It’s no secret that there’s a huge learning curve when it comes to home buying.
If you’re a first time home-buyer, house hunting has likely already provided you new insight into what it’s really like to buy a home today. Maybe you’ve learned that you can’t get quite as much bang for your buck if you stay in your preferred zip code. Or, perhaps you’ve realized that hardwood floors and granite countertops come with a hefty price tag. You might’ve even learned a bit about yourself along the way-- like that you’re particularly drawn to mid-century modern homes. Or that you’re not so intimidated by fixer-uppers after all. Who knew you had a bit of Chip and Joanna in you?
But, if you’re not all that far along in the home-buying process, you may have yet to learn about some of the lesser-known costs of homeownership. Maybe you’ve planned to save what you need for a down payment and closing costs, but what about other expenses?
Here are 3 costs of homeownership that you should be aware of.
- 1. Private Mortgage Insurance
Private Mortgage Insurance, also known as PMI, is one of the lesser-known costs of home ownership. Ultimately, PMI is not for the home-buyer, but for the lender. If a situation were to occur that hampered you from making payments on your loan, PMI is a guarantee that the lender would still receive a portion of the due balance on your loan. Thus, PMI lowers the risk that lenders incur. Though the cost of PMI varies, you should expect to pay between 0.5% to 1% of the entire loan amount on an annual basis.
If you have plans to make a larger down payment, however, you may not be required to purchase PMI, as it is typically only necessary for those making down payments under 20% of the home’s overall cost.
2. Property Taxes
If you’ve rented up to this point and aren’t yet familiar with property taxes, they are pretty much exactly what they sound like-- a tax based on the value of your home or property.
But how much should you expect to pay in property taxes each year, you ask? Well, the cost and frequency of your property tax payments will differ depending on where you live. And given that the property value of a home can rise over time, property taxes are subject to change.
If you’d like to get an estimate on what your property tax might cost, you can enter your state, city, and assessed home value here.
3. Utilities
The fact that you’ll have to account for the necessary utilities to keep your new home up and running might seem like a no-brainer. After all, if you’ve rented before, you know exactly what to expect when it comes to utility payments, right? Well, not necessarily.
It’s important to consider how purchasing a home will affect your monthly utilities. If you lived with roommates prior to buying your first home, for instance, you’re probably used to splitting the monthly bills between multiple parties. So, if this is the first time that you’re not also living with roommates, the monthly utilities that you’re responsible for could be higher than ever before.
But, even if you’ve never lived with roommates and you’re used to footing the cost of each utility bill, you should still account for the fact utilities are typically more expensive in homes than apartments. So, if you’re making the apartment-to-house leap, this is something to be aware of.
