The perks associated with owning a home can often overshadow the true costs. Rarely do people talk about the cost of homeownership.
“I talk to many people every day who stay at jobs they don’t like and delay their dreams because they have a mortgage. The mortgage isn’t the problem. It’s bad financial habits, limited access to information, and lack of assets that leave people stuck in one place. You have to know your numbers and learn how to win any game you play,” says J.D. Smith, a Chicago-based wealth coach at Wealthy Women Daily.
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The True Cost of Homeownership
For example, some may not even know that they may have to pay private mortgage insurance (PMI) each month until they’ve earned 20% in equity. So, setting aside enough money for your down payment matters.
The true costs of homeownership cannot be easily quantified. Who knows what repairs you will need in the future and how much property taxes will rise? To top it off, there are costs associated with ownership even after you get the deed and own your home free and clear.
According to the U.S. Census Bureau, the average American household spends over $2,000 on property taxes for their homes each year. U.S. families also spend at least $2,200 per year on energy bills according to an estimate provided by The U.S. Department of Energy.
Being a homeowner comes with many rewards but you can’t be blind to the costs. You need to have cash stashed away for insurance, maintenance, taxes, repairs, and other miscellaneous items. If you don’t live up to your obligations as a homeowner, you could lose your home!
How to be Financially Ready for a Home
It’s important to sit down with a financial coach or realtor to help you look at your financial picture and examine your options. Working with professionals can help you meet your homeownership goals faster without a mountain of stress and debt. It’s all about having access to the right information at the right time.
To get started on your journey to homeownership, you should determine how much it costs to be you. What are your monthly expenses? Also, calculate how much disposable income you have left over after all of your bills and expenses have been paid.
Find ways to increase your disposable income so that you can save and invest more. In order to increase your disposable income, you either have to save more or spend less.
If you’re on track for homeownership, an emergency or house fund is essential to your success. Start setting aside funds now so you can have more money go towards your down payment and other costs associated with homeownership.
“There are many questions you should consider before diving into the homeownership process. But don’t delay becoming a homeowner because you have no idea what’s involved. You’ll be on the road to wealth as long as you have trusted professionals by your side who can help you navigate one of the biggest purchases you will make in your lifetime,” says Jeff Wilson II, author of The Lies our Parents Were Sold and Told Us and principal at The W2 Group accounting firm.
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