This is a guest blog post by Susan Doktor at money.com, a website devoted to personal finance news and information.
If you’ve been shopping for a home recently, no doubt you’ve heard that mortgage interest rates have dropped precipitously, putting homeownership within reach for more Texans than ever before. That’s because, apart from the home’s purchase price, your mortgage interest rate is the single biggest factor driving how much you’ll pay each month on your mortgage.
Depending on the size and type of loan you choose, getting a low-rate mortgage right now can save you thousands of dollars. But before you jump at the opportunity the real estate market may currently present, take a step back and consider all the costs of homeownership.
There are many expenses — some one-time and others ongoing — to take into account when figuring your homebuying budget. We’ve put together a list of some of the larger ones you may be missing in your budget calculations.
Homeowner’s insurance generally falls into two categories: property damage and liability. Property damage insurance protects the investment you’ve made in your home in the case of unexpected events like fire or natural disasters. It also provides coverage for your belongings; for example, in the event you are burglarized. Liability insurance, on the other hand, protects people who may be injured while visiting your property.
When you borrow any amount of money to buy a home, your mortgage lender will insist that you purchase homeowner’s insurance that’s sufficient to cover the amount of your loan. While lenders mandate homeowner’s insurance to protect themselves, your homeowner’s insurance policy will also protect your financial interests.
When purchasing a homeowner’s policy, it’s important to pay close attention to the coverage limits you select. While your mortgage lender may only compel you to purchase the minimum coverage required to protect its own investment in your home, you may want to consider purchasing coverage that exceeds the amount remaining on your loan.
Your homeowner’s policy also includes liability insurance, ensuring that a visitor who is injured on your property will be compensated for medical and other costs arising from the accident.
Compared to other states, Texas has fairly high homeowner’s insurance rates. The average annual cost of a homeowner’s insurance policy in the state of Texas is around $1900. Your premiums will vary depending on factors such as your home’s location, its value in today’s market, and the type and amount of coverage you select. You can find various insurance rate estimators online without committing to a policy and it makes sense to compare several companies’ rates side by side. Just be sure to use the same parameters for each estimate.
Depending on your credit-worthiness, you may be able to purchase a home without a large down payment. But that low-money-down loan is likely to come at a cost.
If your down payment is less than 20% of your loan amount, your lender will require you to purchase mortgage insurance. While mortgage insurance is required for the life of an FHA loan, if you have a conventional loan, it is only required as long as you have less than 20% equity in your home. The federal government sets the mortgage insurance rates for FHA, VA and USDA loans. For conventional loans, the amount you pay for Private Mortgage Insurance (PMI) is determined by your PMI interest rate (typically somewhere between .55% and 2.25%), the amount you borrow to buy your home, and your home’s value.
Real estate taxes are a given, no matter where you live. Real estate taxes are based largely on the appraised value of your home. Factors that influence appraised value include the address, size of your home, and certain home features that add value.
The real estate tax on any home is relatively easy to estimate, by looking at previous tax records. But bear in mind that your county re-evaluates your home’s appraised value annually and your tax rate may go up or down each year.
Paint peels. Furnaces fail. Leaky roofs happen. Depending on the age and condition of the home you buy, you can expect to spend a significant sum on home maintenance each year. And you should spend it. Taking care of repairs in a timely manner not only keeps your home safe, it also maintains its value. Over time, as you build equity, your home may become your largest asset. And that’s something worth protecting, indeed.
TSAHC can help. Our Homes for Texas Heroes and Home Sweet Texas Loan programs provide Texas families with up to 5% down payment assistance in the form or a grant or 2nd lien that can be put towards your down payment and closing costs. TSAHC also offers a Mortgage Credit Certificate Program for first time home buyers that provides a tax credit that can save you thousands of dollars over the life of your home loan.
Take our Eligibility Quiz to see if you qualify for one or both assistance options. You can also compare assistance options by using our Program Comparison Calculator.
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.
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