More Than the Mortgage: Don't Forget Other Home Costs

Expenses such as repairs, insurance and fees can add quickly to the costs of homeownership.
By Peter McDougall ,

Many first-time homeowners are familiar with expenses such as closing costs and mortgage payments. But when deciding just how much house they can afford, many consumers don't take into account the hidden costs of owning their home.

By failing to consider expenses such as property taxes and maintenance, many homeowners end up stuck in homes that they cannot afford, sinking deeper and deeper into debt.

The result is a national foreclosure rate that keeps climbing -- the rate for May 2008 is up 65% compared to the same period last year, according to

RealtyTrac.com

-- and a large number of consumers who are left with lousy credit.

If you're thinking about taking advantage of the stalled housing market, make sure you know exactly how much you will have to pay for your new home each month.

When you include housing costs in your budget, make sure you set aside enough to cover the following costs:

Mortgage payment extras

Say you buy a $250,000 home with the help of a $200,000 30-year fixed-rate mortgage at 6.01%. Principal and interest on the mortgage will cost you $1,200.39 a month.

However, your monthly mortgage payments include more than just your mortgage. A significant part of the sum you send to your bank or mortgage lender every month covers your portion of your town or municipality's tax bill.

Property taxes are typically set by the town or county, and are represented as a dollar amount payable per $1,000 of assessed property value. If your county levies a tax of $12 per $1,000 of value, your $250,000 home would cost you an additional $3,000 per year, or $250 per month. Instead of paying $1,200.39 every month, you'll be paying $1,450.39.

Homeowner's insurance is another typical addition to the monthly mortgage payment. In 2005, the national average for insurance premiums was $764 a year, according to the

Insurance Information Institute

. But this figure varies considerably among states and even among zip codes.

As a rule, you can expect to pay about $300 per $100,000 in home value. In this instance, that would mean an extra $750 a year, or $62.50 per month.

That bumps your monthly mortgage payment up to $1,512.89 -- more than $300 above the original figure.

Maintenance and Repair

As a renter, you don't need to worry if your furnace breaks down or a tree falls across your front lawn -- you can just call your landlord. But as a homeowner, maintenance and repairs can have a big financial impact if they haven't already been factored into your household budget.

Some major repairs happen on a relatively predictable timeline, making it easy to save up money in advance. A roof, for example, will last 12 to 20 years, and a furnace typically lasts about 20 years.

Other maintenance costs are less predictable. In order to avoid busting your budget if your basement floods, set aside funds to cover general household maintenance, which can total 1.5% to 4% of your home's sale price every year.

If your $250,000 home is relatively new, you could assume your annual maintenance will be about 2%. That means you should save $5,000 a year -- or an extra $416.67 a month -- for upkeep.

Add that to the extra $312.50 from insurance and property taxes, and your new home is close to $730 a month more expensive than you thought.

Better to know that ahead of time -- and plan for it -- than to be surprised by a house that turns out to be beyond your means.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.

Loading ...