Tuesday, June 3, 2014

Forecasting Long-term Housing Costs

Having a longer-term outlook can open your eyes to many of the housing expenses that might not be easily recognizable when you first purchase a home.  Up front, a home owner might see things like the price of a home, the cost of obtaining a mortgage, the expense of having a home inspection, and the time, money and effort involved in finding the right home.  However, forecasting for those longer-term expenses that won’t arrive – or won’t arrive in full – until long after the home is yours can help better prepare you for the full financial ramifications of homeownership.

Mortgage interest costs
Sometimes it might seem like getting the lowest monthly payment on a home could be the best result as a homeowner.  However, lowering that payment by extending it out over additional years can make the cost of interest on a mortgage skyrocket.

According to creditloan.com, “After 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house.”

In the case of our first home, taking our $165,000 mortgage over a 30-year year term at 6.375 percent would have totaled nearly $209,000 in interest along.  This amount however, came closer to $76,000 in interest for our loan based upon a 15-year payoff term at 5.375 percent. 

Maintenance and repairs
Many times, people don’t fully consider the cost of the new roof that will be needed in five or ten years.  The HVAC system that will need to be replaced in five or six years or the driveway that will need to be repaved in a year or two; that’s stuff that “will just need to be done later”.  However, it’s also stuff that can be expensive and that can add significant costs to the overall cost of homeownership.

Doing a long-term budget with forecasted timeframes on major repairs can better prepare homeowners for repair and maintenance costs.  As homeowners, we had a list that included items such as new appliances, hot water heater replacement, HVAC replacement, front walk repair, and garage roof replacement over a five-year period.  This helped us spread our budget out over this timeframe, and helped us avoid having to cover the costs of all such replacements at once while being able to tackle one big project each year or when we could afford it.

Closing costs
Closing costs might seem a distant consideration when you’re buying a home, but they can be an expensive consideration too.  Things like real estate agent commission, back property taxes, title insurance and title company costs, credits to buyers, and other fees can add thousands or even tens of thousands of dollars to the cost of selling a home, which with staging, repairs, and other preparations which in themselves can be costly.
According to Zillow.com, “Typically, home buyers will pay between about 2 and 5 percent of the purchase price of their home in closing costs. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.”

Creating a closing cost budget can help you ready yourself for the eventual costs of selling a home and outline just how much additional funds will be put toward the process of homeownership.  Closing costs and amounts can vary from state to state.  To get a better idea of how much you might one day be paying, consider seeing if a friend or family member who owns in your area would be willing to share their closing statement with you so that you can see the breakdown of costs ahead of time.


The author is not a licensed financial, mortgage or real estate professional.  This article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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