Think you can buy a house? Before you buy, prepare for these sudden expenses.
One of the financial benefits of owning a home is signing up for a mortgage and fixing your monthly housing payments for 30 years. By contrast, when you rent a home, your monthly costs may rise from year to year as the lease is renewed.
But while you may think that you can own a home based on the shape of your mortgage payments, you may be surprised at the way the costs of peripheral housing go up. Here are five reasons why owning a home is more expensive than you’d like.
1. Your property taxes may go up
The property taxes you start paying are not necessarily the taxes you will continue to pay. Some cities assess property values each year. This means that your property tax bill can change every year. It sure can go down from year to year. But for the most part, property taxes tend to rise over time, not the other way around.
2. Homeowner’s insurance can get expensive
Homeowners insurance protects you, as a property owner, in the event of damage. But the cost of your premiums can go up over time, even if you don’t file many claims against your policy. Also, certain home features may cause insurance costs to rise, such as if you decide to put in a hot tub. Although there are steps you can take to lower insurance costs, such as installing an alarm system, these premiums can increase over the years.
3. Your HOA fee may increase
If you buy a home that is part of a home owners association (HOA), you will generally be required to pay monthly dues. Often times, these entitlements will cover things like common area maintenance. But these entitlements can also rise over time, making your housing costs more expensive.
4. You can get stuck in paying the PMI
Many lenders will accept less than 20% of your home’s purchase price as a down payment. But if you don’t take the 20% discount on a conventional mortgage, you’ll have to pay private mortgage insurance (PMI). PMI can be up to 1% of your loan amount. For example, if you borrow $300,000 for a home, you might pay an extra $3,000 a year or $250 a month. You can eventually cancel the PMI once you have enough equity, but until that happens, those exorbitant payments can be a burden.
5. Maintenance and repairs may become more expensive as your home ages
When you own a home, you need to invest time and money in its maintenance. But as your home ages, more issues may appear, making your home more expensive to maintain. In addition, in time, appliances can malfunction, and systems such as air conditioning or heat can malfunction. Results? High repair costs that deal a real blow to your budget.
While home ownership can lead to financial stability, it can also throw your money in a vicious cycle. If you’re going to buy a home, be sure to factor in all the costs involved and think about the ways they might go up – sometimes dramatically – over time.