Homeownership is, for many, the culmination of the American Dream and a major rite of passage. We’ve written many times on this very blog that the fastest path to building financial wealth is — you guessed it — owning a home.
But, like any major financial decision, purchasing a home shouldn’t be entered into without good, honest research and careful consideration of the expenses associated with homeownership beyond the sale price. As a renter, you may not even be fully aware of the costs of homeownership, so let’s shed a little light on the matter.
Property taxes are assessed and collected by local municipalities and townships to keep core operations functioning — and public schools are one of the largest beneficiaries of property taxes collected each year. The amounts vary, so understanding the tax burden of a potential home purchase can be a major deciding factor about where to buy.
MLS listings include the estimated taxes for each property, so you can budget appropriately. Property taxes are often bundled into your mortgage payment and remain an important litmus test for just how much home you can realistically afford.
On average, homeowner’s insurance costs $35/month for every $100,000 of the home’s value and required by virtually all mortgage lenders underwriting your loan. For those looking to purchase a condo, a separate condominium insurance policy is mandatory — and you’re looking at $100 – $400 per year.
Note: insurance is important to protect your investment and that’s why it’s a non-negotiable requirement. If you’re buying a home, you’re going to buy homeowner’s insurance. Full stop
If the air conditioning in your apartment goes on the fritz or the garbage disposal clogs, you can call the landlord or property management company to have things fixed. When you own your own home, replacing torn screens, loose shingles or replacing a worn-out hot water heater falls squarely on your shoulders.
If these problems were uncovered as part of a pre-purchase home inspection, you have some negotiating leverage against the seller to address these issues before the transaction can move forward.
It’s wise to budget beyond the purchase price to keep your investment (and, yes, a home is an investment) in good condition so everyone is safe and comfortable.
If you live in a community with an association, you’ll pay HOA fees monthly — $200 to $400 on average — to cover the cost of using and maintaining community amenities like a fitness center, pool and neighborhood landscaping.
Electric, gas, water, Internet and cable. You get the idea. Rental agreements commonly cover some, if not all, utility costs, but that varies lease to lease and property manager to property manager.
As we well know, Louisiana summers are hot, so plan for higher electric bills during the peak season.