Down Payments, Mortgage Insurance, Taxes, Oh My!Posted by Lisa Udy on Thursday, December 6th, 2012 at 10:16am.
The American dream is never complete until one owns one’s own home. Home ownership is nothing if not liberating. There’s something to be said about waking up every morning, knowing that the hard work that you do each day is paying off – that you are actually paying on something that will eventually be 100% yours.
If you have not yet made the decision to cross over from renter (or perhaps even squatter in your mom’s basement) to home owner, then you may be wondering if you can swing a monthly mortgage payment.
Unforseen Expenses For Homeowners
The truth is that planning and careful budgeting is necessary for most folks to become successful home owners. The first budgetary consideration you will need to make is whether or not you can afford to own your own home. After all, home ownership is more than just making a mortgage payment each month.
A first time home buyer is often taken off guard when it comes to owning their very first home. They aren’t really aware that there are so many other expenses to consider that will quickly turn that seemingly affordable payment into one that might have you scrimping and worrying each month.
First of all, unless you are paying twenty percent down on your home, you will likely be required to pay for mortgage insurance. This insurance covers the bank if you should default on your mortgage. As you keep paying on your home, however, the PMI will drop off in relation to the equity that you are building. PMI is just another reason that saving for a down payment makes a lot of sense.
Homeowner’s association fees or HOA fees tend to really take a bite out of many homeowners’ budgets. It is not unheard of for HOA fees to run into the hundreds of dollars each month, depending on the community in which you live. These fees are used by the community to maintain the common areas that everyone enjoys.
There are several schools of thought when it comes to buying in an area that is part of a home owner’s association. Many people dislike living in an HOA controlled environment, since many HOAs control everything from the freedom to paint their homes to whether or not their children can have a playhouse in the backyard.
At any rate, escaping those HOA fees can be as simple as NOT buying a home that is in a HOA controlled community. Easy fix.
Homeowner’s insurance and property taxes should also be added to the list of expenses for new homeowners or for any homeowner for that matter. Many times, the cost of your home insurance and property tax will be included in your monthly mortgage payment, and held in escrow by an escrow agent that is contracted by your lender.
This is a fairly good way to budget for those expenses, and it protects the bank’s interests at the same time. Still, buyers need to be aware that these are expenses that they will need to meet alongside their mortgage payment.
In the rush to get in the market, some buyers also don’t think about the closing costs that they will need to pay. Many lenders include the closing cost right in with the loan, but some don’t. If you have to pay for inspections, loan origination fees, appraiser’s fees, and so on, you can plan on forking over a chunk of change for those expenses, too.
For those who can swing it, owning a home is more affordable now than ever before. Interest rates have never been better, and inventory is high – prices are low, at least for the most part. After all, when you rent, you are building someone else’s equity and therefore, someone else’s wealth.