Home ownership is a goal for many. Down payments and mortgage payments are the big items you think about but it is the hidden costs that cause stress if you are not prepared for them. Some costs happen at purchase time, some happen every month, and some can be a surprise. Here is what you need to know about all of them.
Early Unexpected Costs
Many of these costs have to be paid before you even move into the home and they can easily total more than $10,000.00 you weren’t expecting to pay.
House Inspections and Appraisals
There are things your home inspector won’t tell you but you should find out about any possible major issues. You can use the information to negotiate a lower price or refuse to buy. Inspections cost between $300.00 and $600.00. Some mortgage lenders and insurance companies require an inspection certificate when you buy a house.
All lenders require an appraisal before writing up the mortgage agreement. (You will also find out if you are paying too much for the property.) Appraisals also cost between $300.00 and $600.00.
Closing Costs
The US national closing cost average is $6900.00 (Statistics from 2021.) The total amount is usually 2% to 5% of the selling price. Fees and costs may vary according to local jurisdictions. Closing costs paid by the buyer usually include some or all of the following:
- Adjustments. Per-diem interest, taxes, HOA fees (if applicable), etc.
- Application Fee.
- Appraisal Fee.
- Attorney Fee.
- Credit Check Fee.
- Origination Fee.
- Property Survey Fee.
- Recording Fee.
- Title Search Fee.
- Transfer Tax.
- Underwriting Fee.
Homeowner’s Insurance
Mortgage lenders require homeowner’s insurance before writing the loan. It also makes sense that you want to protect your biggest investment. The average cost of insurance for a $300,000.00 home is $2285.00 per year–about $190.00 per month. This usually doesn’t include special coverage like flood insurance which adds to the cost.
Moving Costs
Professional movers cost $100.00 – $300.00 per hour depending on the number of staff needed. Save money by doing your own packing. Boxes cost money and even food and drink for friends and relatives can get pricey.
Equipment and Appliance Costs
If you are moving from an apartment to a house with a yard, you may need to buy things like a lawnmower, string trimmer, gardening tools, and even some additional hand tools to maintain the place.
Previously owned houses are often sold with fridge, stove, and dishwasher but new houses usually don’t come with any appliances. You probably need to buy a clothes washer and dryer at the minimum.
Monthly Costs
When renting some or all of these costs are covered by your rent payment. As a homeowner, you are responsible for all of them. They are an unpleasant surprise for many.
Property Tax
The average annual property tax is 1.1% of assessed home value in the US. It is paid monthly as part of your mortgage payment. The mortgage company remits it to your local jurisdiction. You can choose to remove it from your monthly payments and remit directly to the city, town, county, etc. You may get a discount for paying in full yearly.
Homeowners Association (HOC) and Condo Fees
HOCs and condo associations charge a monthly fee that covers exterior property maintenance like lawn mowing, snow removal, garbage collection, etc. The average fees are $2292.00 annually–$191.00 per month. Be prepared for special assessments to cover things like roofing, exterior renovations, parking lot paving, and more.
Utilities
Utility bills–electricity, heating fuel, recycling, water, sewer, internet, cable, security, and phone–average $429.33 monthly. That is $5152.00 per year or about 10% of the average US yearly income.
Maintenance and Repairs
The average cost of home maintenance and small repairs is $1000.00 per year–about $85.00 per month. These are usually small DIY jobs needing inexpensive parts and tools. This includes things like:
- Lawn care. Fuel and electricity to operate equipment.
- Replacing. Things like taps and door handles, weatherstrip.
- Painting. Small jobs like a room or trim.
- Sealing. Gaps and cracks to weatherproof or keep pests out.
- Insulation. Small jobs like rim joist insulation.
- Etc.
The Unexpected Large Costs
Some large expenses can be postponed until the money is available. These include things like kitchen and bathroom remodels or upgraded decks, patios, and fences. Ignoring some large expenses has dire consequences.
- Roof. Average replacement cost is $9460.00.
- HVAC. Average replacement cost is $5000.00 to $11,000.00.
- Plumbing. Plumbing repair costs can be a few hundred dollars to several thousand–depending on your needs. New hot water tanks and piping are expensive and may require wall and framing repairs that add to the cost.
- Electrical. Small electrical repairs can turn very expensive if your existing wiring is aluminum. Aluminum wiring was used in houses between 1965 and 1972. It is 55 times more likely to be a fire hazard than copper.
Have a Home Repair Budget
Many financial planners recommend saving 1% – 2% of your home’s value in a repair account to be financially prepared for the costs of home ownership. The average home price in the US is just over $400,000.00–meaning you should save between $4000.00 and $8000.00 per year to pay for major maintenance and upkeep. You should be able to upgrade your home with each repair and increase its value.
