Owning a home can be a blessing or a curse. Truly, homeownership can lead to great wealth or great financial ruin. If you’re thinking about buying a house, consider these potential expenses before diving in. While you might already be paying for some of these things while renting, it is still important to have an idea of what you are getting into when purchasing a home.
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Property Taxes
It can be easy to brush off how much money you can spend by paying property taxes – especially if you WANT the home NOW. Property tax can be charged by state, county, or local authorities. It is wise to do your homework before signing on the dotted line, because property tax is one of the most expensive pieces of homeownership.
If you’re looking to buy a condo, consider homeowner association (HOA) fees. This is typically a fixed tax to pay for exterior building maintenance and grounds care.
A great way to check on what the property insurance for a residence is would be to check the local tax assessor’s office. There, you will find truckloads of information on tax laws that may affect you as a homeowner.
Insurance
It is extremely important to protect your assets. Your home is probably the most expensive object you may ever own. Homeowners insurance is vital because it can protect you against fire, burglary, and other losses. I highly recommend shopping around for the best insurance available, and be sure to take into consideration this necessary cost.
Maintenance
I remember when we bought our first home. We knew that there would be maintenance costs here and there, but we had no clue how much. Within a year of moving in, we had to replace our dishwasher, dryer, washer, and outside balcony support beam. Thankfully, we had learned how to easily pay for emergencies.
There are many other non-emergency and predictable scenarios that you might have to pay for. Homeowners have to pay periodically for lawn and yard care. This can be a major cost, but the more you do yourself the less you pay. Also consider seasonal costs for pest control. Who wants ants raiding their kitchen? Occasionally you may have to maintain heating, ventilation, and air-conditioning systems as well.
Utilities
You’ll want to make sure to figure out your monthly utilities cost. Utilities can include electricity, phone, gas, and water. You can cut down on your utilities cost by purchasing a reasonably small home. The less rooms you have to heat, light, and power, the less money you spend. Make a list of your utilities and compare it with your budgeted income.
Upgrades
If you’re buying a fixer-upper, please don’t forget to estimate the cost of replacing the floors, installing new cabinetry, and redoing the landscaping. While you may get a great deal on these properties, the total cost of ownership might be higher than you expect.
Surround Yourself With Knowledgeable People
Buying a home shouldn’t be an impulsive decision. Surround yourself with people who know what they’re doing, and you’ll come out ahead. Realtors can be a great help, but don’t stop there. Do you have friends or family who are real estate savvy? Ask them to provide an unbiased opinion. You need someone to tell you if you are getting in over your head.
Real estate is a valuable investment – as long as it is pursued properly. Peter expands on this topic in his excellent article “Buying A New House Is Not Cheap.” Read it for clarification on mortgage interest, down payments, and other miscellaneous charges.
Plans fail for lack of counsel, but with many advisers they succeed. -Proverbs 15:22 NIV
Have you already bought a home? What are some other costs to consider before diving in?
I think most people become so enamored by the concept of home ownership that they ignore these costs. I have read that the average costs of maintenance fall between 1 and 2% of the purchase price per year!
Is property tax really “one of the most expensive pieces of home ownership?” I guess it varies by region, but in Knoxville, Tenn. our property tax rate is $2.36. A nice 3 bedroom, 2 bath home costs right around $115,000. That would put property tax at $2,714 a year, which is less than rent for the year ($460/month), and I would imagine, less than you’d spend on home maintenance through the year.
Re: utilities – that is one thing I love about renting. My water is included. I’ve never even seen what a water bill looks like! :) Very good points!
It so varies by region. Just outside NYC, on Long Island, you can easily pay $6000 and up for property taxes.
I know that in many municipalities in New Jersey, property taxes exceed $12,000! Yes, we do have the highest property taxes in the nation, but these numbers are just accepted now.
Khaleef, my mom lives in NJ and $12k is about she pays in RE taxes for a pretty ordinary house. Can you image paying off your mortgage and STILL having a monthly payment of $1000???
It’s horrible. That’s more than I currently pay for rent!
You also have to look into HOW these things are paid. We’re in the process of closing and found out our property may have to be paid semi-annually up front! That’s a lot of money to pay out in closing (where we are going the property taxes are already high).
We also have to pay homeowners insurance for the first year up front.
You make a good point. A lot of these costs could blindside you at the closing or before closing if you’re not expecting them. A lot of those costs are expected to be pre-paid at closing or paid in full up front. Homeowners association dues are like this too for some people – having to pay up to 5-6 months up front at closing.
Here in Georgia, five months of taxes at the closing table is normal–on a purchase. But on a refinance, it could be up to 15 months!
That’s because in most counties taxes are only collected once a year, and if you happen to be refinancing the month before the due date, they’ll collect the full 12 months coming due, plus a three month cushion for escrow.
It evens out, since tax escrows collected (but not paid) by the original lender will be refunded, but you may have to wait 30 days to get it back. It’s a real shocker at the closing table though.
I think closing costs are another bombshell. Usually they tell you how much cash you need to have ready for closing, but it boggles the mind all the odd things that cost so much. Often other things just come up and you end up shelling out more cash they you thought. You do it since you are in the heat of the moment and it doesn’t hit you until later how ridiculous it is.
Also people don’t factor in the commission when selling a house. If you bought a house and instantly wanted out and sold it for the same price you would lose 6% real estate commission right off the top.
Have you already bought a home? What are some other costs to consider before diving in?
I haven’t bought a house yet, but I’m considering about buying my first home this sumer / fall. Things I’m considering, size, location to public transportation and stores, cost, necessary repairs, condo or single family home, etc. Lots on my mind. I foresee a lot of coffee meetings with relators and friends and family.
I see people my age (23) buying houses and I want to send them posts like this. I’m afraid that so many people don’t know what they’re getting into when they buy a house. All they see is the tax credit, but they don’t take into account how much money flies out of their pockets to keep care of the thing!
Austin @ Foreigner’s Finances
Funny. I’m 23 and think it’s pretty doable.
But how many people you know think the same thing?
None. But then I tend to do things a little differently… Like buying a vacation / retirement home before a real home. Although I might change my mind about that one…
A good estimate for maintenance costs are 1 to 2 percent of the homes value. if it’s worth $100,000 then yearly maintenance is about $1000-$2000.
After I bought my first home I was shocked to find out that I needed close to an extra $3000 for furniture, toiletry accessories, appliances, etc.
I knew there would be costs, but that $3K was unexpected.
Luckily I had enough in savings to where it didn’t hurt me too much.
You may want to take an inventory of what you think you’ll need and do a rough cost estimate before taking the plunge