What Are the Hidden Costs of Home Ownership? 

Purchasing a home is one of the most expensive investments a person can make in their lifetime, but the cost doesn’t stop at the monthly mortgage payment. There are many small, but necessary payments homeowners need to make to comply with their mortgages and the law, at large. 

If you’re wondering whether you can afford all the monthly payments that go along with buying a new house, Homes.com has an online feature that could help you out. 

The Monthly Payment Calculator automatically adds an estimated home insurance fee, property tax, and utility cost to your predicted monthly payment. Find the calculator between the “Property Details” and “Similar Homes Sold Nearby” sections of any Homes.com listing.  

Home Insurance 

While insuring your home isn’t technically required by state or federal law, banks and other lenders typically won’t grant you a mortgage unless you agree to buy insurance. So, unless you plan on buying a home without the assistance of a loan, home insurance will prove to be a necessary investment. 

Home insurance, also known as homeowners insurance, ensures your home (and your wallet) will be protected in the event a disaster causes substantial damage to your property. Standard home insurance policies normally cover natural disasters like fires, hurricanes, and lightning. However, these policies often refrain from covering lesser common natural disasters, like floods and earthquakes. To protect your home in these instances, you would need to purchase a plan with greater coverage.  

Living near a body of water increases your chance of dealing with flooding and other water-related damages, so check out our article “What to Know Before Buying a Waterfront Property” if you’re considering purchasing a home on a lake or beach. 

Homeowners insurance also protects your home in case you’re a victim of a robbery. You can insure personal belongings through buying a standard plan, whether those belongings are stored inside your home or at another location, like a storage facility. Pricier belongings, like antiques or fine jewelry, can only be covered partially under a standard policy but could be covered more extensively by purchasing additional insurance. Another feature home insurance offers is liability protection, which grants legal protection in case you, one of your family members, or even your pet, accidentally damages property belonging to your neighbor. 

You can obtain homeowners insurance through a local or national insurance company, many of which offer free quotes online. Insurance rates differ depending on your geographic location, the price, age, and condition of your home, the amount of coverage you’re seeking, your credit score and history, and your insurance deductible, which is the price you agree to pay out of pocket whenever your insurance needs to be used. 

Homes.com calculates home insurance estimates using the sale value of the property you’re viewing online. Feel free to replace this value (and others found in the calculator section) in order to receive a more accurate estimated monthly payment. 

Property Taxes

 Just as the government taxes your income and the goods you purchase, the property you own is also subject to taxation.  

Property taxes are mandatory annual payments due to your local government as a fee for owning property. Property taxes are applied to both residential and commercial property, the proceeds from which fund your county government, municipal government, or school district, depending on where you live. 

The amount you pay in property taxes depends heavily upon location, as tax rates tend to differ from county to county. Other factors that affect your property tax cost are the age, size, and overall value of your home. Newer, larger, more valuable homes are usually taxed more. 

Homes.com assumes a property tax rate of 1.2% but you can adjust the values to receive an accurate estimate. 

Utilities 

Utility costs come with any property you move into, whether you’re renting or buying. They consist of necessary resources that make your home inhabitable, so definitely factor these costs into your home buying budget!  

Utilities include water, electricity, gas, internet, cable, sewer, and trash collection. Many of these utilities are automatically included in your monthly payments as a renter, but these costs can become separate, additional expenses once you purchase a home. 

Utility costs can vary depending on where you live. If upsizing from an apartment or condominium unit to a single-family home or townhouse, expect an increase in your monthly utility costs, as you will likely use more of these resources to keep your home comfortable. 

Homes.com utility estimates are state averages retrieved from surveys conducted by the U.S. Energy Information Administration. 

HOA Fees 

Not all homes are in communities with established homeowner associations, but if the home you plan on purchasing is, prepare to fork over a mandatory monthly or annual fee to help keep it afloat. 

A homeowner association is a board of residents responsible for spearheading and approving changes within a neighborhood or subdivision. Most notably, HOAs oversee the maintenance of common grounds and the upkeep of amenities within communities, including but not limited to clubhouses, swimming pools, and fitness centers. 

Homeowner associations can be organized within condominium complexes, townhome complexes, or subdivisions of single-family homes, so there’s a chance you’ll encounter a few in your home search. 

For more information about HOAs, check out our previous article, “What Is an HOA, or Homeowners Association?” detailing the responsibilities and pros and cons of these organizations. 

HOA fees are often issued monthly and can range from $100 to upwards of $1000. Fee amounts can differ depending on location and the type of community the HOA supervises (condo, single-family homes, etc.) Condominiums tend to have pricier fees compared to other housing options due to their incorporation of utility and maintenance costs. Condos also typically offer costlier amenities than other housing options, which can result in residents paying higher HOA fees. 

The fees can cover basic maintenance and upkeep of the complex, minor or major construction projects that the community wants completed, and in some cases, utilities for the property. 

Residents typically can’t opt out of joining an existing homeowner association upon moving into a new home. Similarly, residents cannot opt out of paying the corresponding fees after moving into a community with an HOA. Avoiding or missing payments can lead to residents being charged additional fees or even sued by the association. In extreme cases, a homeowner association can foreclose on a home if the resident winds up in excessive debt from unpaid fees. 

It’s important to factor HOAs into your home search criteria since annual or monthly fees can take a toll on your budget. 

While HOA fees are generally left blank in the Monthly Payment Calculator, feel free to update the text box with an estimate of your own in order to receive a more accurate estimated monthly payment. 

Buying a home is a pricey investment, but one that is also worthwhile! Be wary of additional costs that may be hidden within the fine print of contracts so that you can maintain financial stability throughout your homeownership journey. 

Original Post – Homes.com