurricane). NerdWallet contributors suggests saving 2% of your home’s value each year to cover unexpected repairs. Some years you will find yourself withdrawing very little from this savings and other years when you incur a large expense, like a plumbing or roof issue, you will have built up the savings to access.
Do you know how much your homeowner’s insurance premium is? According to NerdWallet over 40% of homeowners do not know how much their homeowner’s insurance premium costs each month, since it’s usually factored into the monthly mortgage payment. Shopping around is one way to compare rates and find the most affordable homeowner’s insurance for your property. Beware of your specific needs. For example, if you live somewhere at risk of flooding, it’s important that you have flood insurance. Keeping up with needed repairs is another way to lower your annual premium. Making appropriate home upgrades as they are needed will keep your home up to code.
Your Mortgage Matters
The way you finance your home will inevitably influence the lifetime cost of the loan. Mortgage loans are not one-size-fits-all, and certain mortgages are better suited for different situations. If you are considering a lower down payment option, understand that you will most likely have to pay mortgage insurance on top of the monthly mortgage payment. If you are buying a home in need of repair or remodel, a renovation loan combines those costs with the cost of the mortgage into one monthly payment. If you have built at least 20% equity in your home and would benefit from accessing that equity, a Home Equity Line of Credit (HELOC) might work best. Consulting with a trusted mortgage professional before you make a decision on what mortgage is best for you, ensures you get the most mortgage for your money.
Buying a home is a big financial commitment, it’s also the first appreciating asset most Americans will own. Be prepared for the costs of homeownership when you plan ahead.
Sources: Fox Business