Hidden Costs of Buying/Owning a Home
There are few things more satisfying than buying your first home and staking a claim to the time-honored dream of American homeownership. More than a right of passage, it’s an investment in your future and a satisfying benchmark of arriving in adulthood.
However, beyond the feeling of fulfillment lies the anguish of additional costs—some of which first-time buyers may not be entirely aware of. Sure, most folks entering into a purchase will be well acquainted with costs such as down payment, monthly mortgage payments, real estate taxes and assorted closing costs, but there are others that are less clearly identified.
Let’s take a look at some of these “hidden costs,” though it’s probably better to call them “unexpected expenses,” and determine the best way to prepare for them so you're not caught off guard and your home purchase remains a positive experience.
Home repairs and light renovation
Once you move in, you may discover that the home of your dreams needs a little TLC. That’s not uncommon. Older homes, especially, may have accumulated the kind of gentle wear and tear that requires some renewal to bring it back to a level of aesthetic brilliance or even basic functionality.
Recent research suggests that new homeowners on average have to pay almost $27,000 to make their homes move-in ready. That’s likely a bit more than the typical homeowner has in mind. Most individuals understand that some cosmetic alterations will be necessary, but not everyone is thrilled about replacing HVAC systems.
To a certain degree, upgrades and repairs are inevitable. However, try to discover issues ahead of time and work the costs into your negotiations, pre-sale.
The great thing about a newly built home isn’t just that the structure itself is new, but that the appliances will be, too.
While it’s certainly an added bonus to buy a brand-new home with zero wear and tear on things like refrigerators, washing machines, dishwashers, air-conditioning systems and heaters, you may not be as fortunate: The home of your dreams may have a different appeal and an older age. If so, be prepared to finance repairs to the above appliances.
Costs can run several hundred dollars per appliance, more for a spacious, state-of-the-art refrigerator and freezer or a house wide HVAC system. These amenities can be financed, of course, but they shouldn’t be ignored. Always do your due diligence ahead of time to know exactly what the state of your new home’s appliances are in and prepare accordingly.
Homeowner’s insurance and homeowner association fees
Not every new homeowner will consider these hidden costs, but that doesn’t take away from the monthly pain when it comes to paying for them. And while these costs/fees may have been carefully explained ahead of time, the reality of paying these month after month can still be a little jarring.
Homeowners association fees
Homeowners associations (or HOAs) are established in certain planned communities to provide extra benefits to homeowners, particularly in communal areas. But these extra benefits come with a cost.
These costs are typically referred to as dues and they are set by an HOA board (made up of actual homeowners). If you live in a townhome, apartment or individual house where HOA dues are applicable, you expect to pay them on a monthly or annual basis.
Every home in the U.S. is subject to some kind of homeowners insurance—and it’s there for a reason. Homeowners insurance is a way to protect owners when something tragic happens like a natural disaster. In areas where hazards are more common, homeowners insurance is typically more expensive.
The costs of homeowners insurance are a combination of the area (and the hazards known to be common in it) along with the appraised value of your home. While each property within each region is slightly different, the average cost of homeowners insurance for a $250,000 home is $1,383 a year.
For homeowners who’ve recently purchased, that could mean an extra bill each month for approximately $105 - $120 per month. Manageable, but not exactly a drop in the bucket.
Anyone who’s ever rented will already be acquainted with certain utilities. They are essential to keeping the lights on, the gas coming through the pipes and the water pouring through the faucets.
But when you graduate into homeownership, you’re catapulted into a whole new realm of utility payments. And there’s not much you can do about it except prepare to dig deeper into your wallet each month. Utilities that homeowners are typically on the hook for include the following:
- Water and sewer
- Garbage pickup
- Natural gas
If you live in a rural area, you may have to contend with the following in addition to what we’ve listed above:
- Septic repair and maintenance
- Wood or wood pellets for heating
Hidden costs don’t need to be hidden
We’ve made the point throughout this piece that while various hidden costs do add to the overall price of your home, if you’re aware of them in advance the pain of paying them is much more bearable. Being cognizant of all your financial responsibilities is the best weapon against being caught off guard.
Remember the rule of thumb
It’s widely recommended that new homeowners should anticipate hidden costs in the neighborhood of 1-4% of a home’s purchase price. In addition to your down payment, have this amount reserved and ready to go once you move in. These funds will be necessary to cover everything from HOA fees, taxes, the cost of new appliances, hidden damages, utilities and more.
Home inspectors mitigate unwelcome surprises
To help you in your preparation, make sure you contact a reputable home inspector before buying and get a heads up on the true state of the home you are about to buy. If you receive an evaluation that tells you the house will need more improvements than expected, you may want to hold off on the purchase–or renegotiate the price.
Always empower yourself through due diligence and don’t forget to factor in all the costs and fees that come with owning a home. While no one enjoys shelling out for hidden costs, this alone should not dissuade you from owning a home when the right opportunity presents itself.