When it comes to owning a home, the initial down payment and mortgage payments are just the beginning. There are a number of expenses that you should consider before deciding to purchase your first home. Many of these expenses continue for as long as you own your home - even after the mortgage is paid off.
TUTORIAL: Mortgage Basics: Costs

1. Property Taxes
Property taxes are typically paid to your municipal or local government, county or state to fund such things as public works, wages of government workers or public school boards. Property taxes are an expense that homeowners can expect to pay for as long as they own their home. Taxes are assessed based on the current value of your home, and can change over time to reflect your home's increase or decrease in value. Property taxes can also vary depending upon the region, so you should always investigate the property taxes in the area you're looking to buy. In 2008, the national average for property taxes was $1,180 per annum. (Find out what steps you can take to reduce your bill, see Five Tricks For Lowering Your Property Tax.)

2. Home Maintenance
Homeowners can't simply call the landlord when the appliances need to be replaced or the hot water tank stops working. All these home maintenance tasks - and even the larger home renovations - are the responsibility of the homeowner. Whether you're planning a large remodeling project, or just to cover the necessary repairs, it is suggested that homeowners budget at least 1% of their home's purchase value per year towards maintenance. Therefore, if your home is worth $220,000, you should plan to set aside at least $2,200 towards maintenance costs. Some sources even suggest you should budget for up to 4% per year, which would be $8,800 on a $220,000 home.

3. Mortgage Interest
The amount you'll pay in mortgage interest over the duration of your mortgage depends upon the length of time you amortize your mortgage over (or the number of years that it will take you to repay your home loan), the frequency of payments and the rate of interest. The interest rate on your mortgage can fluctuate over time, depending upon the type of mortgage you select. However, for a general idea of how much interest a homeowner can expect to pay over the course of their mortgage, if you have a $220,000 mortgage that is amortized over 30 years at a rate of 5%, you can expect to pay roughly $205,162 in interest. (Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits, check out Tax Deductions For Rental Property Owners.)

4. Home Insurance
Renters may have to pay rental insurance, but homeowner insurance tends to be a lot more expensive. Rental insurance typically covers contents insurance; however, homeowners are concerned with the value of the physical structure of their property as well. If a home is lost in a fire or natural disaster, insurance will cover the remainder of their mortgage, or the cost to rebuild or repair the home. Insurance policies offer different levels of protection and coverage, and premiums can vary greatly. In 2008, the national average cost of home insurance was $791 per annum.

5. Real Estate and Legal Fees
The mere act of buying or selling a home comes with costs. The seller is generally faced with paying the real estate agent fees, which typically come in the form of commission. Commissions are negotiable, but tend to run about 6%. If you sell your home for $220,000, you can look at paying about $13,200 in commission. Also, both buyer and seller must pay legal fees to cover the transfer of title. Legal fees vary depending upon the lawyer. The national average for legal services is $284 per hour, according to Lawyers.com. Of course, the actual cost will depend on the requirements and the experience of the legal team. Real estate lawyers also charge for additional closing costs associated with the purchase or sale of your home, so you should always budget a bit extra. (Property transactions are complex and subject to specific state/local rules. A professional can simplify the process - check out Attention Home Buyers! Why You Need A Lawyer.)

6. Landscaping and Lawn Care
If your home has a yard, you will definitely need to budget for landscaping and lawn care costs. Paying a landscaping company to care for your lawn could run you about $30 per week. That adds up to between $120 and $150 per month for a basic lawn. If you choose to do the work yourself, your costs will undoubtedly be lower; however, you'll still need to consider expenses like fertilizer, tools and maintenance equipment, tree maintenance and seasonal plants for the garden. Although you might want to think it is free if you do it yourself, you do need to think about the time cost of mowing the lawn, or shoveling snow, if you are in the higher latitudes.

7. Home Owners' Association Fees
Some developments charge a Home Owners' Association (HOA) fee or condominium fee. These fees often cover external building maintenance and landscaping costs for common areas. This minimizes the cost of any home expenses that are covered by the HOA fee, though these fees won't cover any internal maintenance costs associated with your unit. HOA fees may not cover maintenance or construction projects if the HOA doesn't have enough money in reserve to cover it. This may result in a hefty cost to owners in the development. Those in HOAs should set some money aside to cover such unforeseen expenses associated with the maintenance of their communal property.

TUTORIAL: Budgeting Basics - Budget Bootcamp

The Bottom Line
Keep in mind that your landlord is paying all these expenses for the property that you're already living in. Therefore, all these expenses are being factored into your rent. Other fees could include an extra parking spot, or loss of percentage of the security deposit. Also, real estate values tend to increase over the long term, though the real estate market is definitely not immune to short-term fluctuations. If you can make a long-term commitment to owning a home, there is a definite potential to earn a profit from the sale of your property. Just keep in mind that there are more expenses involved with owning a home than immediately come to mind. Just because your mortgage payments are less than your rent doesn't necessarily mean that you'll come out ahead in the short term.

Related Articles
  1. Home & Auto

    Rent-To-Own Homes: How The Process Works

    A rent-to-own agreement can benefit homebuyers with bad credit or insufficient funds for a down payment. Here’s how one works.
  2. Home & Auto

    7 Must-Have Real Estate Contract Conditions

    Buying a home can bury you in paperwork. But it’s worth your time to make sure your contract contains these seven important conditions.
  3. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  4. Retirement

    Birch Box Review: Is It Worth It?

    Learn more about the convenience of the subscription beauty box industry, and discover why the Birchbox company in particular has become so popular.
  5. Investing Basics

    Understanding Real Estate

    Real estate is an encompassing term that refers to land, the buildings on that land, and its natural resources, such as crops and minerals.
  6. Economics

    Understanding the American Dream

    The American dream is the belief that anyone, regardless of where they’re born or into what class, can attain their own version of success.
  7. Home & Auto

    9 Tips for Handling Homeowners’ Associations

    Before you buy property in a community with an HOA, there are nine things you should do.
  8. Home & Auto

    6 Reasons To Avoid Private Mortgage Insurance

    Homebuyers who put less than 20% down will likely be forced to secure private mortgage insurance. Here are six reasons to avoid it.
  9. Personal Wealth & Private Banking

    Women, Invest In Your Financial Literacy

    Becoming financially literate should be on the to-do list of anyone who is not.
  10. Investing Basics

    Top 10 Features Of A Profitable Rental Property

    Owning rental property is a tough business. Here are 10 things you should consider before investing in an income property.
RELATED FAQS
  1. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  2. Does renters insurance cover water damage?

    An all-perils renters insurance policy does cover water damage, less the deductible, to personal property if the damage is ... Read Full Answer >>
  3. Does renters insurance cover storage units?

    An all-perils renters insurance policy provides coverage for the contents of storage units. Most policies limit the amount ... Read Full Answer >>
  4. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  5. Does renters insurance cover flooding?

    An all-perils renters insurance policy does not cover damage from a flood. Consumers sometimes confuse a pipe bursting with ... Read Full Answer >>
  6. Does renters insurance cover mold?

    An all-perils renters insurance policy typically provides a low set amount of coverage for damage caused by mold as long ... Read Full Answer >>
Trading Center