Initial Closing Costs
Along with getting the initial deposit in place to buy a property you also need to allow for the cost of closing the deal – the necessary fees paid whenever you buy a home. Different states have different fees applicable when making a property purchase, but a few of the standard costs you will incur are stamp duty, property inspection and title transfer. These fees can vary but will be between three and ten percent of the property value and need to be paid on closing the deal, before getting the title deeds for the house. Before starting a property search, you should check what taxes and fees are required to make a property purchase in your state. You may also need to make mortgage protection insurance payments if you have a deposit lower than the average twenty percent. This is an insurance policy to cover your lender should you default on the loan before having sufficient equity in the property.
Monthly Mortgage Repayments
The most significant cost of owning a home comes in the form of monthly mortgage repayments. The major factors that determine your repayments are the price of the property and the interest rate you get charged by the lender at the time of purchase. Fortunately, nowadays, would-be buyers have the luxury of being able to figure out the size of the loan repayments even before a purchase has taken place. With the aid of online tools and calculators that are offered by brokers and lenders all over, you’re able to get a much better understanding of just how your finances will be affected going forward. Many first-time buyers like to use a fixed rate mortgage as this lets them know what they will need each month to cover the costs. Additionally, if you have a deposit of twenty percent or over, you can negotiate a much more favorable interest rate. It is advisable you pay as large a deposit as you can initially to help guarantee those lower rates and avoid the mortgage protection insurance fees, which can make a significant difference in your monthly bills.
Property Insurance
Every bank or lender will want to know that their investment is safe and protected, so you will need to have a comprehensive insurance policy for your home. The lender will want to know that should the property burn down they can still retrieve their money. A typical insurance policy for your home will be at least 0.5% of the property value per year; this can vary dramatically depending on which insurance company you use and the coverage you receive. Your lender will advise you on what needs to be covered in the policy, and you can then search for the best property insurance. If you own a property outright you will not need this insurance, but you will be leaving yourself open to a substantial financial loss, should the unthinkable happen.
Utility Bills and Taxes
Many renters will already be paying their utility bills, but you may find there are additional bills that your landlord included as part of the rental fee. The basic bills will be gas, electric, and water rates, and these can be expensive for young families. Electricity and gas rates vary depending on where you live, what supplier you use, and what time of day you use them. Taking steps to lower your power usage can significantly reduce how much you need to pay. Try using low energy electrical devices such as LED light bulbs, dishwashers, washing machines, and refrigerators. Your water bill may be calculated by usage, and you can experiment with low usage products and be conscious of how much you use to help keep them at a manageable level. Utility bills will always increase, so factor this in when deciding to own a property and check with different suppliers to get the best deal available. Although not strictly classified as a utility, you should also beware of your tax commitments to the state and government as these cover everything from garbage removal to local police and fire services. Taxes can, and do, increase and need to be factored into your monthly outgoings. Ongoing Maintenance The most significant increase in yearly costs of owning a home compared to renting is the maintenance. If you fail to keep the property in good shape, you may be losing money when it comes time to sell. Most landlords will take care of all large maintenance issues and incorporate the cost in your monthly rent. Once you become a homeowner, certain jobs will need to be carried out regularly, such as maintaining the outside space, decorating, plumbing problems, and electrical issues. You can get insurance to help cover these unexpected costs, but you will still need to devote some time to keep the property in good shape. The bigger expenses such as new roof, structural problems, and new heating or cooling systems can cripple you financially if you are unprepared. A useful guide is to set aside one percent of your property value each year to cover all these problems and take out adequate insurance for major issues like flooding or other natural events. Buying property is probably the most significant financial decision you will make, so take your time to understand all the pros and cons. Always work out your budget and only buy what you can afford, as many get sucked into buying beyond their means and get trapped when the bills start piling up. Speak with homeowners in the area you want to buy to better understand the costs involved. If you are still keen to make a purchase, try to keep a healthy bank balance to cover the unexpected. Owning property can be extremely rewarding, but it is not for everyone.
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