Homeownership: Beyond the Down Payment—Understanding the True Costs

Buying a home is a huge milestone in our lives and is the largest purchase most of us will ever make. It is important for those who are interested in homeownership to understand the benefits of buying a home versus renting and what a smart investment this decision is for your future. It is also important to understand that homeownership is a major financial and lifestyle choice and one that will have a major impact on your financial status.

And since a new homeowner certainly doesn’t want any surprises when it comes to the additional costs of homeownership, it’s a savvy move to educate yourself about all the costs involved with buying and owning a home in addition to the mortgage. Here are some additional costs and expenses to consider when you purchase a home.

True Costs of Homeownership After the Down Payment

The Basic Costs of Homeownership

• Mortgage Payments: Your monthly home mortgage payment typically includes some of the additional costs involved with homeownership. In addition to paying the principal and interest on the loan, the payment can also include property taxes and homeowners/private mortgage insurance, often referred to as PITI.
• Insurance: As a homeowner there are certain required insurance policies you must have on the home. These include:

• Homeowners: This policy protects your home and the contents from disasters such as fire, theft, tornadoes, and such.
• Flood: A flood insurance policy protects against damage to the home that is directly caused by flooding.
• Private Mortgage Insurance: A mandatory insurance policy for those who buy a home with a downpayment of less than 20%, this policy protects the lender in case the borrower defaults on the loan.
• Property Taxes:  Those who own homes in Massachusetts will pay property taxes that are calculated annually. These real estate property taxes are assessed by the local government and are used for public services like police, fire departments, and schools.

Ongoing Homeownership Expenses

• Maintenance and Repairs: According to the 10% Rule, homeowners should set aside about 10% of the total of your mortgage payment each month for your home maintenance and repair budget. If your mortgage is $1500/month, that equals $150 per month or $1800 per year for home repairs and maintenance.
• Utilities and Services: The essential utilities and services for a home include electricity, natural gas, internet, cable/television services, trash pick-up, and water. Depending on your location, there may also be services like snow removal and landscaping that are required.
• Home Improvement: Even if you purchase a brand new home, there are always upgrades or renovations that can be made. As a homeowner, you should pay attention to outdated items such as floors, appliances, HVAC systems, and roofs to ensure they are replaced or updated as needed, so the value of your home continues to increase over the years.

Hidden Costs of Homeownership

• HOA Fees: A HOA fee is an expense that comes along with homeownership. Dues are paid monthly or quarterly and should be considered a recurring expense that will last as long as you own the home. The cost varies by location and amenities and can range from a few hundred to thousands of dollars depending on your community.
• Emergency Repairs: Eventually, your home will need unexpected repairs that could put you in a financial crisis if you are not prepared. Savvy homeowners should understand the importance of maintaining an emergency fund for unexpected issues, so your finances are not strained.
• Resale and Capital Gains: When selling your home, you should be aware of the costs involved. In addition to paying a real estate agent around 6% of the sale price to represent you, there may be items in the inspection report as well as some closing costs that require your dollars. In addition, you may be subject to capital gains taxes on money earned from a home sale. Single filers are exempt up to $250k and married filers up to $500k.

Comparing Homeownership Costs: Renting vs. Owning

• Fixed Mortgage Payments vs. Increasing Rent: Having a fixed monthly mortgage payment versus fluctuating rent prices offers financial stability and allows you to plan with your monthly budget in mind now and in the future.
• Equity Building: One of the major benefits of homeownership is the ability to build equity while the value of your home increases instead of paying someone else’s mortgage via monthly rental payments.
• Customization and Freedom: Homeownership allows you to customize your home as you choose versus living with the landlord’s style with no option for change. Create the home of your dreams with no limits on upgrades, renovations, and décor changes.

Members Plus Home Loan Solutions

MPCU offers personalized service and potential savings opportunities for members who use our mortgage products to buy a home. Options for a mortgage via Members Plus Credit Union include first-time buyer loans that help those who have never purchased a home before, as well as a  (ARM) that offers interest rate and payment adjustments every 10 years with no requirement of private mortgage insurance (PMI).

Our team of home loan specialists at MPCU will walk you through the home loan process and discuss your options for financing on your path to homeownership. Contact Members Plus, we are here to guide you through your homeownership journey.