When you’re preparing to buy a home, you know to expect certain expenses like mortgage and insurance payments. But there are many other costs associated with buying and owning a home that can derail you financially if you aren’t prepared. Let’s take a look at some of the hidden costs of owning a home. Knowing what to expect will help ensure that you don’t overextend yourself.
First of all, let’s talk about what you’ll be expected to pay when you close on a home. Some buyers, especially first-time buyers, are shocked when they learn what fees come due when closing on their purchase. You should expect to pay up to five percent of your purchase price on various fees including mortgage interest, lender application fees, escrow payments for taxes and insurance, title insurance, and recording fees.
Property taxes are another expense that can take homeowners by surprise. The amount you pay in property taxes varies from one city to the next. Depending on where you live, this can amount to several hundred dollars a month. The average rate nationwide is about 1.1 percent of the home’s value but can vary widely from neighborhood to neighborhood. You can expect to pay property taxes the entire time you own your home, even after you’ve paid it off.
If you live in a planned community, then you will likely also be on the hook for HOA or condo fees. These are typically charged monthly or quarterly and cover expenses for services that the entire community uses, like snow plowing or mowing. You may even be charged special assessments from time to time if your association needs to make improvements such as installing a new security system or making repairs to sidewalks.
Don’t underestimate how much you may need to spend each month on basic utilities. These fees can often amount to hundreds of dollars each month and can vary from month to month. In the spring your electric bill may be considerably less than it is during a winter cold snap. If you know someone in the neighborhood where you’re looking to buy, you can ask them how much they spend a month on utilities on average. Don’t forget to include things like internet access and cable service.
Maintenance and repairs
The typical homeowner spends about one percent of the value of their home on yearly maintenance and repairs. But this number can also vary depending on what kind of home you own. Single-family residences are typically more expensive than condos or attached houses. Common maintenance expenses include lawn care, house cleaning, and gutter cleaning. Some larger repairs can be quite costly, including replacing a furnace or roof.
Things homeowners insurance doesn’t cover
While homeowners insurance is an expected expense, it doesn’t cover everything. You may end up having to pay for costly repairs for things that are considered “acts of God”. For this reason, you may need to pick up additional insurance like flood or earthquake insurance. This kind of insurance can be expensive, especially if you live in an area that is prone to these types of disasters.