We all know how stressful it is to move house and start your new life in a new place. But for many people, the excitement of buying a new home can cloud their judgment when it comes to really understanding what's involved. In this post, I'm going to share with you the good, bad, and ugly sides of buying your first home, so that hopefully you're fully prepared when homeownership comes knocking at your door.
You'll get a new tax bill, and it won't be pleasant.
When you own a home, the IRS treats the property like an investment rather than an expense — which means mortgage interest and property taxes are tax-deductible. That's nice if you itemize deductions (and most people do), but it also comes with another cost: You'll have to pay capital gains tax when you sell because the value of your home will have increased since you bought it. The rate depends on how long you owned the house but can be as high as 20 percent.
You will have to put out money for maintenance.
When you buy a house, you're buying it for good. You're not just renting and moving out when something goes wrong — you're stuck with everything that comes along with it. That means that if something breaks or gets damaged in any way, you'll have to pay for it yourself in order to fix it up again.
You might have to pay extra insurance premiums.
When you buy a home, your lender will require you to get homeowner's insurance (the primary mortgage insurance policy). However, if you're renting out part of your home — even if you only rent one room — then you may need additional liability coverage as well as an umbrella policy to protect yourself from lawsuits. You can also expect higher premiums if the house is located in a floodplain or other high-risk area.
Your utility bills will go up.
The cost of electricity and gas has been rising steadily over the last decade. The price increases are not just due to higher demand or increased costs of production — they're also due to government policies.
When you buy a home, you're responsible for all the utilities — including water, gas and electric — as well as repairs. And if your home has a swimming pool or hot tub, be prepared for an additional expense in addition to your monthly mortgage payment.
Your home will cost more than you think.
Buying a new home is exciting, but it also comes with an additional expense: closing costs. Closing costs are fees paid by the buyer at the time of purchase, and they can range from 1 percent to 5 percent of the sales price of the home depending on where you live and who is selling it to you. Be sure to ask your real estate agent about them before signing on the dotted line.
You may not be able to afford your dream house you want right away.
The most common reason people lose their homes is that they can't afford them. You may think you want a McMansion, but when the bills come in and the money runs out, you may have to downsize.
You may not be able to afford your dream house you want right away. Most people don't realize how much it costs to own a home. According to the National Association of Realtors, about half of all first-time buyers had no idea what closing costs would be before they bought their home.
If you're buying your first home and have no experience with this kind of thing, get informed. Look at sites like Zillow and Trulia and see what other people are paying for houses in your area. Make sure you know what closing costs will be before you buy — and don't get caught off guard!
Buying a house is a big deal, and it's going to change your life. Chances are, you're not going to take this decision lightly. Regardless of how prepared you are, buying a house is bound to be an expensive investment, so you'll want to avoid costly mistakes. The tips provided here will help you make the right decisions towards getting that home of your dreams.