Published February 21, 2014
When looking to make the leap from renting to owning, many potential homeowners crunch the numbers to see how their monthly rent check stacks up to a monthly mortgage payment. While this is a good starting point, would-be homeowners often neglect to factor in the other costs involved in buying and maintaining a home. Before you make the jump to home ownership, here are some added costs to consider.
It’s an unfortunate reality of home ownership: Even before you’ve officially bought the house, you’re already paying added fees. Before a lender will sign off on a loan, most will insist on getting a building inspection. After all, should a buyer fall behind on the monthly mortgage payments, a lender doesn’t want to foreclose on a house that’s about to collapse in on itself. A typical home inspection will cost between $300 and $500 and usually covers things like the condition of the roof, the quality of the foundation and whether the circuit breaker and electrical system is up to code. However, a building inspection isn’t just a tool used by a bank to ensure that your house is a safe investment. As a new homeowner, an inspection is also a valuable guide to your potential new home. Follow along with the inspector and you’ll learn all the ins-and-outs of the place before you even move in.
The asking price of the home is only one piece of the equation when buying a house. Once you sign on the dotted line, you’ll also be responsible for the cost of the closing fees. Usually costing a few thousand dollars, these fees pay for things like the lender running credit checks, an attorney filing the paperwork to transfer the property over to you, and a notary to ensure the transfer is legal. While they can add between 2 percent and 4 percent to the cost of a home, these fees usually get rolled into the mortgage itself, which means you’ll be able to spread them out over the length of a mortgage, rather than having to cough them up as a lump sum the day you sign.
Before you even get the keys to the new home, you’re going to have to prove that you have homeowners insurance. With cars, auto insurance is mandatory because you are a liability to other drivers on the road. Similarly, homeowners insurance is required because you are a liability to your lender should your house go up in flames and the property becomes worthless. The cost for insurance varies widely, and depends largely on where you live and the value of your home. There are also added costs if you live in an area prone to flooding, hurricanes or other natural disasters.
As a renter, you already indirectly paid a local property tax through your monthly rent checks, a portion of which your landlord uses to pay the tax bill. But as a home owner, you’re going to have to pay these fees directly. Usually levied on the state and city level, these fees pay for local services like public schools, roadways and sewers. The local tax office will assess the value of your home and peg these taxes to that value. As a homeowner, however, you usually have means of challenging that tax assessment, which you should make sure to do if you feel your home is being overvalued.
Homeownership comes with certain advantages, but unfortunately there’s no super to call when a plumbing problem occurs or your heat goes out. Maintenance and upkeep is one of the biggest costs you have to face as a new homeowner, especially once you find out that the previous owners left the place in a state of disrepair. While these costs can put the pinch on you, keep in mind that you’ll be living here for years to come, so improvements and maintenance will feel well worth it.