Other After-Purchase Expenses
The down payment may be the first but it's certainly not the only critical element in whether you can afford your own home. It's important to look at your net-worth statement and establish a real budget to make sure the down payment and other related home expenses are affordable for you.
While most of these other costs are not mortgage-related, they are important considerations at the time of down payment because they represent money that will continue to come out of your pocket once you get the keys to the house. For instance, your mortgage lender will insist that you purchase comprehensive homeowner's insurance to protect the investment. This will be in addition to PMI if you're required to pay it. If this is the first time you've ever bought home insurance, it's important to buy adequate coverage no matter what the cost.
It's always important to see if you can save money on homeowner's insurance by taking a higher deductible to get a lower premium. But first, review whether you have the maximum home replacement coverage on your house and its contents. Go to several agents to see what you would get for maximum replacement coverage in your community. This particular coverage is particularly important since so many homeowners carry big mortgages and probably won't have enough in savings to cover the difference of what insurance won't.
Can I borrow the money to pay my PMI?
It happens every day. Lenders typically roll the cost of PMI into the costs of a new home loan if the borrower doesn't agree to pay it separately.
You also have to consider maintenance costs. The kind of home you have, the kind of weather you have, and the general pricing of goods and services in your area will determine actual numbers on home maintenance. The general rule of thumb is that you'll spend between 1 and 3 percent of your home's market value in any given year. It's not a bad idea to start asking other homeowners in your target neighborhood what they spend on the following maintenance items:
Foundations: All foundations have small cracks, but if cracks widen, it could mean a major problem. Small repairs can cost between $400 and $800, but major repairs can reach into the thousands.
Gutters and downspouts: If you clean them yourself, it's free, but this should be done twice a year and a professional may charge at least $100 to do it. You need to do this to keep ice from forming and damaging your roof.
Paint: Every five to seven years, frame houses require full repainting at a cost of several thousand dollars if you hire out.
Chimney and tuckpointing: It makes sense to check your chimney for creosote buildup that can cause fires, but you should also have the flashing and tuckpointing checked to make sure the chimney is structurally secure.
Roof: Asphalt-shingle roofs generally last about twelve to twenty-five years and wood shakes between twenty-five and seventy-five years. Slate and tile roofs last between fifty and 100 years.
Heating/air conditioning: Warm-air furnaces usually last eight to twelve years and cost between $1,500 to $4,500 to replace. Airconditioning compressors last between eight and fifteen years and cost at least $1,500 to replace. Filters should be replaced monthly or quarterly as directed and the entire system checked every year.
This is by no means a complete list of major expenses tied to a home, but it's a good way to get you thinking about what ownership really costs.
Replacement cost means the amount that it will cost to replace your home on the land where it stands, usually considerably less than the current market value of your home. But most of the market value actually has to do with the land under your home, not the house and contents.
After you get into the house, make an effort to inventory your collectibles, home office equipment, or additional furniture or assets you've acquired, and then take photos of all significant items. Keep these in a safe place either outside the home or in a fire-safe lockbox in the basement. Proving your assets is essential.
