Before you sign on the dotted line of the largest personal investment, you'll ever make, sorting out your budget is a very good idea. It doesn't take much work and can save you a lot of struggle and worry later on. In a previous blog, we discussed some of the closing costs you'll incur when you buy, including getting a home inspection, land transfer tax, and down payment. In this article, we'll cover some of the recurring, monthly costs that you can expect as a brand new homeowner.
Ongoing Maintenance Costs
It doesn't matter if your house is old or new. Every house will have maintenance costs such as heating, water, electricity and waste management (yes, you pay for garbage collection!) New homebuyers can take some of the guesswork out of these costs by doing some research in advance. If you are buying an older home, ask the current owners or the real estate agent about their monthly carrying costs, so you'll have no surprises when you move in. For new homes, you can do an internet search to find calculators and estimates based on the size of the home. These are just a handful of monthly costs you'll encounter.
Mortgage Insurance
High-ratio mortgages - where the mortgage amount is more than 80% of the value of the home must pay for mandatory mortgage insurance. Mortgage insurance is added to your mortgage payment, so your payment will be anywhere from one to four percent higher than expected. The good news is that when you pay for mortgage insurance, lenders often offer lower interest rates than for uninsured mortgages and this offsets the cost.
Property Tax
Property tax should never be a surprise to homebuyers because this information is available if you ask for it. Your real estate agent or the sellers can give you an idea of the current property tax rate so you can budget for it. If, for some reason, the seller cannot provide it, there are plenty of property tax calculators available online, so you can estimate.
Repairs and Renovation
Often new owners will want to make some changes to the interior or exterior of the home. Or perhaps the home inspection uncovered a problem that needs to be addressed. Plan for the possibility of renovations so you can avoid getting yourself into a tight spot financially if unexpected repair costs pop up.
Home Insurance
Home insurance is always a good idea. However, it will likely be required if you have a mortgage. Depending on the coverage you choose, the location of the home, and the features of the home, insurance costs can vary. For example, fireplaces dramatically increase insurance costs. Swimming pools are also known to add to the cost of insurance. If your new home is located in an area deemed at risk for flooding, your insurance will reflect it. The age of your home can also impact home insurance premiums, with older homes, with outdated electrical systems or pipes being considered. Separate garages and large sheds on the property may not be automatically covered by your home insurance or may require additional premiums to cover them fully.
Before you take the plunge into buying a new home, factor all of these recurring costs into your budget. Get in touch with a mortgage broker for help crunching the numbers.
Dave Destefano represents the Mortgage Group in Niagara Falls. Let Dave help you get a mortgage pre-approval, explain the ins and outs of the mortgage process and help you gather all of the information you need to make finalizing your mortgage and closing your sale simple.