Beyond the Mortgage: Your monthly loan payment is just the start of the expenses that go into homeownership

2014-08-18T01:00:00Z Beyond the Mortgage: Your monthly loan payment is just the start of the expenses that go into homeownershipMADHUSMITA BORA CTW Features The Billings Gazette
August 18, 2014 1:00 am  • 

Homebuying is expensive. And it’s important for consumers to understand that expenses don’t end with the mortgage. In fact that’s where it begins.

Besides mortgage payments, homebuyers have to factor in other costs associated with owning a property such as insurance, property taxes, association fees and maintenance. The list could be overwhelming and endless.

“When someone goes from being a renter to a buyer, they don’t think about a lot of the overhead costs associated with homeownership,” said Leslie Piper, Realtor and housing specialist with Realtor.com.

Many buyers fall into the debt trap when they don’t account for the additional expenses and buy a home beyond their means.

Lenders use income and debt as benchmarks for loan approvals, and only factor in the expense related to monthly mortgage payments. They don’t include the other expenses in their calculations.

Here are some tips on how to handle some of the expenses related to homeownership

Evaluate Your Situation

Be honest with your budget. You know your financial situation best, and how much home — and home-related expenses — you can afford.

“Live within your margin and have a philosophical approach to spending,” says Daren Blomquist, vice president at RealtyTrac.

List Your Needs

Piper says a smart buyer always makes a list of what they need in their home. That helps the buyer stay on target. Piper suggests making sure your lender understands your needs.

Roll Your Taxes into Your Monthly Payment …

Property taxes are a huge expense. For a single family home, the average tax bill measures $2,877, according to RealtyTrac. Educate yourself on the tax rate in the area in which you are buying and considering escrowing your taxes into your monthly mortgage payments. “You can certainly pay your taxes as a big chunk of change when the bill comes, or you can roll it into your mortgage,” Blomquist says. Some homeowners set homeowners set aside a few hundred dollars every month so they pay on their own and not make it a part of their loan, he adds.

… And Insurance, Too

Home insurance is roughly o.35 percent of the value of a home, Blomquist says. Nationwide, homeowners typically spend $875 on insurance on an average. You could also roll this expense into your monthly mortgage payment.

Depending on where you live, you may want to buy more than just the basic insurance policy. If you are in a high-risk zone for natural disasters, your best bet would be to factor that into your insurance policy.

And Don’t Forget

• Homeowners Association fees

Unlike the other expenses, you can’t include this as part of your mortgage. Keep aside a few hundred dollars a month on your budget toward these fees, if applicable.

• Supplemental property taxes

Many new developments have additional local taxes. Keep that in mind when you buy a brand new home.

• General maintenance

All homes go through the natural process of wear and tear. Some of the big-ticket maintenance items include roof replacement, gutter maintenance and HVAC replacement. You can roll these expenses into your mortgage or start saving a little each month. Yard maintenance, landscaping costs and tree maintenance are other regular expenses to keep in mind, too.

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