The Reality of Being a Home Owner: It Costs How Much?!

The Reality of Being a Home Owner- It Costs How Much-150x150Many people who pay hundreds or even thousands of dollars each month on their rental home dream of becoming home owners. Using the rental money to pay for a mortgage is a much better alternative. In some cases, your monthly mortgage payments will be the same as your rental payment, but many home buyers fail to understand that there are many other costs associated with home ownership besides the mortgage payment. In reality, owning a home will usually cost more than renting, but it also has its advantages.

Especially when prices and interest rates are low, most people tend to overlook the majority of costs associated with owning a home, only looking at the monthly payment. The temptation to become a home owner can be very strong, especially for those who have been living in a rental for a while and have gotten married or are ready to start a family with children. In this article, we will take a look at how much it actually costs to be a home owner and which factors will influence these costs.

One Time Costs

Unlike renting, buying a home can have a very high initial cost. Unless you qualify for a no down payment mortgage loan, here are the costs associated with buying a home:

  • The down payment. Most conventional mortgage loans require a 20 percent down payment, or you will be forced to purchase private mortgage insurance, which can be very expensive. The higher the down payment, the lower your interest rate and loan value will be, meaning that your monthly payment will also be lower.
  • Closing costs. Closing costs can be as high as a few thousand dollars, and must never be overlooked when applying for a mortgage loan. Some lenders allow you to finance the closing costs into the loan, but that will make you monthly payments larger and require you to pay interest for the closing costs.

Monthly and Annual Costs

The largest cost of owning a home will be your monthly mortgage payment, which will be higher or lower depending on several factors. Besides the obvious monthly mortgage payment, there are several other costs that you should be aware of when trying to find out how much home ownership will cost you.

  • The Homeowners Association (HOA) fee. Depending on what type of home you purchase, you might have to pay a monthly HOA fee. This fee generally covers insurance, maintenance and garbage services, but can also cover higher-end amenities, such as pools or fitness centers.
  • Property taxes. Property taxes are based on how much your property is worth and its location, and are generally paid annually. Property taxes are paid to the municipality or town in which you reside, and are due even after you have paid off your mortgage.
  • Homeowner’s insurance. This type of insurance is also based on the location of your home, its size and value. Other factors which may have an influence on how much you will be paying in homeowner’s insurance are your home’s age and if it’s located in an area where floods or hurricanes are common.
  • Utilities. Gas, water, heating, electricity are some of the utilities that may have been included in your rental payment. When owning a home, you will have to pay all utilities each month, and that can prove to be a burden, depending mostly on your home’s size. For example, heating a small apartment can be very cheap compared to heating a two-story house.
  • Maintenance. Keeping your property in good shape will also be your job, as opposed to a rental, where this is usually the landlord’s job. Trimming the hedges and cleaning gutters can be time consuming, or expensive, if you hire someone to do it for you.
  • Repairs. When you were renting and had a problem, such as a leaky faucet or a broken appliance, you would just call the landlord and had it repaired or replaced. When owning a home, you will have to do these repairs on your own, or hire someone and suffer the cost. Damages to your roof or electrical and plumbing systems can be very costly, especially if they are not resolved in time.

As you can see in this article, owning a home won’t necessarily be a better choice over renting. There are more costs and risks associated with home ownership vs. renting, but the benefits of owning your own home certainly exceed the downsides. It is up to you to research what owning your own home involves, how much it will cost, and decide if it’s a step that you can take without suffering financially and ending up regretting your decision.

Short-Term Homeownership: Is it Worth it?

ShortTerm Homeowner Ownership- Is it Worth it- 150x150Owning a home is most people’s life-long dream, but, between mortgage payments and maintaining the home, home ownership can be very expensive. The closing costs that you will have to pay when buying a home will be a few thousand dollars, to which you will have to add the real estate agent’s commission. Property taxes and insurance are two other costs that you will have to take into account when deciding if buying a home is the right choice.

 Home ownership is expensive, but it also has a lot to do with how long you plan on living in that home. Simply put, the longer you live in your home, the better your chances that the home will turn out to be a great investment.

The Cost of Buying, Owning and Selling a Home

Buying a home involves several costs, which shouldn’t be overlooked by anyone who wishes to become a home owner. The various fees that you will have to pay at closing will generally cost you a few thousands of dollars. Some types of mortgage loans allow you to finance these costs, but you will most likely have to pay them one way or another.

The cost of owning a home varies, but it shouldn’t be underestimated. Your monthly mortgage payment will, most likely, be your largest monthly bill. Apart from that, owning a home also requires you to pay property taxes, insurance and utilities, such as water, gas, and electricity. Your home may need repairs or improvements, which will drive the cost of owning a home much higher.

Selling a home will probably require you to hire a real estate agent, so you should factor in the real estate agency commission when you calculate how much you have to spend when selling your home. Costs for services like home inspections or credit checks are normally paid by the buyer, but there are some fees that you may have to share with the buyer.

Owning a Home for a Short Period of Time

Short-term home ownership can be advantageous, but it depends on several factors. Postponing the purchase of a home will result in missing out on tax deductions for home buyers and not gaining equity. Also, there is always the risk that the housing market can improve suddenly, which will drive house prices much higher, making it more difficult for you to afford a home.

If you plan on moving out after a short period of time, then your best choice is to develop a strategy that will protect you from losing significant amounts of money. You could, for example, find a home that is priced under market value but is in need of repairs, spend the money to repair it, and sell the home for a profit. If you can do most or some of the repairs yourself, you will save a lot of money that would otherwise be spent on a contractor.

Another way in which you can make short-term home ownership work for you is to buy a foreclosed home or a home with sellers in a hurry to sell. Of course, you will have to take many more precautions to ensure that you don’t end up with a home that needs expensive repairs.

The bottom line is that short-term home ownership is risky, and can cause you and your family to lose money. Before buying a home, you should consider all aspects of home ownership, without neglecting the amount of time that you are planning to invest in the home before selling it. Owning a home for a short period of time can also turn profitable, and be a great choice for you and your family, but you will have to do the necessary research beforehand and take all the precautions that you can.

Home Warranty vs. Homeowners Insurance: What’s the Difference?

Home Warranty vs. Homeowners Insurance- Whats the Difference- 150x150Buying a home is a big part of the American dream, and many people make becoming a home owner one of their primary goals in life. Being a home owner comes with a few responsibilities, one of which is making sure that your home is protected from damage that might occur over time. Home warranties and homeowners insurance may sound like they are very similar, but there are actually several significant differences between the two. For example, home warranties generally cover appliances, plumbing, electrical, and heating and air conditioning systems. Homeowners insurance, on the other hand, covers damage that occurs mostly to structural parts of your house, such as the foundation or the swimming pool.

Both home warranties and homeowners insurance are designed to protect your home, but in different ways. Deciding between the two or choosing both to cover your home is up to each home owner’s individual preference.

Home Warranty

After becoming a home owner, the last thing that you want to happen is to spend more money because something is broken or is malfunctioning in your new home- that’s where home warranties come in. Especially if you’re a first time home buyer and have no experience maintaining and repairing a home, buying a home warranty will not only give you peace of mind, but possibly save you a large amount of money if something expensive in your home breaks.

When buying a home, the home warranty could already be paid by the seller. Some home sellers in a buyers’ market choose to pay for the home warranty themselves in order to give more confidence to the buyer and to avoid being called by the buyer after closing because something in the house is broken or is malfunctioning. This differs from one seller to another, but you may also receive the home warranty from the real estate agency, as a gift, which is always a nice surprise.

Depending on the chosen plan, home warranties can cover various systems, such as plumbing, electrical, and heating  as well as appliances, such as stoves, ovens, and refrigerators. Home warranty companies have a group of contractors that they use when something in your home breaks. If the appliance or system cannot be repaired, the contractor will replace it and charge the home warranty company.

When buying a home warranty, home owners must carefully read all of the documentation and find out what is covered by the warranty and what isn’t. Some policies may cover certain appliances, while others may charge extra for the coverage or don’t cover them at all.

Homeowners Insurance

Homeowners insurance mainly protects your home from damage caused by rain, floods, fire, and wind, as well as vandalism and theft. Homeowners insurance may also help you deal with the financial consequences of injuries occurring at the property, particularly when the injury has occurred due to something being defective on the property.

Homeowners insurance is generally required when you purchase a home with a mortgage loan. Lenders use homeowners insurance to protect themselves should a hurricane, fire, or other hazard occur and cause substantial damage to the property.

Not all homeowners insurance policies are created the same, so they may cover your home for only certain things, while charging you more for extra protection. Some policies, for example, do not cover damage done by what is considered an “act of God”, like earthquakes or floods.

It is up to each home buyer to choose between a home warranty and home owners insurance, unless they want to have both  or are required by the mortgage lender to have the home insured. Having you and your home covered by both a home warranty and insurance will not be cheap, especially if you want to cover everything, but it will give you peace of mind and, should something happen to your home, maybe save you some money. Nature can be cruel and cause substantial damage to your home, so it’s always better to be safe than sorry. Being a home owner is expensive enough without having to worry about unforeseen events messing up your financial situation.

 

Insurance Coverage for Homebuyers

homeowners-insurance-150x150When home buyers begin loan negotiations with their lender or broker, they will come across the requirements regarding various types of insurance needed to finalize the deal. Some types are mandatory, and will be added to the closing costs or monthly payment obligations. Other types are optional, but may be included to assist the borrower in offsetting specific risk factors to the home, such as flood or home life insurance, or additional home warranty protection.

Homeowners Insurance

This type of insurance coverage protects against many risks involved pertaining to damage of the home or other structures on the property. It also covers the loss of any personal possessions such as clothing or furniture, the liabilities and medical costs of injuries to individuals while on the homeowner’s property, theft or vandalism, and even the temporary relocation costs during loss of use while repairs are made to the home. The yearly expense is based on the value of the home, and the extent of coverage sufficient to satisfy the lender in terms of adequate collateral protection for the mortgage.

Private Mortgage Insurance

This is necessary in cases where the home buyer puts up less than the 20% down payment requirement toward the purchase price. Its primary purpose is to protect the lender against loan default, and allows the borrower to purchase the home with only a 3% to 5% down payment. Depending on the loan type and down payment, a borrower can generally expect to make monthly payments of between $50 and $80 per $100,000 borrowed. However, once a 20% equity is achieved toward the loan principle, this insurance can be cancelled. In some cases, the premiums are even tax-deductible.

Title Insurance

With the home acting as collateral for the lender, this type of insurance covers both lender and buyer against past encumbrances that could affect the ownership status of the home buyer, along with the legal rights to transfer the title to other individuals. This insurance is generally between 0.3% to 0.5% of the price of the mortgage amount, though can be shopped for the most affordable cost.

Having some kind of insurance, whether it’s one of the above or not, is highly recommended. It is important to protect your investment physically in terms of your house’s structure and appearance as well as financially.

Need Help Keeping Up With Mortgage Payments?

helpful_refinance_tipsMany people desperately seek mortgage help so that they can catch up on late mortgage payments and pay off their mortgages every month. You can find yourself in a lot of trouble if you’re behind on your first, second, or third mortgage. Here, we’ll give you some clear refinancing tips and other mortgage advice that can help you secure your mortgage payments.

Only Refinance If Absolutely Necessary
First of all, it’s very clear that you should not refinance unless you absolutely have to. While refinancing can extend your mortgage term and even lower monthly payments, you may end up paying more money in the long run. Many refinancing companies exist just to convince people to refinance when it’s inappropriate.

When choosing a lender, be sure to select a company that is licensed in your state. Some very shady lenders out there use deceptive tactics to milk you for everything you are worth. Remember that it’s wise to get involved in a shorter term mortgage and make a big down payment. A large down payment can severely lower those monthly premiums. Also, you can take advantage of several different discounts offered by lenders.

Get Breaks with a Good Infrastructure
Homeowners who possess good homeowners insurance and have installed a strong security system and smoke alarms can benefit from breaks on their monthly premiums. It’s also important to negotiate with lenders before getting into any mortgage. Remember, regardless of what your contract says, it’s always possible to work in new language and make the mortgage benefit you more.

Government Programs Available
There are government programs available for homeowners who want to take advantage of low interest rates. The new $75 billion Homeowner Affordability and Stability Plan stimulates lending and borrowing by providing incentives for lenders to restructure home loans. You’ll generally need at least 20% equity in your home to refinance, as requirements for refinancing have gone up. FHA loans can help homeowners with debt acquire lower interest rate on their mortgages. If a homeowner’s property value has gone down, it may be very difficult to be eligible for refinancing or even federal loans. Loans above $417,000, also considered “jumbo mortgages“, are generally not eligible for refinancing. Conforming mortgages, however, generally are available for lower interest.

Stay Tough Even If You Have Bad Credit
At-risk homeowners may qualify for some loan modifications. Modifications can actually restructure home loan terms. Some borrowers may need to enroll in a HUD-certified program to qualify for these loans. Qualified lenders and borrowers can receive up to a 31% reduction in their monthly mortgage payments. These loans can generally be set for a period of five years, after which they return to conforming rates.

Principal Reductions Are Also Available
The majority of these reductions are interest-rate reductions, though it’s possible to obtain principal reductions as well. If you make payments on time, you can receive incentive bonuses Interest-rate-cutof up to $1,000 a year. Investors, speculators, and “home-flippers” are not eligible for the program, as all applicants must actually occupy the home in question. Also, you can only obtain loan modifications if it will result in a net savings compared with the expenses incurred during a foreclosure. Capitalize on these new government programs so that you can lower your mortgage rates.