You’ve finally reached a point in your life where you plan to be in the same place for longer than a 12-month lease. Instead of making rental payments on a monthly basis, you want to earn equity as you go and eventually end up with a permanent roof over your head. (We at ABODO will miss you, but we understand.)
But rent doesn’t translate into mortgage on a simple 1:1 ratio — a lot more goes into the transition than you might think, from the upfront costs involved to what happens if your dishwasher malfunctions and spews food-flavored water all over your floor. As you prepare to pick up the torch of home ownership, keep these five things in mind, and you’ll be just fine.
There’s a lot more to pay for upfront.
Say goodbye to the security deposit. When you buy a house, there are a few different fees to contend with. The big one, which poses one of biggest obstacles for hopeful home buyers, is the down payment. The amount depends on your mortgage, but expect to pay 10% to 20% of the home’s value. If you don’t have it, there are options to pay much less upfront — sometimes as little as 3% — with private mortgage insurance or a loan through the Federal Housing Administration. These lower down payments, however, make for higher monthly payments and a higher home price overall.
And then there are the closing costs, which average about $2,100 on a $200,000 home. This hefty sum often covers several necessities: home loan origination, title insurance, land survey, home inspection, insurance escrow, appraisal, and more.
Monthly payments go beyond mortgages.
Monthly, your mortgage payment can look pretty similar to your rent check. In fact, a recent study found that in the vast majority of states, buying is easier on your pocketbook than renting. You can weigh your options with Realtor.com’s calculator.
Your home is your largest investment, so you’ll want to protect it with insurance. Sure, renters’ insurance was “highly recommended,” but homeowners insurance is necessary to protect your investment, your belongings, and your mortgage. Many lenders require it.
And lastly, you’ll want to tuck away money each month for property taxes, which is usually a percentage of the assessed value of the land and the structures on it. These rates are highly localized, but the average household pays just over $2,000. Although property tax is generally billed annually or semiannually, many mortgage lenders require that money is put in escrow monthly for the tax.
If you don’t have your emergency funds set aside yet, now is the time.
Having a stockpile of special emergency funds isn’t specific to homeowners, but it’s increasingly important. The bare minimum recommendation is to have at least three months of living expenses to fall back on — rent, food, utilities, and every other bill — but six months is better. Some even go so far as to recommend two years’ worth. These funds will protect you in the event of job loss, appliance failure, or major medical bills.
You are your own maintenance crew.
Your maintenance budget now must cover more than a package of lightbulbs and batteries for smoke detectors. Aside from the emergency funds you’ve saved up, you’ll want to plan on spending at least 1% of the home’s value on maintenance projects each year. When you move in (and pretty regularly after that) take stock of the appliances you have and what kind of shape they’re in to prioritize upgrades and service. When was your furnace last inspected? Is the water heater an original feature of your 1950s home? Price a few out and put that heater near the top of your list — above, for example, an air conditioner or dishwasher. If unused, this maintenance cash will come in handy for larger projects, such as a roof replacement.
More regular maintenance is required of you as a homeowner, too. That yard you’ve been dreaming about — it needs to be mowed, often. And that means you need to have a lawnmower. Still doesn’t look as naturally manicured as the neighbors’ yard? Pick up a weedwacker to and clean up those edges. Depending on where you live, you’ll also need a rake come fall (and leaf bags or a tarp to move leaves to the curb), and a shovel and de-icer come winter. Plan ahead: You’re going to want that shovel before the snowy December morning you need it.
Your neighbors are forever (or at least for quite a while).
This one is the easiest change to make, and probably one of the most fun. Your neighbors are no longer unseen producers of endless stomping on the other side of your ceiling — they’re your allies in the mission to create a great place to live. You don’t have to bake banana bread before you go, but you should go introduce yourself and get to know them and their lifestyles a little bit (which is a good thing to do even before you buy). Before you deny their requests to turn down your music at 11 pm — or too aggressively ask the same of them — just remember that they’ll still be there the next day. And the day after that. (Forever.)
Home ownership can seem daunting, but if you know what to expect, it’s a much less stressful transition. And if you’re working with professionals in the real estate industry, such as Cindy Karp Realty
, they’ll walk you through the specifics of your situation and get you moving in the right direction.