It’s more than a home. It’s your next big step in life. A place to call your own, host friends and family, and furnish the way you see fit.
And, of course, owning a home has other benefits, from potential tax savings, to leveraging equity, to building long-term wealth.
Yet, while it’s important to have the dream, it’s equally crucial that you understand the true costs associated with home ownership. Peter McCarthy, PNC Bank’s head of Home Lending, offers wisdom on what to expect.
“Owning a home provides so many benefits. At the same time, it’s important to have a realistic budget before you begin the home-buying process. When someone applies for a home loan, we always encourage them to have a clear picture of all potential expenses. Yet, many first-time homebuyers might not know what those expenses might be.”
Let’s walk through the various costs to consider when purchasing your home.
The Obvious Expenses…
The mortgage. In most cases, you’ll need a mortgage to finance your home. Fortunately, plenty of tools are available to help provide a rough idea of what your monthly mortgage payment might be.
“Preparation is everything when it comes to applying for a mortgage,” offers McCarthy. “PNC offers valuable insight into what your mortgage will likely cost. As one example, our calculators get you off to an excellent start, taking into account salary, interest rates, down payments, and other debt to provide you with a preliminary estimate.”
Want a more detailed picture? Our Home Insight® Planner helps you create a household profile, create a budget, and even help search for those homes that fit your requirements.
Private mortgage insurance. For Agency loans, if your down payment is less than 20% of the purchase price, you can expect private mortgage insurance to be bundled into your monthly mortgage payment. It’s also worth noting that the 20% down payment, once almost a requirement, has been replaced by any number of loan products that allow you to make a down payment of as low as 3%. To learn more, visit here.
Utilities. Unless you just enjoy roughing it, utilities such as electricity, water, natural gas, sewage, and more will loom large in your monthly expenses. Your seller should furnish past utility bills, or utility estimates, upon request to give you the fullest understanding of what you should expect to pay monthly moving forward.
Property taxes. There’s no escaping the Tax Man. Property taxes are typically included as part of your monthly mortgage payment, held in escrow, and paid on your behalf by the lender. While property taxes are based on the value of the house—making them subject to change from year to year—the seller should have information on what to expect.
Also, when purchasing a home, you may be eligible for a homestead exemption. A homestead exemption is either a dollar or percentage discount on a home’s value during the calculation of property taxes. Both the availability and amount of homestead exemptions can vary widely from state to state, county to county, and even city to city—as well as the circumstances of the homeowner. Your lender should be able to tell you about what’s available in your area.[1]
…And The Not-So-Obvious Expenses
No one likes surprises, especially after they’ve moved into a home.
“When it comes to owning a home, first-time homebuyers in particular may not be fully aware of all the different potential expenses,” adds McCarthy. “That’s why it’s so important to research thoroughly before making an offer.”
Homeowner association/condominium fees. As one example, if you move into a condominium or neighborhood with a homeowner association (HOA), expect to pay fees that may cover group expenses such as maintenance, garbage collection, landscaping, some utilities, and insurance for the exterior and common areas.
Before purchasing in one of these communities, ask the following questions:
- What are the monthly association fees, and what do those fees cover?
- Are there any expected increases in fees in the near future?
- Are there any upcoming improvements that require an assessment (i.e., a one-time payment by individual homeowners above and beyond the monthly fee)?
That way, you know what your monthly expenses will be. You’ll also be able to look down to the road and plan for other, more significant expenses intended to maintain the value of your property.
Insurance. All it takes is a weather event, a fire, or some other mishap to ruin your day—or, truthfully, the next few years of your life. Homeowner insurance isn’t just important--it’s required by your lender to safeguard its investment.
“Just like property taxes,” McCarthy advises, “Your homeowner’s insurance premiums are typically paid by your insurer from escrow. However, the burden is on you to secure a policy prior to the closing date on your home purchase. Of all the items your lender will require, proof of insurance is near the top of the list.”
Another consideration? Homeowners insurance may not cover everything. If you live in a flood plain or an area prone to hurricanes and earthquakes, it is highly likely that you’ll need special insurance[2,3] to protect your home against those events. When getting insurance quotes, make certain your home is fully covered.
Termite inspection. In many parts of the United States, any house is vulnerable to termite infestation. In those areas, an annual termite inspection is almost always a prudent measure to take. While the fees for those inspections are minimal, ranging from $75-$300 yearly, they provide an early warning, reducing potential damages that come from an infestation.
Household Maintenance. Finally, while your home is an investment, it’s also a complex machine that incorporates plumbing, electricity, HVAC, and more. Roofs will give out. Furnaces will go on the fritz. Water heaters will leak. What’s more, these have a way of taking place at the worst possible time.
That makes it important to plan for emergency repairs not covered by insurance. To safeguard against these unpredictable financial demands, it's important to establish a contingency fund and make growing it a priority. This will be your financial buffer against any unexpected costs.
“A rainy-day fund should be considered something you pay into every month, the same as your other household expenses.” McCarthy concludes. “It doesn’t have to be a lot from every paycheck. But a steady, ongoing effort will make a big difference to your peace of mind when—not if--something goes wrong.”
In short, owning a home can be a source of pride and long-term financial stability. At the same time, it’s important to be fully aware of all the expenses—and creating a monthly budget that takes those expenses into account.
Ready to start your journey? A PNC Bank mortgage professional can help you along the way. To get started, schedule your appointment today. And see how you can afford the home you’ve always wanted.