You have found your dream home in the perfect neighborhood for you and your family. You have even determined that you will be able to afford the monthly mortgage payments that will come with this home.
However, have you factored in the other costs of owning a home?
Your monthly mortgage payment is just the start of the costs of owning a home. Property taxes, homeowners insurance, utility bills, home repairs and, depending on where you live, homeowner's association fees, can all drive up the monthly costs of living in a home.
Here is a look at these costs and what impact you can expect them to make on your monthly budget.
When considering a home, be sure to review the property taxes. These taxes can add significantly to the cost of that house.
Property taxes vary widely by state and county. According to the most recently released census data, residents of New Jersey paid, on average, $4,437 in property taxes in 2018 on a home worth $184,700. Hawaii homeowners paid $501 in median real estate taxes for the same home value. The national median average stood at $2,197.
Many homeowners take out an escrow account with their mortgage lenders to cover their property tax payments. Under such an arrangement, lenders pay homeowners' property taxes. Homeowners cover this by paying more each month when they write out their mortgage loan payments.
That means if you have to pay $3,000 each year in property taxes that your monthly mortgage payment will include an additional escrow payment of $250 to cover them.
In considering property taxes, it is important to remember that the 2017 Tax Cuts and Jobs Act put a $10,000 cap on the State and Local Taxes (SALT) deduction for federal taxes. Property taxes are part of that equation, along with income and sales taxes.
If you take out a mortgage to finance your home, you will also have to pay for a homeowner's insurance policy. No mortgage lender will lend you money without one.
It is a good idea to have homeowner's insurance regardless. These policies can provide you with financial protection should your home be damaged or destroyed. It will also protect you financially from cases of theft or robbery.
However, homeowner's insurance also adds to the bottom-line costs of owning a home.
According to the Federal Reserve Board, homeowners can expect to pay from $300 to $1,000 every year for their homeowner's insurance policy. The cost depends on several factors: If you own a larger home, you will pay more for homeowner's insurance. If your home rests in an area prone to tornadoes, earthquakes or other natural disasters, you will pay more, too.
Depending on your lease when you rented, you might not have been responsible for paying utility bills. When you own a home, though, these bills -- for everything from electricity and water to weekly garbage pick-up and gas -- become one more monthly cost.
These costs are not insignificant. For instance, according to the U.S. Energy Department, U.S. homeowners who use natural gas for heating will pay about $578 over the 2015-2016 winter months. That is a slight decrease from the previous year. An additional expense is what you will pay for electricity. The U.S. Energy Information Administration projected in March 2017 that the 'perfectly average' American household spends about $112.59 per month for electricity. Of course, that amount varies by the size and location of your home. South Carolinians pay the most for electricity at $173 per month. New Mexicans pay the least at $90.
Before buying a home, ask what the average utility costs have been for the last two to three years. Sellers are under no obligation to share this information with you. Most, though, will. Don't forget, then, to add these fees to your monthly cost of owning a home.
Homeowner's association fees
If you buy a condominium, the odds are good that you will have to pay monthly homeowner's association fees. You might also have to pay these fees if you live in a gated community or other housing subdivision where maintenance tasks are performed by the HOA.
These monthly fees go to cover the costs of mowing lawns, shoveling snow, repairing cracking driveways, maintaining common areas and other maintenance issues. Again, these expenses can be significant. They usually run from $200 to $400 a month and can add significantly to the cost of owning a condo, townhouse or single-family home.
The last big bite on your monthly budget is home maintenance.
Ask anyone who's purchased a home. Maintaining it costs money. One year the hot-water heater might go. The next, the roof might start leaking. Another year? You might need to reseal the driveway.
Real estate giant Coldwell Banker advises homeowners to be prepared to spend from 1.5 percent to 4 percent of a home's original cost on annual home maintenance. For a home that cost $200,000, that comes out to $3,000 to $8,000 a year. Again, that can be a significant drain on your monthly budget.
Owning a home can be a wise financial decision. The intangible benefits that come from ownership cannot be disregarded, however. It is essential, though, to fully understand the costs before you invest in homeownership.
© Fintactix, LLC 2019