If you're currently renting a home, you might be wondering whether or not it's time to start thinking about buying. After all, throwing your hard-earned money into a monthly rental payment can be frustrating, especially when you could be putting that money towards equity on a home that's truly yours. Before you start applying for home loans, however, there are some hidden costs of home ownership that you'll want to take into account. This way, you can make an informed decision regarding whether or not now is a good time to purchase a home.
If you're like most buyers, you'll only be able to afford a small down payment on your home purchase. For example, a Federal Housing Administration (FHA) loan can require a down payment of as little as 3.5%. Unfortunately, while making a smaller down payment may seem like a relief on your bank account in the short-term, it'll end up costing you in the long-term. Not only will you end up paying more in interest with a small down payment, but you'll also need to pay mortgage insurance until you've built up more equity in your home; this insurance can easily add a couple hundred dollars a month to your mortgage payment.
Insurance and Taxes
In addition to mortgage insurance, you'll also need to factor in the cost of homeowner's insurance and property taxes when buying a home. Depending on where the home is located, insurance can be quite pricey and a standard homeowner's insurance policy may not be adequate. For example, you may need to purchase flood insurance if you're looking into buying a home on the coast.
Property taxes can also add a large amount of money to your monthly mortgage payment. Specifically, your annual property taxes are divided by 12 and added to your monthly payment, so be sure to find out how much the taxes are and figure out if you can afford them before making an offer.
Finally, closing costs are a surprising expense that can put a lot of financial strain on new home buyers. While they are a one-time cost, they can easily add up to be a few thousand dollars or more. If you want to buy a home but can't afford the closing costs, you might want to consider working out a deal with the seller; sometimes, they're willing to pay your closing costs in exchange for a higher sale price. Talk to a professional like Century 21 The Hunter Group for more information.