Investing in property can regularly be a financially smart choice, as often home loan repayments can be less costly than renting – as long as the circumstances are right for you. But bear in mind, owning a property isn’t just about the loan repayments. There are hidden costs associated with owning a home which require your attention as well. In what follows, we will scrutinize those hidden costs to assist you in planning for them.
Mortgage payments, despite being on a fixed rate, can still rise, which sometimes surprises new homeowners. The ‘fixed rate’ refers only to the interest rate, leaving aside other components. Your loan usually includes an escrow account for property taxes and home insurance, to which your principal and interest repayments add. Consequently, changes in the tax and insurance amount, which are inevitable, can increase or decrease your repayment amount.
Another consideration is your homeowner’s insurance, which rarely decreases in price. So, it’s worthwhile shopping around for coverage at least annually. This not only assists in saving money but also helps manage your escrow account and mortgage payments.
If you’ve paid less than 20% of the total value as a down payment, you’ll be liable for mortgage insurance (MI). While this typically drops off once your loan-to-value ratio hits 80%, removal isn’t always automatic. A little proactive communication with your mortgage company can save you money.
When budgeting for your potential new home, don’t overlook the cost of utility bills. By asking the sellers for recent utility invoices, you’ll get a sense of whether the home is affordable and avoid unwelcome surprises.
Beware of homeowner’s association (HOA) fees, prevalent in condos and townhouses, but also appearing in some house communities. These fees can cover anything from community pool maintenance to grass care at the neighborhood’s entrance, and may even come with certain restrictions. Even freehold property owners have to keep paying these fees, which can sometimes rise incrementally.
Historical registered homes may be aesthetically appealing, but come with their own set of hidden costs. Due to their status, any alteration or maintenance often commands a higher financial commitment due to the need for preservation.
Finally, avoid the trap of falling in love with a house that stretches your budget. It’s tempting to succumb to a dream home, but remember, buying a home is a transaction, not a romantic endeavor. A house that lands you in fiscal hot water will quickly lose its charm when the bills start to pile up.
The key takeaway is to get a complete understanding of what you’re signing up for. Set aside a safety blanket of funds to cover unexpected costs. This will ensure you won’t be caught off guard by these hidden realities of property ownership. By being aware of these often unconsidered homeownership costs, you’re better equipped for your next step of buying a home.
