20 Home Ownership Costs That You Don’t Know About
On the surface, it seems that the costs relating to buying property are quite simple to understand. But there are many costs hiding below the surface that you need to know about.
It feels like you’ve done all of your homework.
You’ve spoken to lenders to answer the question “how much can I afford to spend on a property”?
You’ve even raised a sizeable down payment. It seems like stable home ownership is within your grasp.
Firstly, congratulations. You’ve taken some big steps towards home ownership.
Unfortunately, this is also where many new buyers trip up because they fail to ask themselves one question.
What are the additional costs involved in buying property?
The down payment and mortgage repayments aren’t the only things to concern yourself with. Unfortunately, there are many hidden costs of home ownership.
You may be wondering how many extra home ownership costs there can be. Here are 20 of them.
Cost #1 – Property Taxes
Despite the fact that they apply to everybody, many fail to account for property taxes. They assume their principal and interest repayments cover their monthly outgoings. In that respect, it seems as simple as paying rent each month.
However, property taxes can add hundreds of dollars to your repayments. Worse yet, each state has its own property tax laws.
Find out how much extra you’ll pay each year and divide it by 12. This gives you a more realistic view of your monthly home ownership costs.
Cost #2 – The Inspection
This cost comes into play before you even take ownership of the property. A home inspection plays a crucial role in the purchasing process. It’s how you’ll discover issues that you can’t see yourself.
If an inspection reveals problems, it could save you thousands of dollars. You may be able to drive the asking price down based on the results.
However, it’s still one of the hidden costs of home ownership. Furthermore, you may feel like you’ve paid for nothing if the inspection doesn’t find any issues that can save you money.
Typically, a home inspection costs a few hundred dollars.
Cost #3 – Home Owner’s Association Fees
Let’s say that you’re planning on buying a condo. Many come with several amenities that could drive down costs elsewhere in your life.
However, condo buildings also have a Home Owner’s Association (HOA) attached to them.
You’ll have to become a member of the HOA to buy the condo. This typically involves a yearly fee, which the HOA uses to cover general maintenance of the building. Some co-op neighborhoods implement similar models, so you may not be out of the woods if you buy a house.
Cost #4 – Closing Costs
Unfortunately, buyers usually have to deal with all of the closing costs when buying a property. These usually amount to between 2% and 4% of the mortgage value. For a $500,000 mortgage, you may pay between $10,000 and $20,000 in closing costs. It often depends on the location and the deal you struck with the seller.
Sometimes, you can get the seller to cover some of these costs. Even so, they’re one of the biggest hidden costs of home ownership.
Cost #5 – Insurance
The cost of insurance depends on the type of property you buy. Naturally, the larger the property, the more you’ll pay in monthly insurance premiums.
Other factors affect your home insurance too. For example, buying an older property tends to raise your premiums. Insurance companies see old electrical wiring and plumbing, which raises their risk. Your credit score can also be a problem. Even if you repay your mortgage on time, any issues with personal loans can count against you. Insurers check your credit score regularly, and sometimes adjust your premiums based on it.
Finally, you’ll face high insurance-related home ownership costs if you live in a high-risk area. Flood, volcano, and earthquake zones all lead to higher premiums.
Cost #6 – Pest Inspections
You may need to carry out pest inspections on top of a home inspection. This is particularly important when buying a wooden home. Termites can wreak havoc behind the scenes and you may not know about it until it’s too late.
Some lenders require that you carry out a pest inspection. It’s one of the smaller home ownership costs, coming in at around $200. Nevertheless, it comes at a time when you’re spending a lot of money elsewhere.
Cost #7 – Private Mortgage Insurance (PMI)
This cost relates to your down payment. If you can’t offer up 20% of the property’s value as a down payment, your lender may take out PMI. This protects them in case you default on your mortgage repayments. A low down payment creates more risk, leading to higher PMI.
Typically, PMI falls between 0.3% and 1.5%, depending on the down payment size. For the $500,000 property, this creates extra home ownership costs of between $1,500 and $7,500. Some lenders allow you to add this on top of the mortgage, rather than paying it upfront. But that means you end up paying even more in interest.
Cost #8 – Moving Costs
You may not consider moving costs as too big of a deal. But they add a few hundreds of dollars onto your home ownership costs. If you’re moving out of state, you can expect to pay even more.
Luckily, this is a one-time cost. Still, moving furniture is part of the home-buying process and your budget must account for it.
Cost #9 – Garden Maintenance
Again, this isn’t a cost that’s directly related to buying your home. However, it is one that you’ll incur over the course of ownership. Lawn and garden maintenance improve the appearance of your home. If you ever want to sell, you’ll need to keep both in good condition.
You can contract this work out, but that may cost a couple of hundred dollars each month. Doing it yourself is much cheaper, but you still have to buy garden tools. That’s not counting things like weed killers and any plants that you buy.
Cost #10 – The Appraisal
Lenders want to look at your home before they decide how much you can borrow. This requires the services of a professional appraiser, usually a real estate agent.
Sometimes, you can include the appraisal fee as part of the closing costs. However, many appraisers require the fee upfront, and it can cost up to $500. On top of that, the appraisal may come back with a result that you’re not happy with. It could end up with you getting a smaller loan, which also costs you.
Cost #11 – Utility Costs
Renters may not consider utility costs in their calculations if their rent payments cover them. However, they become one of the largest home ownership costs when you buy.
Utilities cover your electricity, gas, and water. How much you spend depends on your personal energy consumption and the size of your property. For a general sum, budget to spend about $3,000 annually on the cost of utilities.
Cost #12 – New Furniture
Everybody wants their home to reflect their personality. On top of that, it’s very unlikely that the previous owners will leave any furniture behind. You have to pay for your furniture and appliances.
If you’ve rented before, you may already have some, or even most, of the furniture that you need. However, it’s still likely that you will have to pay for more. These home ownership costs can climb into the thousands of dollars if you have to furnish the whole house.
Cost #13 – Repairs
Let’s set the scene. You’re relaxing at home and having a good day. Suddenly, you hear a clunking sound and the heating system stops working.
When you’re renting, you can rely on your landlord to cover the maintenance costs. The heating system breaking wasn’t your fault. However, homeowners have to cover the costs of any maintenance required for their properties.
This is one of the most unexpected hidden costs of home ownership. As a result, it’s best to have some money saved to cover repair issues.
Cost #14 – Interior Maintenance
As well as any major repairs, you also have to cover ongoing maintenance inside the property. Every new lick of paint costs you money. You have to spend on cleaning products, and may need to call contractors out to maintain your appliances.
These individual costs mount up to the point that ongoing maintenance can cost thousands of dollars each year.
Cost #15 – The Internet Connection
It’s hard to think that the internet wasn’t a part of daily life 20 years ago. Today, it’s everywhere. You need it for almost everything in your life, from your phone to your video game console.
However, that internet connection comes with a fee. And, it’s often lumped in with cable or a phone bill.
On its own, an internet connection comes at a monthly cost of between $50 and $200. That’s between $600 and $2,400 per year in extra home ownership costs.
Cost #16 – Security
Every homeowner wants security. Most of you will check a location’s crime statistics before you consider moving there. Even so, there’s plenty that you can do to make your home more secure. However, it all costs money.
From simple locks on your doors to cameras and alarm systems, you’ll spend on security during the course of home ownership.
Cost #17 – External Factors
You’ve bought your home and have an amazing view. In fact, the view alone is a selling point. You paid extra for it, and any future buyers will do the same.
That is until a property developer comes and starts work on the land near your house. Suddenly, buildings obstruct that once-wonderful view.
You may not see that as one of the hidden costs of home ownership. However, losing that view decreases the value of your home. That means you lose out if you ever decide to sell. Similar construction work near the property can have the same effect.
Cost #18 – Your Savings
With all of these costs of home ownership, it’s often easy to forget that you need to save money. Putting aside some cash each month prepares you for emergencies. It also means you have the money needed to help your kids through college.
Your monthly savings are a cost in their own right. That’s all money that isn’t going to the mortgage or into your own pocket.
Cost #19 – Renovations
These home ownership costs come from your desire to make the space yours. Renovations can add value to your property. However, you’ll feel the upfront sting when you pay for them.
A new kitchen can set you back an average of over $21,000. You’ll face similar costs if you build an extension or remodel the bathroom.
Cost #20 – The Essentials
After all of that, you still need to buy the essentials. Groceries and clothes cost money, as do the places you need to have to store them.
Many lenders build the cost of essentials into their calculations when working out how much you can borrow. Homeowners often fail to do the same.
The Final Word
Don’t fall into the trap of thinking the mortgage and down payment are the only home ownership costs. This list offers you an idea of how much owning a home actually costs.
Budget accordingly. Create a list of every cost you’ll face, and work out how much you’ll spend on each per month. Add it all together and you have the true cost of owning your own home. Use that as the basis of figuring out the answer to “how much can I afford to spend on a property”?