Homes are more affordable these days and the selection is abundant. It is a great time to buy! But as too many struggling borrowers now realize, the cost of owning a home is hardly limited to paying the mortgage. There are hosts of other recognizable and unexpected cost that can get overlooked in the excitement of buying a house, especially if it’s your first.
Ultimately, those things might mean the difference between home sweet home and foreclosure.
It is important for all buyer to know , especially first-time buyers, that there are additional expenses other than their monthly mortgage Just because a lender has qualified you for a certain size mortgage doesn’t mean you have to spend that much on a house. There will be additional, unforeseen costs, such as repairs, decorating, improvements, utilities and the like. You do not want to be “house poor” as often on FHA loan down payments comes from a gift and it is just another evidence of not saving enough….
Through the loan-qualifying process, some buyers, especially first-timers, become aware of the concept of spending only a certain percentage of their income on what is called PITI—principal, interest, taxes and insurance.
The “T” in PITI—taxes—can be expensive, depending on where you live. If you buy into a condo complex or a new-home development (which in Raleigh, NC I would strongly advice against), you will have to factor in monthly homeowners association fees, as well. PITI and association fees are fixed costs, for the most part, although home owner’s insurance rates and taxes can rise. Mortgage interest can change, too, if you don’t have a fixed-rate loan.
I would urge any buyer to set aside a “rainy-day fund” for unanticipated major expenses, such as a broken HVAC or a roof leak. Home owner’s insurance plans often have lots of gaps, so there are many things they don’t cover.
For example, home owners insurance can include flood coverage so when the basement stairwell drain is clogged with leaves and water backs up the basement there will be a cost share after deductible. You need to be intimately familiar with deductibles as well as coverage limits, so your annual premium will likely be much higher than the state average when you finish crafting your policy. You certainly can shop around for the best rates, and, in many cases, save money on the premium with a policy that covers your automobiles as well as your house.
But you should also allow for simultaneous unanticipated expenses, such as a car transmission failure and a fridge on the fritz. If you are living on the economic edge, enough of these disasters can push you over it.
I believe that between $5,000- $10,000 in liquid savings that can be turned into cash anytime with very little risk of capital loss is not too much, adding that $5,000 was the recommended minimum.
Among expenses to factor into a home-buying decision:
-Utilities: Heat, electricity, water and sewer, telephone, cable television, Internet and cell phones. You also may have to pay a fee for trash collection and recycling.
-Food/entertainment: Dining in and out, movies, hobbies.
-Children: Day care, tuition, lunch money, supplies, clothing, sports gear.
-Health costs: Braces, eyeglasses, medicine.
-Debt: Credit-card payments, car/student loans.
-Maintenance/repairs/decor: Furnishings and appliances, landscaping, snow removal.
-Job expenses: Transportation (gasoline or transit costs), auto maintenance.
Thomas Wohl, Broker
RE/MAX Preferred Associates
919-601-3005
