4 Basic Monthly Costs of Owning a Home
January 25, 2022
So, you want to take the plunge into real estate and buy a piece of the American dream, your own place! You probably have a lot of questions about cost and affordability. Well, we’re gonna start with some of the basics. Here are the 4 basic monthly costs of owning a home.
The above four expenses are often abbreviated PITI, which I remember by saying “Isn’t it a PITI I have to pay these expenses every month!” 🙂
Principal & Interest
Unless you can buy a house for cash (tough to do), you will need to take out a loan. Your loan payments are typically the same amount every month just like a car loan.
Some of the money goes towards principal (paying back the actual loan amount) and some of the money goes towards interest, which is what the bank (or other lending institution) charges for loaning out the money to you. Many first time home buyers are surprised by the total amount they pay over the life of the mortgage loan.
Along with principal and interest, there are two other regular monthly costs of owning a home. Often, these two expenses are bundled into the monthly fee you pay for mortgage..
All owners of property have to pay property taxes, which are the real estate taxes assessed by your town. This money goes toward the overall town budget and is used to fund public services like schools, libraries, police, fire departments, roads, snow removal, sewers etc.
Everyone who owns a house pays taxes to the town based on the value of their house (or condo) and the tax rate (sometimes referred to as the mil rate). More on that in future posts.
In order to protect the lender in case you don’t pay your loan or the property gets destroyed, they usually require one or more forms of insurance.
Different types of loans require different down payment amounts and insurance. For conventional loans, the down payment requirement is less than 20% of the loan and they require borrowers to pay for Private Mortgage Insurance (PMI).
FHA loans (Federal Housing Administration) or VA loans (Veterans Administration) have different down payment and insurance requirements. FHA loans in particular require a minimum of 3.5% in down payment and a FHA mortgage insurance with different premiums than PMI. On the other hand, VA loans don’t have a down payment requirement or a requirement for mortgage insurance.
Another type of insurance typically required by the lender to cover the home is property insurance. Property insurance or homeowners insurance usually provides some coverage for the damage of property and personal belongings due to robberies, explosions, or a variety of natural disasters.
Please note that every buyer situation is different and the only way to know what your true monthly costs will be is to speak with a mortgage professional.
This Is Only The Beginning Of The Costs
Buying a house is one of the most expensive purchases a person can make. There are many costs that come up during the home buying process and after. Along with these 4 basic costs, there are repairs, maintenance, utilities, and HOA fees (if applicable).
If you want an accurate estimation of how much a house will cost in total and what price range you should look for, contact a Negotiator, which consists of some of the best real estate agents in the country.
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Richard Allen is a Realtor with over 30 years of private real estate experience as an investor, owner, renter, tenant and landlord.