When you purchase a home, you pay
for it each month. However, it’s not just your mortgage payment that you pay.
You also pay for insurance, property taxes, utilities and maintenance costs.
When you’re trying to budget for your future home, it can be hard to determine
how much each one of those will cost a month. Here’s an in-depth look on each
of the parts that make up your housing costs.
Most people aren’t able to put
down 100% of the cost for a home in cash. They have to borrow money from the
bank to purchase a home, and then pay off that loan in monthly payments.
Mortgage payments depend on how long your loan lasts and at what interest rate
you borrow the money. You can calculate a mortgage payment estimate by looking
at the average selling cost for homes for in the area you’re looking to move.
Use this Bankrate calculator and input how long you want to have a loan, and your
credit score to find what loans for which you’ll likely qualify. That will help
you determine what your monthly mortgage payments will look like.
Location is important when it
comes to buying a home. As we’ve explained in our Rent or Buy workbook, some
locations are costlier to buy than to rent, while others are cheaper. This is
also true when it comes to property taxes. Some places have higher property
taxes than others. Usually property taxes are a percentage of your home’s
value. Look up the property tax for the area you’re looking to move, and then
the average selling price to determine a yearly price for property tax. Then,
divide that by 12 to add to your mortgage payment.
Banks will require you to
purchase home insurance to protect your home while you have a mortgage. This is
once again up to you and your family – what insurance company do you want to
protect your home from natural disasters and burglaries? Look up that insurance
company’s premiums and add the monthly cost to your home costs.
All renters know about the costs
of utilities. This can be gas, electricity, water, sewer, trash and more. When
you purchase a home, these utilities can be a shock for new homeowners.
Suddenly you’re paying much more than you used to because your place is larger.
It might be a good idea to talk to homeowners in the area to see how much a
month they are spending on utilities, and then adding that to your home costs.
The popular rule of thumb for
maintenance is to plan on spending 1-3% of the home’s value on repairs and
maintenance per year. That depends on if you’re going to purchase a home
warranty to protect your home’s systems and appliances. If you choose not to
purchase a home owners warranty, take a look at the average selling price of
the homes in the area, and take 1-3 percent of that price. Divide it by 12, and
add it to your housing costs.
Getting a Home Warranty Can Keep Costs Down
If you decide to get a home
warranty, that cost is significantly smaller. You can look at what level of
home warranty coverage you want to purchase for your home here. A home warranty
is like an appliance warranty. It covers your home systems and appliances if
they fail from normal wear and tear. All you have to do is pay a $60 service
call fee to get them repaired and replaced. After looking at the best home
warranty, and deciding what level of home warranty coverage you would purchase
for your home a year, and three service call fees. Divide that by 12 and add that
cost to your housing costs.
After you have added your
mortgage payment, property tax, insurance, utilities and maintenance costs
together, compare your monthly housing costs to the amount of money you could
reasonably spend with your budget. If you haven't completed that part of the workbook, you can find the article on how to do that here. If you can afford houses in that price range,
begin looking! If you cannot afford that, lower the price for a home and
calculate it again. Do this until you can find a home price you can comfortably
For more information on Landmark Home Warranty or the home owners warranty that we provide, please go to www.LandmarkHW.com. There you can learn more about home warranty coverage, how an appliance warranty works and learn more about the best home warranty.
There are two other parts to this series. Find out how much you should pay for a home by looking at your budget here:
Or, see why there are so many conflicts on what economists say you should pay for your housing costs each month here: