Reaching the point in your life where you’re ready to move to the home owner instead of a home renter is exciting. You’ve decided to have monthly payments go towards a permanent roof over your head, instead of just a cost-of-living fee. It makes sense, and becoming a homeowner is worth the troubles you might face. However, there are differences that you need to get prepared to face.
There is quite a bit to consider when transitioning from renter to owner, but using the below tips is going to help you make the process easier. That way, you’ll understand any upfront costs, and what happens if your appliances break.
When you purchase your home, you don’t have to worry about damage and security deposits, but there are other upfront costs that you need to think about. Mostly, the most significant cost is going to be your down payment. It’s what keeps many people from buying a home because depending on your mortgage, three to 20% is required upfront.
What you may not know, is that there are other options for those of you who don’t have the money for a substantial down payment but can afford a mortgage. Some of the more private mortgage lenders, or the Federal Housing Administration, can find your mortgages with zero to three percent down. The downfall is that your home price is going to be higher, and so is your monthly mortgage payment.
You should also budget for your closing costs. Unlike the down payment, the closing price has nothing to do with the overall total of your home. The expenses cover all necessities such as title insurance, inspections, land surveying, appraisal, and more.
More Monthly Payments
Your mortgage payment probably looks similar to what your rent payment did, but studies suggest that it’s more affordable to make mortgage payments than it is to pay rent. While that may be the case, the mortgage isn’t the only payment that you have each month.
When you purchase your home, it becomes one of your most substantial investments, so protecting it with insurance is essential. When you rented, it surely got recommended that you have renter’s insurance, but never necessary. That’s not the case when you own a home; the majority of mortgage lenders require it. Typically, your homeowner’s insurance payment gets added to your mortgage payment.
Property taxes are another expenditure of owning a home, so putting aside money each month for that bill is important, too. The charges are a percentage of the value of the land that your property is on, but the average house pays over $2,000. The benefit is that the majority of mortgage payments include enough to put money into an escrow account for property taxes.
Rainy Day Fund
It’s recommended to everyone, not just homeowners, to set aside a rainy day/emergency fund. However, it’s more important when you have an investment that needs to get protected. Studies suggest that you should have a minimum of three months of living expenses saved in the bank. That includes rent/mortgage, food, other bills, and utilities.
The purpose of an emergency fund is to protect you in the event you lose your job, appliances fail, have unexpected medical bills, or get strapped for cash. Experts say that six months is ideal, but there are some who have even recommended two years. Saving that much money isn’t always easy, but the more that you keep, the easier it’s going to be to manage an emergency situation should one happen.
Personal Maintenance Crew
When you transition from renting to owning, you’re going to notice that the cost of upkeep is far different from renting. You are going to have to replace much more than lightbulbs and batteries. Pushing the emergency funds to the side, you should plan to spend a minimum of one percent on the house value on maintenance yearly. The best way to do this is to prioritize your appliances. It’s evident that a fridge would need to get repaired before an air conditioner.
In addition to inside home maintenance, you are going to have more property to look after, too. Neighbors can get cranky if they get stuck beside someone who doesn’t take care of their yard, so you’re going to want to keep your lawn mowed. If you want bonus points, you can grab a shovel to shovel your neighbor’s driveway, too.
Knowing what to expect as you move from being a home renter to owner is going to make the process seem less daunting and complicated. The whole thing is going to be more comfortable if you hire a professional to help you out. By doing that, you can get added suggestions and advice on where to look to find homeowner’s insurance, and even learn about escrow accounts.
What advice do you have for renters changing to homeowners? Leave a comment.