{"id":2078,"date":"2022-03-09T10:00:00","date_gmt":"2022-03-09T15:00:00","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=2078"},"modified":"2024-04-25T23:18:47","modified_gmt":"2024-04-26T03:18:47","slug":"the-cost-of-owning-a-home","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/the-cost-of-owning-a-home\/","title":{"rendered":"The Cost of Owning a Home"},"content":{"rendered":"\n
\"Image<\/figure><\/div>\n\n\n\n

More Than a Mortgage<\/em><\/strong><\/p>\n\n\n\n

Imagine you\u2019ve made it through closing. You\u2019ve purchased a reasonably priced home. You paid around $5,000 for closing cost fees, taxes and insurance; another $2,000 for moving in and fixing up. You have a an ample reserve fund set aside in your bank and retirement accounts. You know you\u2019re going to make the mortgage loan payments and interest (plus homeowners\u2019 association payments, where applicable). Your budget is ready. Homeownership is your new reality.<\/p>\n\n\n\n

Of course, along with your mortgage, you\u2019ll have other expenses to anticipate. Insurance. Repairs and upkeep.<\/p>\n\n\n\n

Let\u2019s look at these expenses. Then, you can enter them into your budget, and see what you\u2019ll really need to keep up a home. Here goes\u2026<\/p>\n\n\n\n\n\n\n\n

A House Needs More Insurance Than Renting Does.<\/h2>\n\n\n\n

You must have a homeowner\u2019s (or condo owner\u2019s) insurance policy. There\u2019s an escrow account for most mortgages. It includes the money for insurance premiums, as well as other regular payments such as private mortgage insurance (which we\u2019ll discuss in a minute) and property taxes. In this case the homeowner pays one bundled monthly payment to the mortgage servicer and it includes insurance.<\/p>\n\n\n\n

Pro tip:<\/em><\/strong> Speak with your accountant about your loan terms and any money you take from bank or retirement accounts, so you are prepared for your tax bill.<\/p>\n\n\n\n

The cost of a U.S. homeowner policy at the time of this writing is usually cited at $1,100 to $1,300<\/strong>. That\u2019s several times the generally cited cost of a renter\u2019s policy. Why? The main difference is that homeowners\u2019 policies have dwelling coverage, while renters\u2019 policies don\u2019t.<\/p>\n\n\n\n

The price of a policy depends on where the home is, the type of construction, and the age of the building. Bundling homeowner\u2019s or condo owner\u2019s insurance with car insurance can reduce the price somewhat for the policy holder. (The owner would still pay for the car insurance; it wouldn\u2019t come out of escrow.)<\/p>\n\n\n\n

\u261b<\/em> In some cases, it makes sense to seek out private <\/em><\/strong>flood insurance<\/em><\/a> and add it to your mix to guard against costly water infiltration risks. Deeds.com has <\/em><\/strong>more information on climate-related flood risks here<\/em><\/a>.<\/em><\/strong><\/p>\n\n\n\n

And will you be renting out that new house or condo? Landlord insurance coverage that anticipates liability for accidents, and potential loss of payments if renters must leave for a reason covered in the policy. If you need landlord coverage, expect to pay roughly 15% more than you would for a standard homeowner policy.<\/strong><\/p>\n\n\n\n

An Owner May Buy an Optional Title Insurance Policy at Closing<\/h2>\n\n\n\n
\"Person<\/figure><\/div>\n\n\n\n

You might be aware that lenders always expect the borrower (or the seller) to pay for title insurance at closing. You might not be aware that the borrower can also buy an owner\u2019s title policy<\/em> that protects the title for good \u2014 not just while it\u2019s important to the lender.<\/p>\n\n\n\n

The buyer makes one upfront payment of a few hundred dollars for an owner\u2019s title policy \u2014 no monthly premiums.<\/strong> It covers the title even if the home is put into a living trust, or passes to heirs.<\/p>\n\n\n\n

Pro tip:<\/em><\/strong> If the seller already possesses an owner\u2019s policy, the buyer might be eligible for a substitution rate when buying new owner\u2019s title coverage.<\/p>\n\n\n\n

An owner\u2019s policy covers costs to remedy past problems that become obvious after purchase, such as an error in the legal description<\/a>, missing heirs, undisclosed liens, or other claims on the property.<\/p>\n\n\n\n

When buying an owner\u2019s title policy, what level of coverage is best? Extended coverage (which costs around 25% more), or a standard policy?<\/p>\n\n\n\n

An extended (enhanced) owner\u2019s title policy covers more items. It addresses situations like unrecorded liens, property line disagreements that didn\u2019t come to light when the most recent property survey<\/a> was done, and title scams.<\/p>\n\n\n\n

\u261b<\/em><\/strong> Learn more from Deeds.com about steering clear of <\/em><\/strong>deed fraud and scams<\/em><\/a>.<\/em><\/strong><\/p>\n\n\n\n

Private Mortgage Insurance Can Weigh on a Budget<\/h2>\n\n\n\n

Private mortgage insurance (PMI), for the homeowner who has to pay it, is part of the monthly mortgage payment. It becomes a fact of life, just like the mortgage principal and interest. Yet it is worth talking about, because in some cases it\u2019s an expenditure that can be removed.<\/p>\n\n\n\n

Mortgage lenders add a monthly PMI charge for private insurance when a borrower doesn\u2019t put at least 20% of the appraised price down on the home. Why? Because such a home buyer\u2019s the loan-to-value ratio is considered high-risk for the lender. The idea is that buyers who invest a big portion of the price in their houses are the least likely to walk away from their mortgages.<\/p>\n\n\n\n

So, PMI is a type of mortgage insurance<\/a> that covers the lender but does nothing for the home buyer. PMI could be anywhere from .1% of the mortgage to 1%.<\/strong> It can run as high as $70 a month, says Freddie Mac<\/a>, for every $100,000 in loan debt, depending on the down payment and the loan type.<\/p>\n\n\n\n

Why might you accept PMI? In certain situations, it\u2019s the simplest or the only way to get a loan approval. In a low-interest environment, it can be worthwhile to accept PMI to get a good deal on a mortgage.<\/p>\n\n\n\n

If you are on a Freddie Mac or Fannie Mae loan, ask for the PMI to be removed as soon as you hit that 20% ratio. You can \u201coverpay\u201d the monthly mortgage principal to hit your goal faster. While FHA loans don\u2019t remove PMI for you, it might be worthwhile to refinance to a conventional loan without PMI when you\u2019re ready.<\/p>\n\n\n\n

Fixes and Replacements Are a Fact of the Homeowner\u2019s Life<\/h2>\n\n\n\n

Set money aside for home upkeep<\/a> and improvements. New owners commonly run into the following costs:<\/p>\n\n\n\n