Benefits And Rewards Versus The Cost Of Home Ownership
This BLOG On The Cost Of Home Ownership Was Written By Gustan Cho NMLS 873293
Owning your own home is still the American Dream for most Americans.
- The advantages of being a home owner far surpass being a renter, however, there is the cost of home ownership that first time home buyers need to consider before they pull the plug in being a homeowner versus a renter.
- Home ownership offers many benefits such as the pride of being a homeowner, the likelihood of home appreciation and building equity, the security of being able to stay in your home without being told by your landlord that you need to move because he is not renewing your lease, being able to decorate your home the way you like without getting landlord approval, being able to adopt pets without landlord approval and without putting up additional security deposits, and not worry about your rental payment increasing year after year.
- Many times, your new mortgage payments as a homeowner may even be less than your current rental payment.
- Real estate market is hot throughout the country now and in some areas, housing prices are appreciating by 10% every year especially in many counties throughout the United States.
- Homeowners who purchased their home several years ago are sitting on equity in their homes and their homes are still appreciating.
- A home is an investment where you can enjoy your investment and still get an appreciating asset.
How Much Do I Need To Become A Homeowner?
There are two types of costs a home buyer needs to come up with to purchase a home.
- The down payment and closing costs.
- For FHA Loans, you need a minimum of 3.5% down payment to purchase a home with a FHA Loan.
- The down payment on FHA Loans can be 100% gifted by a family member.
- Most home buyers do not have to worry about closing costs because a realtor can negotiate that the closing costs be paid by the home seller with a sellers concession towards a home buyer’s closing costs.
- In the event if the home seller will only give a limited amount or no sellers concessions, the mortgage lender can give the home buyer a lender’s credit towards closing costs.
- Fannie Mae has reinstituted the 3% down payment conventional loan program for first time home buyers.
- The reason Fannie Mae institute the 3% down payment conventional loan program for first time home buyers is to compete with FHA’s 3.5% down payment home purchase mortgage loan program.
- First time home buyers with at least a 620 FICO credit score can now qualify for a 3% down payment conventional loan on a home purchase.
- VA Loans and USDA Loans do not require any down payment on a home purchase.
- With sellers concessions, home buyers who qualify for VA Loans and USDA Loans can become homeowners with zero dollars out of their pocket.
There are times where mortgage lenders will require three months of reserves for mortgage loan applicants who have lower credit scores, no rental verification, poor credit, or short term on the job.
- Reserves are one month of principal, interest, taxes, and insurance.
- Most mortgage loan applicants with credit scores higher than 620 FICO will not be required for reserves.
- However, reserves are recommended for all homeowners in the event if something needs fixing such as if the furnace goes out, air conditioning, or appliance breakdowns.
- For example, if you live in states where there are severe weather during the winter months, what would you do if your furnace breaks down during sub-zero weather?
- You would have to fix it and/or replace it.
- Replacing a furnace can run a couple of thousand of dollars and you need to have the furnace replaced as soon as possible or the pipes will freeze.
- How about if your refrigerator or freezer breaks down and you need to replace it?
- Many homeowners have separate freezers where they stock hundreds of dollars worth of perishable foods.
- Replacing refrigerators and freezers are high ticket items.
- There are costs of home ownership and sometimes these costs can be quite expensive.
- Reserves are highly recommended even if the mortgage lender does not require it.
Other Cost Of Home Ownership
There are so many benefits of home ownership, however, home buyers should keep the cost of home ownership in mind when buying a home and make sure that they do not buy too much house. The larger a home is, the more expenses there will be. Electric and gas prices are constantly going up year after year. Gas prices can cost several hundred dollars during the severe winter months and electric bills can run extremely high during the hot summer months. The larger the home is, the more your utility bills will be. There is also cost of maintenance such as lawn maintenance, snow plowing service during the winter months, and cases where appliances break down or HVAC systems malfunction. Homes will need short term as well as long term maintenance and homes do need repairs. Repairs can be minor repairs but major repairs may be needed as well. A responsible homeowner should also set aside a portion of their monthly income into a homeowner’s repair fund.