Freddie Mac: Paying the mortgage isn’t enough
Reminds homeowners of their financial responsibilities
Freddie Mac does great blogs. They’re simple, educational and sometimes so obviously necessary you wonder why there isn’t more of this kind of thing out there.
For example, one of its crowd-authored blogs from yesterday reminds potential homeowners that there are additional costs associated with the commitment to own property.
This is no ‘well, duh’ moment; this is seriously good advice.
“Shopping for your first home is undoubtedly an exciting time. You've worked hard to build up funds for your down payment and now you're ready for the fun part: finding the home that's perfect for you – location, size, and more – and signing on the dotted line,” the blog states.
Then the post asks: “The hard part of saving money is in your rear view mirror and now it's easy street, right?”
Wrong. Paying the mortgage isn’t enough.
“Homeownership can be very rewarding, as well as a good financial investment, but it's important to remember that responsibilities are part of the package – requiring both financial and time commitments,” the blog states.
Every single person thinking about buying a home should read this blog post.
In addition to making the mortgage payment on time, each and every month for typically 30 years, there are two other financial responsibilities to consider when buying a home (I’m going to flesh it out a bit based on my own experience).
The other major housing-related costs are added into the monthly payment. This includes mortgage-insurance, hazard insurance and Homeowner Association dues (where applicable). Being vigilant in keeping up with insurance payments are part of that responsibility, I’ll add, because allowing the policy to lapse can lead to a potentially larger, forced-placed premium applied by the mortgage servicer.
For example, my hazard insurance runs about $1,900 a year. Force-placed insurance in this case could go as high as $4,000 by comparison. I know because my mortgage servicer Wells Fargo tried it when my insurance lapsed in 2010.
But the biggest housing related cost — depending on your state — is typically the property tax, which can swing wildly from year to year. In one year, my property taxes were below $3,000; this year they are above $4,000.
Also, homeowners need to maintain their house according to all local bylaws. These are typically simple requirements like keeping the lawn tidy and the house visibly appealing, in order to help maintain the curb appeal and keep neighborhood values stronger overall.
This costs money, true, but not nearly as much as big repairs to your plumbing or foundation. A smart homeowner should have a stash of cash for unexpected repairs or face paying for a service with a credit card which will up-leverage the homeowner.
So there is a lot there to keep thinking about.
As Freddie points out: “Saving for your down payment and signing on the dotted line are simply the first steps to homeownership.”