www.dummies.com/go/homebuyingkit7e) to track your estimated homeownership expenses, starting with the mortgage payment:
| Item | Estimated Monthly Expense |
| Mortgage payment | $ |
| Property taxes | + $ |
| Insurance | + $ |
| Improvements, maintenance, and other | + $ |
| Homeownership expenses (pretax) | = $ |
| Tax savings | – $ |
| Homeownership expenses (after tax benefits) | = $ |
Property taxes
If you live and breathe, escaping taxes is darn near impossible. When you buy and own a home, your local government (typically through what’s called a county tax collector’s office or an equivalent for your local town) sends you an annual, lump-sum bill for property taxes. Receiving this bill and paying it are never much fun because most communities bill you just once or twice per year. And some homeowners find it aggravating to be paying so much in property taxes on top of all the federal and state income and sales taxes they pay. In case you’re wondering, property taxes go toward expenses of the local community, such as the public schools and snow plowing (for those of us foolish enough to live where the winters are cold). Especially in higher-cost areas with few retail and commercial properties paying taxes, residential property taxes can be quite significant.
Should you make a small down payment (typically defined as less than 20 percent of the purchase price), many lenders insist on property tax and insurance impound accounts. These accounts require you to pay your property taxes and insurance to the lender each month along with your mortgage payment.
Be careful to make sure that you’re comparing apples with apples when comparing communities and their property taxes. For example, some communities may nickel-and-dime you for extra assessments for services that are included in the standard property tax bills of other communities.
| Item | Estimated Monthly Expense |
| Mortgage payment | $ |
| Property taxes | + $ |
| Insurance | + $ |
| Improvements, maintenance, and other | + $ |
| Homeownership expenses (pretax) | = $ |
| Tax savings | – $ |
| Homeownership expenses (after tax benefits) | = $ |
Insurance
When you purchase a home, your mortgage lender almost surely won’t allow you to close the purchase until you demonstrate that you have proper homeowners insurance. Lenders aren’t being paternalistic, but self-interested. You see, if you buy the home and make a down payment of, say, 20 percent of the purchase price, the lender is putting up the other 80 percent of the purchase price. So if the home burns to the ground and is a total loss, the lender has more invested financially than you do. In most states, your home is the lender’s security for the loan.
Some lenders, in years past, learned the hard way that some homeowners may not care about losing their homes. In some cases, where homes were total losses, homeowners with little financial stake in the property and insufficient insurance coverage simply walked away from the problem and left the lender with the financial mess. Because of cases like this, almost all lenders today require you to purchase private mortgage insurance (PMI) if you put down less than 20 percent of the purchase price when you buy. (We discuss PMI further later in this chapter, in the section titled “The 20 percent solution.”)
When you buy a home, you should want to protect your investment in the property (as well
