You’re interested in buying your first home because you’ve scraped together enough money for a down payment and have enough salary to cover the monthly mortgage payment. But have you taken into account the other expenses involved in owning your own house? You may not even be aware of what those costs are if you’ve lived with your parents or in a rental unit all your life. Here’s a list of what additional amounts you’ll have to pay:
· Private Mortgage Insurance: Also known as PMI, this insurance has nothing to do with covering your investment, despite the fact that you have to pay the premium. Instead, it protects the lender if you walk away from the home loan. This amount ranges from around 0.3 percent to about 1.5 percent of your loan amount and is currently tax-deductible. When the loan balance you owe goes below 78 percent of the original value of the home, your lender automatically cancels PMI.
· Property Taxes: This is a yearly tax that’s due in many state to cover local services, such as schools, and is based on a percentage of the value of your home as assessed by the local government. This tax generally goes up every year. For your budgeting convenience, some lenders can divide your property tax into monthly payments, which they hold in escrow and then pay for you when it is due.
· Home Insurance: You may already be familiar with vehicle insurance if you drive or renters insurance if you leased an apartment. Home insurance is similar except that it covers your property and its contents. If they’re damaged or destroyed, you’re reimbursed for the fix. It also provides liability protection, such as if someone sues you because he or she was injured on your property. Fees depend on the amount of coverage you require and the value of your property.
· Homeowner’s Association Dues: If you buy a condominium or a home in a new development, you’ll most likely owe dues for the homeowner’s association, which takes care of maintaining your community development. Although specifics vary, it typically covers gardening of any common areas and your front yard, exterior painting and maintenance, security, and trash collection.
· Maintenance and Repair: You’ll need to set money aside to keep your property in good shape. If you’re a first-time homeowner, you may need to buy tools, gardening equipment, and cleaning material. You may also need to call in the occasional repair person to take care of a leaky faucet or faulty electrical work. Every few years, you may need to pay for major structural work, such as replacing the roof or painting the exterior of your home.