Congratulations! The listing price for the house you’ve been eyeing has dropped within your budget! Seems like a dream come true, right? So, does this mean you can afford it now?
Unfortunately, purchasing a house is a bit more complex than simply paying the listed price of the home. No matter where you’re buying, additional costs usually exist to cover certain expenses. Although these charges are beyond your control, it helps to prepare yourself for what you’ll have to pay.
The Real Cost of Home Ownership
In most cases, home ownership costs more than simply purchasing the property itself. Below, our financial advisors outline everything you need to know about paying for a house.
First, you want to fully understand the one-time payments, or up-front costs, before you seal the deal, such as:
The Down Payment
When you close a loan on a house, you pay a fixed amount up front. The more you put down, the less you pay in interest in the long run. A good rule of thumb is to aim for 20 percent of the home’s cost when determining your down payment, with a minimum of 3 percent. However, CNBC Select reports that the average down payment on a home was just 7 percent for first-time homebuyers in 2021.
The Appraisal Fee
An appraisal provides an impartial estimate of the home’s current value for reference. Although the national average hovers around $350, some homeowners pay upward of $1,000 to receive an appraisal on their purchased property. These varying costs depend on several factors, including your loan amount, the size of the property, and the home’s age.
The Inspection Fee
Most communities require a professional inspector to visit and assess the house’s physical condition. They perform the inspection to reveal any pressing issues or repairs that may be necessary before moving into the home. The inspection fee only includes the actual assessment and not the cost of any potential issues.
The Closing Costs
Associated closing costs range from 0.71-5.9 percent of the home’s purchase price, depending on the state. In Missouri, typical closing costs amount to approximately 2.76 percent of the home's final sale price. This additional expense covers any lender fees, third-party fees, private mortgage insurance, or escrow accounts.
Additional Ongoing Fees and Expenses
You may be under the impression that monthly mortgage payments are the only repeat expense after you buy a home. Regrettably, you’re responsible for a few other regular monthly, quarterly, or yearly home ownership costs, including:
Homeowners Insurance
Banks and other mortgage providers require purchasers to obtain homeowners insurance before granting a home loan. Unfortunately, basic policies typically have minimal coverage, so be sure to perform ample research on various insurance options.
The average homeowners insurance premium in the United States is $1,428 a year, one analysis found. Those in the market should keep in mind that these costs are usually higher in areas prone to natural disasters (e.g., flooding, hurricanes, earthquakes, tornados, and so on).
Property Taxes
Townships and local governments determine the cost of the property tax payment for their city or county. The amount ranges nationwide from 0.31-2.13 percent of the home’s assessed value, depending on your state. At 0.88 percent, Missouri’s rate falls below the national average of 0.99 percent.
Maintenance and Repairs
As with other expenses mentioned, this price varies significantly based on the age and condition of the home. For reference, Angi found that American homeowners spent an average of $2,467 in 2022 on home maintenance, but some homes require more significant renovations.
As a general rule, you should expect your annual home maintenance costs to amount to anywhere from 1-4 percent of the home's value. Some features to consider that often require a large up-front cost include:
- Windows and doors
- Roof
- Exterior siding
- Heating and air conditioning
- Ventilation
HOA or Condo Fees
Perhaps you’ve purchased within a homeowners association (HOA) or condominium association. These memberships require a regular fee (charged monthly or sometimes quarterly). These payments account for community upkeep (e.g., garbage collection, snow plowing, pool cleaning, lawn care, and so forth) or other large-scale benefit projects.
Ways to Save and Budget for Home Ownership Costs
Here are some simple and achievable methods for developing an affordable budget to purchase a home:
- Downsize: Take inventory and sell items you no longer need.
- Pause: Put retirement savings on a temporary hold.
- Economize: Switch your vacation to a staycation.
- Examine: Reassess your budget for further ways to save.
- Prioritize: Work on addressing current debts.
Home Ownership: Pricey but Possible
As we’ve learned, the total cost of the home is more than simply the sale price. Additional one-time fees plus ongoing fees exist for all homeowners, and the total price depends on several factors, from location to valuation. These amounts tend to fluctuate frequently.
Sometimes, lifestyle changes are necessary to secure sufficient savings. Luckily, several government assistance programs exist for those struggling to save up for home ownership costs. FSCB also offers a mortgage calculator tool for estimating your monthly payments.
In need of further guidance on home ownership costs? Check out The Essential Guide for First-Time Home Buyers for more insights on purchasing your first home.
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