Owning a home comes with expenses you don’t have when you’re renting. When you’re deciding on a budget for buying a home, it’s important to consider costs beyond the principal and interest payment. Homeowner’s insurance and property taxes are two big expenses to factor into your budget. Your lender may require you to build these costs into your monthly mortgage payment. The funds are deposited into an escrow account, and the lender deducts money from this account to pay property taxes and insurance.
Escrow accounts ensure that your taxes will be paid so no government agency can make any claim to your property for unpaid taxes. Homeowners’ insurance covers major repairs to the home in the event there is some kind of natural disaster or emergency. It’s good for homeowners and the lenders whose collateral on the mortgage is the home. For the borrower, escrow accounts mean a few less payments to worry about.
If you’re curious about what your monthly payment will be with the escrow payment factored in, you first need to research the cost of homeowners’ insurance in your area and the property tax rate. Once you’ve done that, use this calculator to get an estimate of what your full payment could be.
Keep in mind, you will still need to budget for routine home maintenance and improvements on your own. Expenses like lawn care will apply to nearly all homeowners. Even if you plan to do this work yourself, you’ll need to make sure you have the right equipment. Unexpected repairs can also pop up, even on home’s with a stellar home inspection report. If you don’t have an emergency savings account for these expenses, or your savings are tapped out from your home purchase, try to build up an emergency fund as soon as possible.