Most people look at a mortgage as one number, the amount you pay every month.ย
If that figure seems like something they can manage, everything else will fall into place. But if this is the way you think, too, reality might slap you in the face so hard you’ll see the entire Milky Way in front of your eyes. The ugly truth is that a mortgage has a much bigger impact on your monthly budget, and it completely changes how your money works.ย
Mortgage calculators don’t show everything you’ll need to pay when you buy that house. Property taxes, insurance premiums that jump higher than you were expecting them to, and let’s not forget that being a homeowner also means paying for repairs. Even simple things like heating and cooling can spike when you move from a rental into a bigger space.ย
Simply put, a mortgage will change the way you make financial decisions.ย
The Actual Cost Beyond the Monthly Payment
Here are costs that can quickly change what you thought was affordable into a problem.ย
Insuranceย
You can’t just decide you don’t want homeowners’ insurance because your lender will request it, and the amount you’ll pay for it depends on the type of property and the location.
In the U.S., the avg. home insurance for a single-family house is $2.370(USD)/year. โ Yahoo Finance |
A home in a coastal area might need added coverage for floods and hurricanes. On the other hand, a property in an area prone to wildfires will have higher premiums. Older homes are also usually more expensive to insure because they’re riskier for damage.ย
If you paid renters insurance, you got used to an inexpensive bill, but homeowners insurance is a good chunk of money that your budget will definitely feel.
Property Taxes
This is one of the biggest expenses that new homeowners overlook.ย
Property taxes are usually charged on an annual or semi-annual basis, and they’re tied directly to the value of your home. If your local government reassesses your property and decides it’s worth more than when you bought it, your tax bill will go up.
U.S. single-family homes pay on average $3,700(USD)/year for property taxes. โ National Association of Home Builders |
A lot of lenders roll property taxes into an escrow account, so you might not even notice the increase until you realize you’re paying a higher mortgage payment. If you weren’t expecting the increase, it will be a nasty shock.ย
HOA Fees and Community Assessments
If you buy a property in a neighborhood or condo development with a homeowners association, HOA fees are another bill you’ll need to pay.ย
These fees cover things like landscaping, snow removal, security, pools, gyms, etc. The problem is that the HOA can raise its fees each year. Unlike rent, which is fixed for a lease term, HOA fees are unpredictable.ย
Maintenance and Repairs
Every leaky faucet, every broken furnace, every cracked roof tile, every termite in the foundation is your problem now because you’re the property owner.
A good rule of thumb is to expect you’ll be spending 1-4% of your home’s value each year for repairs and maintenance.ย
That might be a few hundred bucks for small repairs or tens of thousands when something goes wrong. And there’s no schedule for any of these, so they’ll always be a surprise.
Fun, right?ย
How a Mortgage Changes Budget Flexibility
When you take on a mortgage, you lock yourself into a series of financial obligations that make your budget far less flexible.ย
Once you’re a homeowner, cash that could have been saved or spent for funsies goes towards insurance, taxes, and all those other costs homeowners need to cover. Liquidity drops, meaning you have less room to pivot when something unexpected happens, like termites eating your support beams for dinner.ย
You used to have an emergency fund that covered 3 months of rent and basic bills, but that doesn’t cut it anymore because you need to be prepared for expenses like insurance deductibles and property tax hikes.ย
This means only one thing โ you need a bigger emergency budget.ย
On top of all this โfunโ stuff, there’s also the debt-to-income ratio to think of. This number, which is the percentage of your income that goes to debt payments, affects whether you qualify for credit cards, car loans, refinancing, etc. The higher the number, the fewer options you have.ย
Another thing that can shape how much breathing room you have is the loan structure you chose.
For example, a fixed-rate mortgage gives you stability, but it can lock you into higher payments if rates fall later. Adjustable-rate mortgages can start lower, but you might be paying more over time.ย
If you’re a veteran or a member of the military, you can apply for a VA home loan, which can actually remove some of the costs altogether.ย
Conclusion
A mortgage is a huge commitment, and it turns the way your money moves upside down.ย
It doesn’t mean that owning a home was a mistake, but it does make your financial story far less simple. Once you know what’s coming in, though, you can plan for it.ย
Build a bigger safety net and be realistic about trade-offs between owning a home and going after other financial goals.
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