“So I pay $1600 a month on my mortgage and I’m good?”
You’d only be so lucky. That number is just your principal and interest. The other factors in those monthly payments include:
PMI – Private mortgage insurance:
It’s like insurance for your lender. If your down payment is less than 20% and your LTV is more than 80%, your skittish lender assumes you’re at greater risk of default, and slaps some PMI on top of your regularly monthly payments. Fantastic. You can avoid PMI entirely by putting at least 20% down, but that’s unfortunately not the reality for all buyers. Prioritize paying down as much as you can in the first few years of your mortgage term to ditch those pesky PMI payments.
Some important PMI FYIs: Your lender is also required at closing to tell you how long you’ll need to pay down your loan to cancel PMI. When you’ve reached that 80% threshold and you’ve never missed a mortgage payment, you’ll need to write your lender (like, put a stamp on it) to cancel your PMI payments.
Homeowners insurance, also called hazard insurance, covers any losses or liabilities on your property. Though lenders require it, Murphy’s Law (anything that can go wrong, will go wrong) is the real reason you want homeowners insurance. Heavy branches that missed the memo on staying attached to their trees, neighborhood kids’ baseballs mistaking your lovely bay windows for the outfield, thieves not realizing your last name isn’t Zuckerberg or Gates- all these instances require homeowners insurance to recoup your losses.
You can also add riders for jewelry, artwork, or home electronics. Regular homeowners insurance won’t cover any damages from floods or earthquakes, so these policies are also necessary add-ons if you live in Florida or California.
Your town likes good schools and snow-free streets in the winter just as much as you do, but they’re going to make you pay for it. Your local government collects property taxes to cover local necessities, and they’re assessed according to your home and your land’s value. Knowing how much you’ll pay in property taxes is crucial to figuring out your monthly house payments- sometimes one street may be the difference between paying $100 a month and several hundred a month. Your local town hall or your county’s website will have the most accurate info on property taxes in your neighborhood- investigate these numbers before buying your home.
Utilities and More:
You probably didn’t take your heating (or your heating bills) for granted after last winter, so don’t overlook your new potential heating bill. If you’re upgrading to 2,000 square feet from 1,000, be ready to spend more on your heating bills and electricity. In some counties, you’ll also pay a separate fee for trash collection. You’ll also have monthly fees if you pledge to the house of HOA (that would be a Home Owners Association). HOA fees depend on how much of a high roller you and your neighbors want to be; find out upfront what those expenses will be. Hazing optional.
This article is 1st in the Home Costs Series