So you want to buy a place. Have you ever calculated the cost of home ownership? First-time buyers may not be aware of the full cost of owning a house when comparing the affordability of buying versus renting. This checklist can help you determine whether buying will work for you.
1 Principle and interest
Run your target home price through an online mortgage calculator to determine the monthly payment at a realistic current interest rate. Don’t assume you’ll get the best rate advertised online for, say, a 30-year fixed rate loan. The interest rate you pay will be determined by a number of factors, including your personal financial circumstances. Another huge part of the payment picture is how much you put down. The closer to 20 percent or more of the asking price, the better the loan terms are likely to be.
2 Mortgage insurance
In addition to the mortgage payment, buying a home will entail private mortgage insurance, or PMI, if you don’t put at least 20 percent down. Factors such as the size of your downpayment and credit history will affect how much the PMI premium costs each month. Generally, expect to pay in the range of $30 to $70 per month for each $100,000 borrowed. Premiums are rolled into the mortgage payment.
3 Homeowners insurance and property taxes
Call and get estimates from at least three insurance agents/brokers in your area to find out how much insurance will cost for a particular home. Don’t assume you will pay what a home’s former owners paid for insurance. Your credit rating and other factors can influence insurance premiums. In some areas, property taxes may also increase after you buy as a home’s taxable value is adjusted to reflect the selling price, the “market value.” And with both home insurance and property taxes, a homeowner is likely to face incremental increases over the years.
4 Maintenance and repairs
Decide in advance if you will be doing repairs yourself or hiring others. Many people who are familiar with renting a condo or apartment are not accustomed to spending weekends or evenings mowing the lawn, cleaning the pool or fixing a faucet. Plan on budgeting about 10 percent of the total cost of your home each year toward maintenance and repairs. You won’t use it all at once: Some years will require only a few small repairs or maintenance items, but other years you will need to spend several thousand dollars to replace a roof or buy new heating and cooling equipment.