Measuring the True Cost of Home Ownership
We’ve probably all looked at a home’s price tag and thought, “I could probably handle that.” But many of us probably don’t know the real cost of owning a home. Sure, there are tons of online calculators that can tell us in a blink of an eye exactly how big our monthly payment will be, but mortgage calculators don’t tell the full story.
The fact is many factors go into acquiring what is, for most Americans, our largest investment (and often our biggest source of debt). Here is some information for your financial consideration about what home ownership will really cost you. Take a read and then contact your Envision Bank mortgage specialist to calculate your own numbers with an expert.
What’s on the Sticker?
Most of us know that there is more to the cost associated with purchasing a car than that price that dazzles us on the window sticker. The same can be said when we spot the realtor’s sign and collect the home’s flyer. The asking price for the home of your dreams is only the beginning. When considering the cost of buying a home, you will need to think about the cost of the interest on the loan you are going to likely take to make the purchase a reality, the down payment amount needed to buy the house (generally 20% of the purchase price), and the costs associated with the closing costs and other reserves that you’ll need to have in order to close on the loan. Some of these other costs may include: Private Mortgage Insurance (if applicable), homeowners insurance, property taxes, and the cost for maintenance and updates to the home (such as a new roof or updating your family room). We will explore those costs in a little more detail in the next section.
Getting to Close
Loan closing costs contain all those costs that we let the experts handle, such as the professional appraisal, attorney fees, title insurance and processing fees. These costs usually add up to 3% to 5% of the value of the loan. In addition to those fees there are set asides, pre-paid escrows (tax bill, following year’s insurance). Sometimes when people are refinancing an existing loan, they choose to add these items into the financed amount. It’s important to remember that these additions will increase your monthly payment and you will be paying interest on them, as well.
You’re Your Own Landlord Now
Remember how easy it was (in most cases!) to call your landlord when a pipe broke, a front step developed a hole, or the roof started to leak? As a homeowner, those and all of the other maintenance responsibilities now belong to you. There are several online sites that can provide you with repair and upkeep annual estimates – most repairs come in at 1.5 to 2% of the home’s value annually. It is important to consider major repairs, like replacing an old sewer line, into your budget because the payments are often large. Setting aside money for unforeseen house expenses will help you avoid taking on additional debt.
Location, Location, Location
Forgive the cliché but where you live really does make a difference in the value of your home and your monthly payment. Consider the neighborhood not just for its appearance, schools, and amenities, but whether the living costs align with your budget. It’s great to have a local grocery store, for example, but are you going to be paying $1 more per gallon of milk? It’s also important to consider commuting costs: is there a bus route? Will you now need to get a parking pass at work? Do you regularly drive to that lovely market? These are all good questions to consider in your estimated budget. Finally, is your neighborhood (and thus home) likely to appreciate in value?
Does Home Ownership Fit your Lifestyle?
Ultimately homeownership is about you, the owner. Though Americans place great importance on owning one’s home it most often comes with a big commitment. Most homes are owned for an average of nine years, according to the National Association of Realtors. One should always consider geography, job or lifestyle change before embarking on homeownership.
Is Homeownership Worth It? You Bet!
There is plenty to consider, from additional fees to improvement costs to whether your lifestyle is compatible with owning your own home. But the financial benefits to ownership remain our soundest financial investment. For example, every time you pay principal you are investing in your property, actually increasing your equity. There may be tax advantages to owning your own home, too. You should always consult a tax advisor to review your situation.
Finally, homes in most areas of the U.S. continue to appreciate. Through all the economic turmoil our nationwide home value appreciation over the last 50 years is close to 5%. That’s a pretty great investment return on such a large asset. Of course, you have to sell your home to monetize this asset. Still, investing steadily in a consistently appreciating asset that also puts a roof over your head makes plenty of sense. Whether it makes dollars and cents for you is ultimately your decision. An Envision Bank mortgage specialist will take the questions out of your home buying decisions.