The hidden costs of owning a home

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The hidden costs of owning a home

Making the transition from renter to homeowner is a dream come true for many people — browsing Zillow is a practically modern American pastime. But when planning to make the dream of buying a house a reality, you need to plan for more than just the cost of the house and your potential monthly mortgage payment.

There are regular costs that you’ll have to account for, including property taxes and basic upkeep, plus unexpected expenses to save for, including emergency maintence and surprise assessments.

Here are some of the costs you need to add to your budget spreadsheet when figuring out how much house you can afford and how much you need to save.

Property taxes

When you buy a home, you have to pay property taxes on the value of the home. Rates vary across counties, but the average is less than 1.5% of your property’s value.

Many lenders will require that you pay property taxes through an escrow fund set up by your bank.

Read about what to do if your property taxes go up.

Homeowners insurance

Homeowners insurance is essential to protect your investment in your home, and if you purchase your home via financing, it’s a requirement from the bank. Like with property taxes, lenders often require that you pay homeowners insurance through an escrow fund.

The average cost of homeowners insurance in the U.S. is $1,100 per year, but the amount varies widely by area and individual home.

Read more about the cost of homeowners insurance.

Private mortgage insurance

If you are putting less than 20% down when you purchase your home, your lender will require you to purchase private mortgage insurance, which would protect the lender if you stopped making payments.

The cost of PMI is usually anywhere from 0.3% to 1.2% of the principal balance of your loan. These payments, like homeowners insurance and property taxes, are generally paid by escrow.

The good news: once you have 20% equity in your home, private mortgage insurance (PMI) generally no longer a requirement.

Mortgage protection insurance or term life insurance

Mortgage protection insurance and term life insurance can both be used to protect your family and keep them in your home in the event of your death.

If you're buying a home with a partner, one of these insurance types can ensure that if one of you dies, the other will be able to continue living in the house. Mortgage protection insurance does this by paying the death benefit directly to the bank to pay off the mortgage; term life pays the benefit to your beneficiary, so they can use it for mortgage payments, other living expenses or whatever they need to.

Term life insurance is generally cheaper and a better option for most people.

Read more about mortgage protection insurance and term life insurance.

Preventative maintenance

Your home is made up of various assets, including equipment, appliances, fixtures and finishes, said John Bodrozic, co-founder of HomeZada, a home management app.

“All of these assets require some recurring preventative maintenance to keep each asset working properly and efficiently,” said Bodrozic. And that maintenance comes with a cost.

Bodrozic says these costs can range from small consumable items, like the cost of buying new air filters three or four times a year, to significant service costs like appliance replacement or repair.

On average, there are about 30 to 40 preventative maintenance tasks to complete over the course of a year, said Bodrozic. It’s important for homeowners to plan for those tasks and make room for them in their budget.

Emergency maintenance & repair

When unexpected maintenance issues happen in a rental, your landlord is only a phone call away. But when you’re a homeowner, you’re the landlord.

“Whether it’s a leaky faucet or a problem with your air conditioner, maintenance and repair issues may come up more often than you think,” said Sacha Ferrandi, founder of Source Capital, which provides hard money loans in Texas, California, Arizona and Minnesota. “It’s just one extra responsibility you have to take on and always be prepared for as a homeowner.”

Landscaping

For many people buying homes with yards, there’s often little knowledge of the true cost of landscaping, said Alison Bernstein of Suburban Jungle, a real estate group that caters to urbanites moving to the suburbs.

“Plants die and need to be replaced, weeds happen, lawns must be mowed and treated, hedges need to be cut back,” said Bernstein. “Some years will be more costly than others, but this can become a significant expense.”

Read our tips on how to save money on landscaping.

Homeowners Association dues

For people buying homes in co-op buildings or other planned developments, homeowners association dues are another expense to plan for.

These dues, which can cover things like maintenance and security, can range from as little as $50 per month to more than $500, said Gill Chowdhury, of Warburg Realty in New York City.

But HOAs can also do periodic assessments, during which they collect additional fees for expenses not explicitly covered by monthly fees, like capital improvements.

“If you’re part of a community, the board could decide certain capital improvements are necessary,” said Chowdhury. “You may not agree with these improvements, and they may not even be executed in the most efficient manner, but you’re still liable for the assessment.”

In addition to possible assessment fees, you should know that your regular monthly HOA fees can increase, too.

“Because their mortgage is fixed, a lot of buyers think their monthly cost won’t change. That’s really dangerous – and incorrect,” said Heather James, an Atlanta-based real estate attorney at Cook & James. “If a property is under the purview of an HOA, those fees can and do rise too either as annual dues increase or for special one-time assessments.”

Read about the lessons one first-time homebuyer learned when buying a home.