So, you’ve decided to stop renting an apartment and taken a large dip into your life savings for the 20% down payment on a new home. You’ll be stuck with a mortgage that’s taking up a third of your take-home pay, but your real estate agent has assured you that your new home is an investment that will grow in value over time, citing the adage, “location, location, location.”
One thing your agent may have failed to mention, however, is that your monthly mortgage payment is just one of the ongoing expenses you’ll need to contend with as a homeowner.
Here are five other ongoing costs associated with owning a home that you should be aware of and budget for so that your plans don’t get upended by unexpected expenses.
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1. Property taxes
Owning land or a house means paying property tax annually, but how much you owe can vary quite a bit based on your location and the size and value of your home. In large part, your property tax will be based on the assessed value of the home.
In areas with increasing property values, the results of these assessments will also rise, along with your property tax burden. In hot markets such as Atlanta, Tampa, and Charlotte, North Carolina, property values are on the increase, and so are the taxes to be paid.
If you just purchased a fixer-upper, your home’s improvements are also likely to lead to a higher assessment and, hence, higher property taxes.
Property taxes also vary geographically. Your local government will set the tax rates based on the needs of the municipality, county, or school district. Local politicians sometimes raise property taxes to pay for projects like road repairs, new buildings, or other types of new infrastructure.
Before agreeing to purchase a new home, it is prudent to research the area’s property tax rates and determine how much they are anticipated to increase over the coming years and decades.
In areas that are particularly prone to extreme weather like hurricanes, home insurance premiums can easily exceed $5,000 per year.
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2. Homeowner’s insurance
How much homeowner’s insurance will you be paying each month? Is your home’s geographic area prone to natural disasters, such as hurricanes, flooding, and tornadoes? These types of extreme weather events have become more frequent and severe in the areas most affected, and home insurance rates have increased in response.
While the cost of your house may have been lower than other surrounding areas, you might want to pay attention to the price of insurance. If you’ve taken out a mortgage, your mortgage lender is likely to require homeowner’s insurance. The age of the home and types of material or specialized structures are likely to influence the premium.
Plus, check out the history of claims in the neighborhood. A large number of claims is likely to push insurers to charge higher premiums for homeowners in the area due to the perception of higher risk.
In Florida, for example, some insurers have decided to drop coverage altogether, citing the potential high cost of claims or payouts for damages. That’s leaving homeowners scrambling to look for other insurers, which are likely to charge much higher premiums.
When buying an older house, it’s important to find out whether you’ll need to hire professionals to undertake costly and time-consuming repairs to bring outdated plumbing or electrical systems up to snuff.
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3. Maintenance and repairs
You’ll need to maintain your house, and that will cost you time and money. If you can’t afford to have a handyman on call, you’ll end up doing the maintenance yourself. Roofs, gutters, lawns, sidewalks, and pest control are among the items that should be at the top of your checklist for regular maintenance.
Repairing the handle fixture on a toilet will be easy, but complicated repairs, such as a leaky connection under the kitchen sink, will require a professional, and that means paying for labor (not cheap) and parts.
You’ll also need to make sure that your washing machine and dryer, refrigerator, stove, water heater, and air conditioners are properly maintained to avoid potentially expensive replacements.
How old are the maintenance systems? Old water pipes and electrical wiring pose risks. Tearing down walls and digging trenches to replace them can be costly.
Before committing to the purchase of a new home, it’s important to understand what sorts of expensive repairs or renovations you may need to tackle in the next five or 10 years.
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4. Homeowners association (HOA) fees
If your home is in a community with a homeowners association (HOA), you’ll have an additional recurring cost to contend with. HOA communities charge fees tied to shared spaces such as landscaping, parks, and clubhouses, and amenities such as basketball courts, playgrounds, and community centers.
In addition, there may be costs associated with infrastructure such as sidewalks, roads, and drainage systems, as well as security and administrative costs. There might also be special assessments when the HOA needs additional income to cover unexpected costs or a shortfall in funds.
In Florida, for example, following the Surfside condominium collapse in 2021 due to corroded rebar in concrete, condominium owners had to come up with thousands of dollars in addition to their monthly fees to be compliant with legislation that requires buildings three stories or higher to conduct structural inspections and subsequent maintenance and repairs.
5. Utilities
Paying for gas, water, and electricity can add significantly to the cost of homeownership over time. The size of your home can lead to higher electricity expenses, while a large lawn and garden can use up significant amounts of water during summertime. The same goes for heating homes during wintertime. Typically, homes in areas with extreme climates — especially those with sweltering summers and cold winters — face higher utility bills.
Older homes with outdated plumbing and electrical systems tend to be less efficient than newer homes, and that can also lead to high costs. Your family size can also contribute to high costs. A large household — say a family of five — might use more water and electricity than a smaller family of three.
The takeaway
Everyone knows that purchasing a home is a major decision, but many first-time home buyers fail to take into account the myriad ongoing costs, beyond a mortgage payment, that they’ll need to keep up with over the long term.
Considering these additional costs of homeownership can be just as important as a home’s purchase price when evaluating whether you can afford the new home you hope to buy.
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