Certainly, becoming a homeowner is a sizeable transition after living in a rental property for so many years. You'll be faced with opportunities to decorate and personalize your new property, and many new responsibilities will present themselves, some of which need to be factored into your budget.
When determining whether you can afford to own a home, it is important to note all the expenses. Often, market reports - and at times friends and family - will tell you that it's cheaper to buy rather than rent, but those assertions tend to neglect a few costs. Here are some ongoing expenses of owning a home:
- Mortgage payments: This is one of the least surprising bills, as you're often reminded of these costs while going through the financing process. Lenders will perform their own assessment regarding whether you can afford this expense and tell you how much your monthly payments will be.
- Homeowners insurance: While living in an apartment, you may have purchased renters insurance to protect your belongings and finances in case of a fire or burglary. Once you become a homeowner, you need to get similar coverage, which will safeguard against damage to your house as well. Depending on where the home is located and whether certain safety features are present, you can lower your rates. However, the price could also increase if you need to add homeowners insurance riders, which provide extra coverage for floods, earthquakes and other crises that aren't covered under a basic policy. Researching the area you're planning to move to can help you determine which riders you'll need and what the additional costs will be.
- Homeowners association fees: In exchange for the HOA arranging services to keep your neighborhood clean and attractive, you'll owe regular dues to pay for lawn care and other maintenance it provides. If you move into a condo, you'll have similar expenses from the condo association. You can usually find out how much these fees cost while viewing properties by requesting information from the association.
- Utilities: This is one of three expenses known as the costs of homeownership - mortgage and property tax payments are the other two. Although you've probably paid utilities as a renter, there's often one or two that are paid by the landlord. As a homeowner, you'll have to pay for water, gas, trash pickup and electricity. Furthermore, you'll typically pay more for the same expenses because the home is bigger.
- Property taxes: Depending on your location, these fees could be paid monthly or annually.
- Maintenance: Even if the home inspection reveals no major structural or other issues before you close on the home, you'll need to do regular repairs at some point. You may have a few tools lying around for simple fixes, but some home maintenance projects will require that you purchase new devices. Lawn care is going to be one of the biggest expenses, as you'll have to first get a lawn mower, weed whacker and other tools. From there on, you'll need to regularly buy gas and oil to keep these machines running smoothly.
Create a budget
With so many expenses, it can be easy to become financially overwhelmed as a new homeowner. Look at how much you're earning each month and compare that figure with these costs as well as your other bills that are not related to housing. Sitting down by yourself or with your spouse to develop a budget is helpful for determining whether your household income can support homeownership.