Buying a home is, easily, the biggest purchase we will make in our lives. Before you “take the plunge,” understand the true costs of owning a home.
First, be sure to make a down-payment, these usually are somewhere around 10% of the cost of the home. This is so you can prove to yourself that you have the financial capability and responsibility needed to properly own a home and make monthly mortgage payments. Also, the larger the down payment, the smaller your monthly mortgage costs will be. This is doubly important when the job market is where it is with unemployment around 10%.
Second, while you may be able to pay less per month on your mortgage versus what you pay for rent, be aware that the monthly mortgage payments are not all you will be paying. Be advised that foreclosures in America are at a 40 year high—owning a home is one thing, keeping one is another. One figure we hear often is that you should be able to afford and additional 40% on top of your monthly mortgage payment. Let us explain the adding up costs. When you buy a home, you have to pay property tax. For an example, let us use an easy figure of 100 000$ for the price of your home. If property tax is 1.5% in your area, that is an additional 1 500$ per year, or 125$ a month. Also, you will need homeowners insurance. Typically, this costs 25$ per month per 100 000$. And, if you make a down payment of less than 20%, you will pay Private Mortgage Insurance. That fee is around 45$ a month per 100 000$. Right there, that is an additional 195$ a month. Additionally, these costs do not include the price of maintaining a home. Think about telephone, electricity, broken plumbing, gardening, paint, appliances/furniture, condo fees (if applicable), etc—all these things you will have to cover.
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