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The costs you’ll pay go beyond just a mortgage loan.
Key points
- Homeownership can be an excellent choice for many people and may offer many benefits, but it’s not cheap.
- Your mortgage is one expense, but other costs such as closing fees, property taxes, and maintenance and repair costs are additional expenses to prepare for before buying.
Purchasing a home is a life-changing decision. While homeownership can come with many benefits, you want to ensure you’re ready for all the responsibilities that go with it, including the financial ones. There are many additional costs beyond your monthly mortgage payment. Keep reading to learn what other costs you should prepare for as a homeowner.
1. Down payment costs
Before buying a home, don’t forget to consider down payment costs. Unless you qualify for a VA or USDA loan, you’ll need to make a down payment, which is money you contribute toward purchasing your home.
Most home loans require that you make at least a 3% down payment. If you make a 20% down payment, you can avoid paying private mortgage insurance, which we’ll explain in greater detail further below. Not every buyer can commit to a 20% down payment — but the more you put down, the less money you have to borrow from a mortgage lender.
Example: If you’re buying a $250,000 home and decide to make a 10% down payment, you’ll want to have $25,000 set aside.
2. Closing costs
You’ll also need to consider closing costs. This includes attorney’s fees, loan origination fees, underwriting fees, and other similar expenses. Costs vary, but you can expect to pay anywhere from 2% to 5% of the purchase price.
As you consider buying a home, make sure you do the math to determine how your down payment and closing costs will impact your finances. You want to ensure you have enough money in our checking account to cover these costs at closing.
More: Check out our picks for the best mortgage lenders
Example: If you’re buying a $250,000 home and closing costs are around 5%, you’ll want to have $12,500 in savings.
3. Private mortgage insurance
If you don’t make at least a 20% down payment and take out a conventional home loan, your mortgage lender will require you to carry private mortgage insurance (PMI). This insurance protects your lender if you stop making payments on the loan. PMI is an extra expense that makes homeownership more costly.
4. Property taxes
When you own property, you’re also responsible for paying property taxes. These will typically be lumped into your monthly payment if you’re taking out a home loan. However, it’s worth noting that property taxes can and do change from year to year. That means that in future years, your property taxes could increase, resulting in an additional expense.
Before buying a home, it’s a good idea to research property taxes where you plan to live. Some parts of the country are known for having higher property taxes. If you’re flexible about where you live, you may want to consider buying a home in an area with lower property tax rates.
5. Home repair costs
Home repairs tend to pop up when you least expect them. Even if you buy a home in good condition, there will likely be a time when you need to handle repairs. Common home repairs include roof replacement, plumbing issues, and electrical issues. Whether you address some of these repairs on your own or bring in an expert, they can be costly.
Before buying a home, make sure you have extra money set aside in a savings account to cover potential repairs. Even after purchasing your home, you’ll want to adjust your budget, so you can afford to set aside money for future repair costs.
6. Homeowners association fees
If you’re buying a condo, townhome, or another property that is part of a homeowners association, you’ll likely need to pay homeowners association fees (HOA). The organization will use these fees to cover community maintenance fees. HOA fee costs vary, as are what’s included. Research these fees in advance to make sure the costs work for your budget. It’s also good practice to review the HOA rules so there are no surprises once you’re moved in.
7. Regular maintenance
Another expense to consider is regular home maintenance. You’ll likely need to handle lawn maintenance if you buy a single-family home. Additionally, you’re responsible for other maintenance costs, which can include gutter cleaning, fireplace inspections, and HVAC filter replacements — to name a few. Putting extra money in an emergency fund throughout the year is a good way to prepare for these costs.
As you explore housing options, make sure that you consider the actual cost of owning a home. You’ll need to be financially ready for more than the mortgage payment. If you’re considering buying a home, review our list of best mortgage lenders to learn more.
