Have you been thinking about making the leap from renter to home owner? Here are some expenses that as a renter, you may never have given thought to, but as a home owner you will want to be very familiar with.
April marks the tip off for the Spring Market for home buyers, and if you're planning to give your landlord the boot it's important to understand the true benefits (i.e. equity, tax deductions), of ownership along with some of the costs. While the benefits of home ownership may outweigh the costs for many making the transition from renting, depending on individual circumstances, often times former renters are surprised not only by the costs during the financing process, but the on going expenses that come with maintenance. Here's a list of some of the costs, beyond the down payment, that you'll want to explore:
The appraisal is required for any future home owners who are seeking home financing in order to purchase their home. Lenders want to ensure that the property being purchased is worth at least the purchase price being paid by the borrower. The cost of the appraisal can range anywhere from $400 - 600, in some areas those costs could be slightly higher The appraisal is usually paid by the borrower prior to closing as part of the loan process. Banks and lenders have different steps when it comes to processing, so check with your loan officer for specifics related to your loan.
2. Home Inspection
The home inspection is not required but is highly recommended by most real estate professionals - especially for first time home buyers. A home inspection, helps to familiarize the potential buyer with the property. The inspection report will highlight needed repairs, structural issues, and other potential problems with the property. During the inspection, the inspector usually educates the prospective home buyers on how to use appliances and systems in the home for example, the heating and cooling system. Pricing for home inspections can start as low as $200.00 for condos and increase for larger properties.
As a renter, the repairs to your living space are usually handled by the landlord or super, but once you've kicked your landlord to the curb, the issues with your property are yours to resolve. With the freedom of doing what you want in a space that you own, comes the responsibility of doing what is required in the space that you own. Since houses range in age and maintenance varies based on the habits of previous owners, there really is no way to estimate these costs; on the other hand, if you own property, you can assume that at some point, someday, something will break or no longer function properly. It's advisable to have savings set aside, separate and apart from any savings for other financial goals, to be used to tackle these issues when they arise.
4. Closing Costs
While some buyers may be able to negotiate a Seller's Concession as part of the purchase price, concessions are not guaranteed and may put you at a disadvantage in Seller's Markets where there are multiple offers from prospective buyers who will make offers and pay their own closing costs. Closing Costs range from an estimated 3-5% of the purchase price of the property, and include things like attorney fees, title, and the cost to register the deed.
5. Home Owner's Insurance
As a renter, you may have opted to invest in Renter's Insurance to protect your personal property from theft or damage, but as a home owner you will be required to have Home Owner's Insurance by the lender in order to get mortgage approval. The cost of Home Owner's insurance varies depending on property type, location, age of the property, etc. Your lender will require payment of 1 year of Home Owner's Insurance at or before closing.
6. Home Owner's Association Fees
Considering the convenience of condo or town home living? Then, you may have to account for the expense of HOA (Home Owner's Association) fees. Many condo and town homes are managed by Associations that make decisions regarding the maintenance of the property, and insuring the property. Owners are usually responsible for the repair and maintenance of their units from "the walls inside" leaving outdoor and common area maintenance to be managed by vendors hired by the association or the management company selected by the association. The dues paid to the Association are allocated to repairs, regular maintenance, and other expenses related to the entire condo or town home community.
Included in the monthly mortgage payment for home owners are property taxes. As a renter you are more than likely paying the taxes on behalf of the landlord, but not reaping the benefits, since portions of the property taxes paid can be deducted at tax time (speak to your tax preparer or CPA for details).
Unless you've previously rented an entire home, you've probably only been responsible for a portion of the utilities as a renter. On the contrary, home owners are responsible for payment of all utilities including, heat, hot water, gas, oil, electric.
Have you made the jump from renting to owning? Share your experience. Comment below.