For average people, purchasing a home is the single biggest investment they make in their lives. Because it is such a large and important financial decision, homeowners should be careful to calculate all the potential costs associated with buying and maintaining a home. Read on to learn about the most important costs you will likely encounter and how to plan for them.
Mortgage and Down Payment
Mortgages are agreements between borrowers and lenders wherein the lender pays the outstanding cost of the home and the borrower makes monthly installments until the loan is repaid with interest. Better credit ratings mean lower interest rates, so practicing a lifelong habit of good financial decision-making is a benefit for new homeowners. According to City Creek Mortgage, most companies won’t tell you exact interest rates, but you can estimate based on market trends. Down payment refers to a percentage of the total cost of the home that is paid initially as an act of good faith. The down payment can range from just a few percentage points to half the home’s value. Although the ideal down payment is 20%, there are several advantages of placing a 5% down-payment to keep in mind.
The most common recurring household expenses are the mortgage, property insurance, the cost of maintaining the structure (e.g. preventing termite damage, removing mold, roof repair, painting, etc.), and utility bills like water and electricity. Many apps offer budgeting services that track your household expenses monthly. This can be a great tool for planning how much money you can expect to spend on an ongoing basis. If you know how much energy a new appliance would use, you can also use some simple equations to see how much approximately how much it will cost to run before you buy it.
Future Sales Price
In the event you decide to move at some point, knowing that you can get back the money you’ve invested into the property or even make a profit is a great additional reason to purchase a home. Look for homes in areas that have consistently reported steady increases in property values throughout the years. Also, if you decide to pay a lower down payment, this will leave your cash free for other expenditures such as renovations. Renovating is another way to increase the value of the property when you move out.
Without a clear understanding of all the costs that might be involved, new homeowners are susceptible to falling behind financially and being unable to keep up with mortgage payments and other recurring costs. Ultimately, they might even end up losing their home. With the proper planning and understanding of future expenses, however, investing in a new home can be a wise financial move.