Costs of Owning a Home

WHY Realty

Wanting to buy a home, and actually being able to buy one, can often be two different realities. You do not want to find yourself burdened by a long-term financial commitment without a penny to spare. And you certainly don't want to find yourself in your dream home, only to have the bank come take it away because you can't keep up with the expenses. Let's talk about the facts.

Real Estate Note
Malarie Smith  This may help

  Are you better off buying a home, or should you continue to rent?

Rent vs. Buy Calculator

Are you ready for a hew home?

Analyze your current expenses
Most new homeowners find that when they add up their total housing costs (the monthly mortgage payment, the cost of moving and settling in, immediate repairs and revisions, and the ongoing costs of taxes, insurance and maintenance), that these costs are not only a lot higher than they previously paid for rent, but a lot higher than they estimated they would be for owning a home.

If you currently rent, can you comfortably afford to pay each month more for housing than you currently do? Do you usually have some money left over at the end of the month for "fun things"? If not, you may need to change some habits before you can seriously consider buying a home.

If you have never planned a budget — instead, you just wing it each month — you may not have a clear idea of how you spend your money from week to week, or month to month. You may actually "make" more money than you realize when the numbers you have been dealing with are presented in a more calculated format. Write down your income and expenses. You will notice that some of your expenses are "fixed" expenses (such as car payment, taxes and day care), and others are "discretionary" expenses. You have considerable discretion in deciding how much or how little to spend in these areas (for example, a new canvas for your next painting, or a round of drinks on a Saturday night).

Assess your lifestyle
To some extent, you must simply decide how important it is to own a home versus doing the things that you have become used to doing. Are you willing to put off some purchases or spend less in certain areas for a period of time? Perhaps you can "try out" the cost of homeownership by setting aside the amount you would be able (and willing) to pay over and above your current housing costs, and do this for several pay periods. If you find you can do this (and no cheating), you may indeed be able and ready for homeownership.

Again, you should not consider buying a home until you are confident that you can comfortably handle the mortgage payment and housing-related expenses that come along with the privilege of owning your own home. Remember, if you do not pay your mortgage payments in full each month, the lender will foreclose on you. It's that simple.

Upfront costs

Down payment
Chances are, you will have to rely on a home loan (a mortgage) from a financial institution or mortgage lender to pay for the cost of buying your property. While not all mortgages require that you contribute some portion of your own funds (a down payment) as part of the deal, most lenders feel more secure knowing you have some of your own money invested in the house, because you are less likely to walk away from it. Traditionally, lenders expect buyers to make a down payment amounting to at least 20-percent the purchase price of the house. That means buyers in Pinellas County would need a down payment of at least $20,000 to purchase a modest home of $100,000. Fortunately, there are lenders who will accept as little as 3 to 5-percent down payment, provided the buyer purchases private mortgage insurance (PMI) to protect the lender in case the borrower fails to repay the loan. For many people, 3-percent of $100,000 is a much more manageable down payment.

Closing costs
Besides the down payment, homebuyers must be prepared to pay a number of additional upfront costs that will arise on the day of closing. Known as closing costs (further detailed here) these expenses generally range from 3 to 6 percent of the mortgage. For example, if you were to buy a townhome for $60,000 with a 5-percent down payment ($3,000), you could expect to pay between $1,725 and $3,420 in closing costs on your $57,000 mortgage.

Real Estate Note
Kathe Bierhoff  Did you know?

  You can get a mortgage that pays for more than the actual price of the house, if you intend on fixing it up.

There are special loans known as Purchase-and-Repair Loans that will provide you additional money on top of the purchase price of the home to help you cover the costs of repairs and renovations.

Settling-in costs
You should also consider what it will cost to move and settle into a new home. The costs of renting a moving truck (with insurance), packing materials, utility deposits — it can all add up. And if you buy a house that is in need of immediate repairs or revisions, you will need to have enough money left over after buying the home to make the repairs. The point is, you do not want to spend all of your money on buying the home. You will need some left over.

Ongoing costs

As a renter, your primary housing cost is the amount of rent you pay each month. As a homeowner, your housing costs will include your monthly mortgage payment, property taxes, homeowners insurance, utilities, maintenance, and perhaps even mortgage insurance if your lender requires it. Owners of condominiums and cooperatives should also expect to pay an additional monthly common area assessment (often called "association fees" or "condo fee") to cover the costs of maintaining the shared features of the condominium property.

Monthly mortgage payment
Since most renters are used to paying rent on a monthly basis, they are usually prepared to make monthly mortgage payments. Each mortgage payment includes both the repayment portion of the principle (the amount actually borrowed) as well as the interest (a percentage rate assessed for using the lender's funds). Lenders refer to payments of principle and interest as P&I.

The amount of your monthly mortgage payment depends on the amount you borrow, the interest rate, the repayment period (or "term"), and whether you have a fixed-rate or an adjustable-rate mortgage.

Monthly Mortgage Payment
  Interest Rate
Loan Amount 6% 6.5% 7% 7.5% 8% 8.5% 9% 9.5% 10% 10.5% 11% 11.5% 12%
$80,000 $480 506 532 559 587 615 644 673 702 732 762 792 823
85,000 510 537 566 594 624 654 684 715 746 778 810 842 874
90,000 540 569 599 629 660 692 724 757 790 823 857 891 926
95,000 570 600 632 664 697 731 764 799 834 869 905 941 977
100,000 600 632 665 699 734 769 805 841 878 915 952 990 1029
110,000 660 695 732 769 807 846 885 925 965 1006 1048 1089 1131
120,000 720 758 798 839 881 923 966 1009 1053 1098 1143 1188 1234
130,000 780 822 865 909 954 1000 1046 1093 1141 1189 1238 1287 1337
140,000 840 885 932 979 1027 1077 1126 1177 1229 1281 1333 1386 1440
150,000 900 948 998 1049 1101 1153 1207 1261 1316 1372 1429 1485 1543
160,000 960 1011 1065 1119 1174 1230 1287 1345 1404 1464 1524 1584 1646
170,000 1020 1074 1131 1189 1247 1307 1368 1429 1492 1555 1619 1683 1749
180,000 1080 1138 1198 1259 1321 1384 1448 1513 1580 1647 1714 1782 1851
190,000 1140 1201 1264 1328 1394 1461 1529 1598 1667 1738 1810 1881 1954
200,000 1200 1264 1331 1398 1468 1538 1609 1682 1755 1830 1905 1980 2057
210,000 1260 1327 1397 1468 1541 1615 1690 1766 1843 1921 2000 2079 2160
220,000 1320 1390 1464 1538 1614 1692 1770 1850 1931 2013 2095 2178 2263
230,000 1380 1454 1530 1608 1688 1769 1851 1934 2018 2104 2190 2278 2366

The above chart shows how the loan amount and the interest rate affect the monthly payment. As the chart demonstrates, the bigger the loan amount and the higher the interest rate, the larger the borrower's monthly payment. Most mortgages are fully amortized, meaning at the end of the repayment period (for example, 15 years of making the same monthly principal and interest payment), you will have paid the entire amount of principal and all the interest charged by the lender. The house is then yours, free and clear.

Taxes and insurance
In many cases, a homebuyer's monthly mortgage payment includes not only the amount required to repay a portion of the principal and accrued interest (P&I), but also an added amount for property taxes, homeowner's insurance and private mortgage insurance. The lender holds these additional amounts in a separate escrow account and then pays the tax and insurance bill on your behalf when they come due. It is in their best interest: they hold the deed, and if taxes are not paid, the government could put a lien on the property which would usurp the lender's right to the property. In this way, the lender ensures that these important annual expenses are paid on time.

Real Estate Note
Malarie Smith  This may help

  Estimate your monthly mortgage principal, interest, taxes and insurance payment (PITI) and amortization schedule.

PITI Calculator

Keep in mind: There are other variables involved in determining your housing costs, chief of these being your credit rating. An estimation calculator doesn't know your credit rating, until your mortgage counselor factors it in.

If the lender does not put into escrow an amount reserved for taxes and insurance, then you will have the responsibility of finding out the amount, and paying it yourself. You must be prepared to pay these bills when they come due, or the government may put a lien on your home.

Because taxes and insurance are an essential part of a homeowner's housing costs, lenders often refer to the components of a mortgage payment as PITI, an abbreviation for principal, interest, taxes, and insurance. Lenders also view condominium and cooperative fees as belonging in this category of basic housing costs.

Other costs of homeownership

Other ongoing costs of owning a home include the utilities (electricity, water, sewer, trash, gas, etc.) and maintenance costs. First-time homebuyers are often surprised by how costly basic upkeep is, both in terms of money and time. The cost of utilities may vary greatly depending on the season of the year. Electricity is usually more expensive during the summer months in Pinellas County, because that is when your air conditioner is working full-time. Also, if your property is located outside city limits, but within Pinellas County jurisdiction, you may have to pay for utilities normally paid by the city, such as trash service.

Repairs and maintenance often represent a considerable amount of unexpected expenses. As such, it is important that homeowners always have an available reserve on hand, either cash or credit. The choice of reserves is yours, but keep in mind: the cost of cash is principle, the cost of credit is interest.

The good news is that homeowners receive significant federal income tax benefits. Combined with the fact that Florida is a no-income-tax state, the costs of owning a home may balance out. Please feel free to consult with us.

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 What to Look For When LookingWhat to Look For When Looking
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