Buying a home is one of life’s most delightful achievements and a goal most Americans hope to achieve. In Wells Fargo’s latest “How America Views Homeownership” survey, more than half of the respondents (70%) say that owning a home is seen as a sign that someone is a “successful adult.” If your goal is to be a homeowner, it’s important be aware of costs associated with the home buying decision. Not only do you want to know what it takes to finance the mortgage, but also what’s needed to help you stay in the home and be a successful homeowner. Here are some associated costs with homeownership that buyers should keep in mind.
Downpayment — Most home purchases require a downpayment. While a downpayment could be as low as 3%, that amount can be a homeownership barrier, especially for many low-to-moderate income homebuyers. More than one in four respondents to the Wells Fargo survey said that the downpayment is the No. 1 hurdle to purchasing a home. For those who qualify, there are programs that could help families reach the amount they need for that downpayment. The NeighborhoodLIFT program has helped more than 22,000 families achieve homeownership with downpayment assistance since 2012. Homebuyers should also check nonprofits and even their local governments for programs that offer bond and/or downpayment assistance programs.
Closing Costs — These costs are due when you sign the final documents at the closing transaction for your home purchase. Closing costs may include attorney, lender and real estate agent fees, and prepaid items such as escrow payments. Closing costs are often 3% to 5% of your total loan amount. So even if you have the funds for the downpayment, make sure you have enough saved to cover closing costs.
Property taxes and insurance — Many homeowners have their property taxes and insurance paid through an escrow account. That means you do not have to save for these separately because they are part of the monthly payment you make to your lender where part goes toward principal and interest of the mortgage and the other goes to the escrow account. Property taxes and insurance premiums may change over time, so your lender may conduct an annual review and make adjustments to make sure you have enough to cover the costs of the taxes when they are due. Your lender may require having an escrow account, especially if your downpayment is less than 20%. If you have that choice and want to pay the taxes on your own, it’s important to budget correctly so that you have the funds available when they are due. Not paying your taxes on time can result in additional fees and could lead to foreclosure.
Repairs and Maintenance — If you don’t already have a rainy day fund, you definitely want to have one as homeowners. Regular maintenance is one thing but repairs can pop up at any time. Making sure, you also are prepared for unexpected repairs play an important role in being a successful homeowner. Some lenders also look at your savings when considering you for loan approval.
Planning to become a homeowner is an exciting decision. Help that journey be as enjoyable as you can by understanding and being prepared for all of the financial obligations of being a homeowner.