How much does owning a home cost? Can you afford to purchase a home? These are basic questions that are good to answer at the beginning of your home search process. As you evaluate home ownership in terms of affordability, here are some points for consideration:
The Mortgage and Beyond
The monthly mortgage payment is the largest cost a homeowner manages, however there are more costs associated with owning a home. Other costs to account for include:
- Maintenance (general rule of thumb is 1% of purchase price annually)
- Association fees ( in some communities and townhomes)
- Commuting costs
It is also important to consider other expenses in your budget. Will you continue to be able to contribute to a savings plan for college or retirement? To help you evaluate the affordability of home ownership, calculate your current and future household expenses using an affordability app/calculator.
Cash Required- Down Payment and More
A home mortgage covers most of the costs associated with the purchase of a home, however there are some costs that require cash. The largest of these costs is the down payment. There are also costs associated with transferring ownership and closing the real estate transaction that require out-of-pocket spending. Moving costs are another expense to factor into the home buying budget. For more information about costs associated with a real estate transaction in your community, contact an ERA® agent.
Traditionally lenders have required a 20% down payment to secure a mortgage for the remaining 80% cost of a home. There are many varieties of home loans and many variations of down payment requirements. Some loans are government sponsored like those with the Federal Housing Administration (FHA) that you may qualify to receive. If your down payment is less than 20% of the total loan you may also need to pay for PMI, private mortgage insurance. To learn more about home financing contact your mortgage lender or ERA® Mortgage.
There are tax advantages for home owners that should also be factored into your affordability calculations. The primary advantage is the mortgage interest deduction, the ability to write of the mortgage interest amount you pay each year as an expense on your taxes. For a complete understanding of the tax implications of owning a home, contact a tax professional. To learn more about financing a home contact your lender or ERA® Mortgage.