The true cost of home ownership

If you’re considering transitioning from renting to purchasing a house, you likely have a sense of the neighborhood and price range that suit you. The monthly mortgage payment is just one of the many expenses tied to owning a home. It’s essential to understand all the costs involved — both upfront and ongoing — as well as any potential unexpected expenses before making this significant decision. By taking these factors into account, you can create a realistic housing budget and gain a clearer picture of the overall financial commitment involved in owning a property.

Mortgage and more: key costs to consider.

Although owning a home requires a large financial investment, there are several advantages. Homeownership provides stability and control over your living space, allowing for customization without landlord restrictions. Additionally, homeowners can enjoy potential tax benefits, predictable monthly payments with fixed-rate mortgages, and a sense of community investment. However, understanding the initial and ongoing costs are crucial if you intend to purchase a property. Below is an overview of the key expenses.

One-time costs:

• Down payment: A National Association of Realtors report opens in a new window indicates that most first-time homebuyers typically put down 6% to 7% of the home’s price, plus an extra 3% to 6% for closing costs. To cover the down payment, closing costs, and other expenses, aim to save 25% to 30% of the home’s purchase price. Eligible buyers may qualify for down payment assistance programs, which can reduce this amount.
• Closing costs: These costs could include attorney fees, application fees and discount points, if any. Taking into account taxes and real estate agent commissions, the total cost of closing can approach 15% of the purchase price of the property opens in a new window.
• Upfront escrow: You’ll need to prepay for around 14 months of homeowners insurance and several months of property taxes to set up your escrow account.
• Discount points: Optional charges that allow you to lower your mortgage interest rate opens in a new window.
• Moving expenses: Costs for professional movers, storage units and moving supplies.
• Furniture and appliances: Depending on what you already own and what the seller leaves behind, you may need to budget for new furniture, appliances or household tools.

Ongoing costs:

In addition to your monthly mortgage payment, be ready for these recurring expenses:

• Homeowners insurance: Required by lenders and protects your investment.
• Private mortgage insurance (PMI): Often required if your down payment is less than 20%.
• Property taxes: Vary by location and are paid annually or via your mortgage payment.
• Utility bills: Expect higher monthly costs compared to renting, especially if you're moving into a larger home.
• Home maintenance and repairs: Routine upkeep and unexpected repairs (e.g., a broken HVAC system).
• Yard care: Lawn maintenance and landscaping.
• Other fees: Depending on your location, you may face homeowners’ association (HOA) fees, pest control services, or flood insurance.

How to save for homeownership.

Saving for a down payment is often one of the biggest hurdles for first-time buyers. The more you save, the less you’ll need to borrow, leading to lower monthly mortgage payments and less interest paid overtime. Here are some tips to help build your down payment:

• Direct extra funds like bonuses or tax refunds toward your down payment.
• Cut back on spending, like dining out, and reduce utility usage.
• Sell unused items online or at consignment shops.
• Consider picking up extra hours or side gigs and saving the additional income.

Preparing for the unexpected.

Setting up a budget will assist you in controlling your monthly expenses as a homeowner. Establishing an emergency fund is a wise move as well, as it can help with unforeseen costs such as roof repairs or a broken water heater. You may prevent using credit cards or your long-term funds for unexpected repairs by creating a buffer. One wise approach to saving for emergencies is to open a savings account with a competitive interest rate, such as a money market or high-yield savings account.

Your home, your asset.

Purchasing a house may be one of the biggest investments you’ll make. By maintaining it and making upgrades, you may increase its value and possibly get higher profits when the time comes to sell it. Get in touch with a Commerce mortgage professional at your local branch for individualized guidance on mortgages and the home-buying process. They’ll collaborate with you to design a strategy that considers your financial circumstances and help you at every turn. With the correct planning and knowledge, you may enjoy the financial security and benefits of homeownership while maintaining your financial stability.