What Homebuyers Often Miss About the True Cost of Owning a Home
Buying a home is a major financial milestone, and if youâre entering the market for the first time, itâs important that you go into any transaction with as much knowledge as possible. While most of the emphasis is typically placed on down payments, interest rates, and securing a mortgage, hidden homeownership costs have the potential to significantly impact your finances.
The true cost of owning a home includes a range of ongoing expenses that can quietly strain your budget, especially if you donât prepare for them. Understanding these hidden costs before buying helps prevent financial surprises and allows you to enjoy your new home without constant financial stress.
Property Taxes That Rise Over Time
When it comes to homebuyer budget surprises, few are as impactful as property taxes. This is especially true because in most cases, property taxes increase over time, meaning youâll owe more 10 years from now than you will the first year you own your home. While buyers may budget based on the current tax bill, those amounts can change as home values increase or local tax rates shift. A home that feels affordable at purchase can become more expensive within only a few years.
Escrow accounts generally soften the impact by spreading payments out monthly, but drastic increases can still impact cash flow. In many cases, homeowners donât notice the change until their mortgage rate increases. This is a common problem in areas experiencing rapid growth.
When youâre making your budget, plan for tax increases. Factoring in potential changes rather than current rates alone provides a more realistic view of future housing costs.
Maintenance and Repairs That Never Truly Stop
Most first-time homebuyers spend years renting before they take the leap into homeownership. In fact, approximately 80% of buyers spend at least five years renting a home before making a purchase. When it comes to ongoing housing expenses, maintenance and repairs are at the top of the list. This can be especially jarring for former renters who havenât had to deal with these costs, which are generally the responsibility of the landlord.
Even well-maintained homes require ongoing care, from routine upkeep to unexpected repairs. To make things even more troublesome, these issues rarely occur on a predictable schedule. Small issues, when left unaddressed, can turn into expensive problems. Plumbing leaks, aging roofs, or HVAC failures often come with price tags that exceed what many buyers expect. These expenses donât wait for a convenient time and can wreck your budget, no matter how well-crafted it is.
Setting aside funds specifically for maintenance helps absorb these shocks. Instead of viewing maintenance and repairs as rare emergencies, think of them as a normal part of owning your own home, and build your budget accordingly.
Insurance Costs Beyond the Basic Policy
Virtually every lender requires homebuyers to have at least a basic insurance policy that covers the cost of the home. However, these basic policies may not cover every type of risk. For instance, a basic policy may cover the cost of the home in the event of a fire, but you may need additional coverage for floods, earthquakes, or wind damage. You should also consider the cost of insuring the contents of the home.
Premiums can also increase over time due to rising construction costs, claims in the area, or changes in risk assessments. Insurance companies donât typically send out notifications about these adjustments, which means youâll only notice them when your renewal notice arrives.
Insurance is a safeguard, and in an ideal world, you would never have to worry about using it. Even if you never turn in a claim, you need to consider how your insurance is going to impact your budget.
Utility Expenses That Reflect Ownership Realities
If youâre transitioning from life as a renter, you may be used to your utility bills being included in your monthly rent payments. Even if they were separate, utility costs in an apartment or small home are typically much lower than those in larger houses. Larger square footage, older systems, or inefficient insulation can all drive higher monthly bills.
Seasonal fluctuations based on the local climate also play a role. For instance, if you live in an area with frigid winters, youâll probably spend more money keeping your home warm during the coldest months of the year.
If youâre going through the first-time homeownership process, ask sellers for information about how much monthly utilities cost. This can help you get a clearer picture of what youâll be spending once you move in.
Homeowners Association Fees and Assessments
Homeowners associations (HOAs) are rapidly growing across the US, which means many of the homes that youâre thinking about buying may fall under HOA jurisdiction. HOAs generally charge monthly or annual dues to homeowners in the neighborhood that cover shared amenities and maintenance.
In addition to HOA fees, which can increase at virtually any time, you should also consider special assessments from local government authorities. Special assessments are particularly challenging because theyâre often unexpected. Major repairs or improvements can result in one-time charges that stretch budgets.
Spend some time reviewing HOA fees, contract structures, and any laws that govern special assessments before purchasing a home. Depending on the cost and frequency of these charges, you may need to look into other neighborhoods.
Understanding Ongoing Housing Expenses
The price that you pay for a home goes far beyond the amount that you agree to pay the seller and the interest that you pay to the lender over the life of your loan. It also includes a variety of ongoing costs that you need to consider when building your budget.
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