Ready to take that home ownership plunge? Of course you are but there still may be some things that surprise you. Here are some of the biggies.
Your Mortgage Payment Pays More Than Your Loan
Your mortgage payment is a complex thing. It will be used for more than just paying down your loan balance. In fact, you will find that a very small portion will actually be going towards the principle.
A huge portion of the amount you pay each month will go towards other expenses. Interest is a big one but you probably already expected that, or at least should have. In addition, you will be making contributions to your escrow account. Even if you expect an escrow payment, you might be surprised at just how large the payment is.
Your escrow account will be used to pay your mortgage insurance, property taxes, hazard insurance and any other fees associated with the home. Sometimes it ma even be used to ay HOA dues but usually this is paid later, more on that later.
You May Qualify For More Than You Can Afford
During the approval process, they do a pretty good job of making sure that you can afford the home but only you know your true financial situation.
Be honest with yourself and make sure that the mortgage payment will fit into your lifestyle. Do you like to shop and dine out? If you max out your mortgage, you may have to curtail some of this activity.
In general, it is better to buy less than you can afford. It will give you more money for entertainment, furnishing your home and of course saving
You Will Get A Bill From Your HOA
Most of the time, your HOA will bill you directly.
If you have the pleasure of living in an HOA neighborhood, you will have dues that are either paid every three months, six months or annually.
HOA dues are mandatory and you will be required to pay them on time or you could face a penalty or even worse action.
In addition, your HOA dues may change if situations dictate. They can, for example, set up a special assessment to pay for expenses that have not been budgeted for. You will be required to pay this.
But what happens if you do not pay your HOA dues. Maybe you disagree with a special assessment or just forgot. Did you know that your HOA has the power to place a lien on and then foreclose on your home? They have that power and will use it if necessary.
School Districts Are A Big Thing
Even if you do not plan on kids, you need to give them a consideration. Not for you but for future buyers.
Better school districts are in higher demand and will drive a home price up by many thousands of dollars. Take identical homes just a block apart. If one happens to be in a better school district, it could easily sell for 15% more. Trust me, it happens all the time.
It might seem silly to shop schools if you do not plan on kids but it is something you must do.
There Will Be Repairs
Even on new homes, things happen.
If you buy brand new, you will probably have an all inclusive one year warranty but once it is over, you are on your own. Leaks happen, pipes burst, appliances malfunction. When they do, you need to be prepared to take care of them.
Hopefully, you have a savings account. If not, you should set one up. Try to have one to two percent of your homes value in it to account for surprise expenses. Better to be prepared than find yourself in a situation where you desperately need money, so start contributing to this savings as soon as possible.
You Need Good Home Insurance
When you are finalizing your loan, you will need to secure good home insurance. Think about more than just the price of the policy because it could cost you in the long run.
You want a company that has a record of taking care of their clients and not dragging their feet. If a hail storm hits your neighborhood, do you want to be the last person to get their roof fixed or do you want to get it taken care of quickly and correctly?
Research insurance companies satisfaction record before committing.
It Will Take Time To Get Settled
If this is your first home, it will take some time to get things settled down. It will be a big change from living in a small apartment, so don’t expect to have your routine set in a month.
Furniture, for example, will take a lot of time and money to acquire. It might just surprise you at how much it costs to furnish a home. Resist the urge to finance your furniture, it is never a good idea. Even at low or zero percent interest, there are pitfalls that could cost you.
Overall, enjoy the experience and do not stress over getting everything in order as fast as possible.
Your Payment Will Go Up
If you thought you were going to have the same mortgage payment for the life of your home, think again. Mortgage payments will go up.
The biggest thing that will affect your payment is hazard insurance and property taxes. Both will usually go up. In fact, you will probably dread seeing the annual statement from your counties appraisal district. You will get one every year showing how much your taxes are going up.
Another nightmare you could face is an escrow shortage. This is fairly common when you purchase a home because of the massive property value increase on the county records.
If you bought new, the estimated taxes calculated will be based on the unimproved land value and your new value will go up dramatically. It is not as bad if you buy a used home but the county will also take the opportunity to value the home at the current value which will usually be much higher than it was on the books for.
The result will be an escrow shortage that will be added to your monthly payment. It could make your payment rise by 200, 300 or even 500 dollars a month.
If you expect an escrow shortage, make extra payments to your escrow account from the beginning.