Why You Shouldn’t Just Focus on the Price of a House

People, especially first-time buyers, tend to get in trouble when they only focus on a house’s list price and don’t consider the total cost of homeownership. There’s a lot more to owning a home than just paying for the house itself.

What Is the Total Cost of Homeownership?

When you own a house, you’ll have to pay for a mortgage, plus homeowners insurance, property taxes, maintenance, and repairs. You might have other expenses, like homeowners association fees or private mortgage insurance, that can easily add several hundred dollars to the monthly cost.

Homeowners Insurance

Insurance premiums can vary widely based on factors like location. Rates have been rising in areas that are prone to natural disasters. In some regions, it’s difficult or impossible to get affordable homeowners insurance.

Property Taxes

Property taxes are used to pay for things like education, road maintenance, and police and fire services. Each city or town sets its own tax rate. One locality can have a higher property tax rate than a town just a few miles away.

Maintenance and Repairs

If you own a house, it will need work from time to time. The amount you’ll have to spend will depend on the house’s age and current condition.

This is one reason why it’s so important to get a house inspected. Serious problems aren’t always obvious. If a house needs major work, you can ask the seller to make repairs, negotiate the price, or walk away and find a different house.

Homeowners Association Fees

Some properties belong to a homeowners association, or HOA. That’s a community where members pay dues to maintain common areas, such as a pool and tennis court, and to cover services like trash pickup. HOA fees can be hundreds of dollars per month.

HOAs also have special assessments to pay for expensive projects, like fixing the roof on a communal building or installing a new pool. Special assessments are sometimes thousands of dollars. That’s on top of regular dues.

Private Mortgage Insurance/Mortgage Insurance Premiums

If you take out a loan through a conventional lender and you make a down payment of less than 20%, you’ll have to purchase private mortgage insurance. If you get a mortgage through the Federal Housing Administration, you’ll have to pay for mortgage insurance premiums, no matter how much money you put down.

PMI and MIP have the same purpose. Both are meant to protect the lender in case you default on your loan, but you’ll have to pay the premiums, which can cost hundreds of dollars per month.

With a conventional mortgage, you’ll have to pay for PMI until you have 20% equity. With an FHA loan, if you put down less than 10%, you’ll have to pay for mortgage insurance premiums for the entire time you have the loan. If you make a down payment of at least 10%, you’ll have to pay for MIP for 11 years.

How Can You Find a House That Fits Your Budget?

A lender can estimate how much your monthly payments will be, but that amount will only include principal and interest for a mortgage. To find a house you can afford, look at the big picture.

• Get homeowners insurance quotes for a house you’re thinking about buying.

• Ask your real estate agent how much the current or most recent owner paid for property taxes.

• Get the house inspected so you understand its condition and know if it will need major repairs.

• Ask your agent if the house belongs to an HOA. If so, find out how much the monthly or annual dues are and whether the HOA is planning to charge a special assessment in the near future.

• If you’re thinking about taking out a conventional mortgage with less than 20% down or getting an FHA loan, get quotes for private mortgage insurance or mortgage insurance premiums.

• Add up those numbers and figure out if you can comfortably afford to pay that amount every month. Leave yourself a financial cushion in case you have an unexpected medical bill or lose your job.

Where Can You Learn More about the Homebuying Process?

Buying a house is complicated. There are a lot of expenses you might not have thought about and problems you can run into if you’re not careful.

The First-Time Homebuyer Masterclass breaks it all down, step by step. In the course, you’ll learn about all the costs associated with homeownership, different types of mortgages, and much more. When you finish the course, you’ll have the information you need to make the decision that’s right for you.

It’s a small investment that can save you thousands of dollars later. Enroll now.

Please share this blog on social media and/or send it to someone you know who is thinking about buying a house this year.