Want to Make Extra Money Now?
|
Congratulations are in order – you recently purchased a new home!
As one of the most important investments you are likely to make in your life, this is truly a reason to celebrate.
Homeownership is an important aspiration for many people. It’s not always easy for Millennials saving for a down payment or getting approved for a mortgage.
Once you have safely navigated the bureaucratic minefield of loan approval, it’s time to pop the bubbly in anticipation of a truly remarkable achievement.
But first, let's explore the hidden homeowner expenses you may have overlooked.
Homeowner Expenses to Expect
Like it or loathe it, owning your own home is an expensive undertaking. The initial costs are enough to break the bank, but it’s the unexpected costs that can really hurt your pocket.
Most of us can secure the financing for the closing costs and a few unexpected expenses. However, our finances are typically stretched when we purchase a home, and this necessitates a careful plan moving forward.
For many of us, the down payment is one of the biggest expenses. It can take years to sock away the funds for the deposit, and that is usually the biggest expense. However, there are many unexpected costs that can crop up from time to time and these add tremendous stress to your finances.
If a home becomes a bottomless money pit, it is possible that you will no longer be enjoying the benefits of homeownership.
To this end, it’s important to guard against the financial stresses that homeownership can place on your life.
Here are several costs that can really hit home:
1. Closing Costs
Don’t be surprised if your $250,000 home results in closing costs of $5,000 – $12,500.
These costs will cover things like underwriting fees, title insurance, recording fees, home appraisal, inspection fees, loan origination fees, prepaid mortgage insurance, and property taxes, etc.
Usually, your mortgage lender will provide you with a good faith estimate via the closing costs, but you cannot take that figure as a holy writ.
Be prepared for a bit of a knock when closing costs are estimated, and for a potential surprise when your property insurance is calculated.
According to Luke Babich, CSO of Clever Real Estate, another hidden cost of homeownership is the cost to sell your home.
“Most buyers don't realize they'll need to pay 6% of their home's value to a real estate agent, if they end up going with an agent. The fact is, roughly 93% of homes are sold with a real estate agent, so chances are you're going to eat that expense when you sell. Consider how long you're planning on living in your home before buying, because earning 6% of your homes equity over a few years can be wiped out simply from the commission fees!”
2. Out-Of-Pocket Costs Due to Home Appraisal Shortfalls
The way a home mortgage works is complicated, but a home loan hinges upon a property appraisal. If the bank or financial institution finds value in the property, they are more likely to grant you the full home loan value.
Sometimes, they don’t find value in the property and will appraise at a lower price. Are you prepared to meet that shortfall if you want the property? Do you have the necessary funds available to cover those unexpected costs?
Usually, the seller will negotiate a little with the buyer to come to an agreement on the sales price. Be prepared for out-of-pocket expenses if this is the case. It is never recommended to simply pay the difference if the property does not appraise. There’s a reason banks and financial institutions don’t find value in property – because it’s not there.
Sometimes, your realtor will assure you that there is real value in the property and you may wish to consider that in your decision-making processes.
There are other costs that you need to keep in mind, and these are not related to the closing costs or the appraisals. One of the most important costs is maintenance.
There’s an old saying, ‘Acquiring assets is easy, but keeping them is an entirely different ballgame!’
The uncertainty of work, income, health, and other factors makes it a little nerve-racking to commit to a 30-year mortgage and all the associated costs of homeownership such as HOA fees, home systems and appliances, repair work and so forth.
However, as a homeowner, you must be prepared to take care of all of these expenses on your own. Renters don’t need to worry about these costs since they don’t own the property or the home systems and appliances such as refrigerators, dishwashers, microwaves, garbage disposal units, etc.
Here are three other cost items that you want to consider as part of your homeownership costs:
3. Maintenance of Home Systems and Appliances
You may not be aware, but refrigerators, dishwashers, washing machines, dryers, boilers, AC units and the like cost thousands of dollars.
These systems are great when they are brand-new, and they are typically covered by a manufacturer’s warranty for the first year. But what happens when these electromechanical components start aging. Regular use, humidity, cold weather, hot weather, and other phenomena can adversely affect these home systems and appliances.
You may soon find yourself out-of-pocket to the tune of hundreds, perhaps even thousands of dollars when these big-ticket items go on the blink.
Rather than worry yourself with these expenses, you may wish to consider Choice, one of the leading providers of home warranty coverage. For an annual fee of around $300 – $500, you can expect decent coverage on a wide range of home systems and appliances.
4. HOA Fees
Did you know that homeowners’ association fees never go away, and they typically never get reduced.
Depending on where you live, the homeowners’ association fees could be anywhere from 10% of your monthly mortgage repayment to 35% +.
That means you will always be stuck with increasing homeowners’ association fees with inflationary pressures. Can you afford to maintain these fees moving forward?
Even if you pay off your mortgage, you could be stuck with HOA fees and property insurance that is the equivalent of your mortgage.
It is certainly worth considering whether you wish to move into a community with zero, low, or high HOA fees.
Of course, there are benefits to homeowners’ associations, since they maintain the buildings, lawns, security systems, and sometimes provide TV and Internet coverage as well.
5. Insurance costs
Insurance is a big-ticket item, especially if you live in a low-lying area, an area prone to tropical storms and hurricanes, or an area where sinkholes and other phenomena are present.
You may need flood insurance if you live along the coast of Florida, Louisiana, the Carolinas, or Texas.
Are you prepared for the added costs, or the cost of not having insurance?
6. Home Warranty Costs
A home warranty is a type of insurance that makes it possible for you to save money on the repair and replacement of services and systems in your home. Provided you pick the right home warranty company, this is entirely possible.
Unfortunately, the media is awash with horror stories of people who feel like they have been conned by home warranty providers. Like any industry, there are charlatans in the mix. It’s important to evaluate the quality, coverage options, pricing, customer rating, and other elements of the home warranty provider before you register and pay to use their services.
Getting Mortgage Advice
Getting the best mortgage advice is hard to find. So, it pays off to work with a professional mortgage adviser who can help you find the right financing solution for your home goals. Choose an elite adviser with a good track record of excellent service and a broad range of connections in the industry.
There are many real estate professionals and mortgage advisors available in the market today. You can use a free online assessment tool that can help you choose the right mortgage option. An assessment tool collects your information, to provide the mortgage adviser a good insight into your financial position.
An elite mortgage adviser can then offer expert advice on the best mortgage solution for you. They can recommend an ideal mortgage loan structure, the appropriate lender, and the best terms aligned to your goals. It’s advisable to search online to look for a mortgage adviser or find an advisor here to know the cost of owning your dream home.
Takeaway
More than the cost of owning a property, a home buyer should consider the warranty, homeowner’s association fees, insurance, maintenance, and closing costs. With careful thought of all these financial considerations, you’ll be able to determine the total cost of owning a property and whether you
