Rent Free? A Short Rundown of the Financial Switch to Homeownership
People often like to say that when you rent, you’re giving that money away, but when you buy a home, you’re investing in something.
This is true in a sense, but before you jump into a home purchase, it’s important to understand that it’s not as simple as turning your rent into a mortgage payment.
Owning a home will bring its own set of costs that you don’t need to worry about when you rent.
Here’s a short rundown of what to expect when you make the switch from renter to homeowner.
Property Taxes
When you’re a renter, your landlord is paying the property taxes. Once you own your place, those taxes fall on you.
Property taxes can vary quite a bit depending on where you live and the assessed value of your home, which doesn’t always equal the current market value.
Property taxes will typically run you at least one to two percent of the home’s value per year, which means you’re looking at $3,000 to $6,000 annually on a $300,000 home, or an extra $250 to $500 per month.
Homeowner’s Insurance
If a worst-case scenario occurs and you lose your home, you’re going to want homeowner’s insurance. Mortgage lender typically require you to have it, anyway. Again, this is something that will vary depending on your home.
You’re likely looking at $400 or more as an annual premium for a small home, and with larger homes, you could easily pay over $1,000 annually.
Maintenance Costs
Your home is going to need repairs from time to time, and even if you’re a great handyman, you’ll still end up paying repair costs on occasion. The average homeowner spends from one to four percent of their home’s value in repair costs every year.
Budgeting for Homeownership
All those expenses add up, and all of them are necessary parts of owning a home that you’ll need to pay every year.
To get a full understanding of what you can expect financially when you become a homeowner, it’s wise to consult with an experienced realtor. They can help you get an idea of how much your specific expenses will be, especially if you already have a home in mind.
Once you have some estimates, you can plug those numbers into your monthly budget and see if you’ll realistically be able to afford owning a home.
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Category: Housing
