The costs of owning a home.
Before you decide whether you want to buy a home, you should think about what you can afford and how much it will cost you now and in the future. Repaying a home loan will take a long time, and you’ll need to make repayments weekly, fortnightly or monthly for the duration of the loan.
What can you afford?
Before you start looking for a home, you’ll need to work out what you can afford to pay each month. You’ll need to pay rates and insurance, keep up with any repairs and maintenance, and cover living costs like food, gas, electricity, phone, school fees, doctor’s visits, and car maintenance or bus/train fares. Working out your budget can be useful when you apply for a home loan too, as your lender needs this information as well.
Working out a budget
1. Work out how much money you earn each month (including any benefits, rent from boarders, etc).
2. Work out your living costs for the month (food, phone, power, car expenses, clothing, etc) and subtract it from your income. Don’t include the rent you currently pay.
3. Subtract other payments you need to make, like hire purchases, credit cards, student loans, insurance and medical bills. Remember, if you’ve got fortnightly payments, you’ll need to multiply them by 26 and divide by 12 to accurately work out the monthly payments.
4. Subtract any other expenses you can think of (don’t forget to allow a little for unexpected costs) that arise each month. The amount you have left is how much you have each month to go towards paying for a home and its upkeep. For independent budgeting advice visit www.harcourts.house/sorted or www.sorted.org.nz.
It’s a good idea to get finance sorted out early, so everything else happens quickly and smoothly. You can approach a lender or mortgage advisor before you find a home you wish to buy to get finance pre-approved. Mortgage advisors may benefit you by showing you more than one lender. Pre-approved finance gives you a good indication of what you can borrow and how much you can afford, and ensures you look at houses within your price range. You will then get a pre-approval certificate. Alternatively, you can find a home you wish to buy first and then approach a lender to apply for a home loan. They may also be able to give you a pre-approval certificate.
Annual costs of owning a home
There are annual costs to owning a home as well as the initial start-up costs.
Rates: These are paid to your council for services like rubbish collection. The amount varies between councils. Remember, you’ll need to pay some of the rates on settlement day.
House and contents insurance: You need to insure your new home from the day you take ownership, along with the contents. You must have full replacement home insurance cover on your new home. This means that if something happens to your home and it can be repaired, the insurance company can restore it to ‘as-new’ condition regardless of the age of the house. House and contents insurance automatically includes earthquake cover. You’ll need to pay some or all of the insurance on the day you move into your new home. Look around for a good deal – you may be able to get a package deal with house, contents and car insurance.
Body corporate levy: If you’re buying a unit or an apartment in a block or complex, you may need to pay a body corporate levy. This is your contribution to the costs of maintaining the common areas. Ask the real estate agent how much this will be. You’ll also need to comply with body corporate rules and regulations.
Repairs and maintenance: Keeping up to date with repairs and maintenance helps keep costs down and improves the value of your home. Make sure you put money aside for repairs and maintenance each year.
In summary, ongoing annual costs would be:
Rates: allow about $1,200 to $2000 a year (depending on the location of the House) . House insurance: for a three bedroom house with a floor area of 120 square metres and a single garage, house insurance would cost about $600 to $800 per year. Contents: about $60,000 worth of insurance would cost about $400 to $600 per year.
For any other real estate help feel free to call or email me anytime for a no obligation chat.