Homeownership is a noble goal, and there are creative ways to get funding for it. However, we don’t think about the hidden homeownership costs beyond the down payment and the monthly mortgage. There are also closing costs, and these add up quickly. Before you contact a realtor or seek pre-approval from the lender, build your emergency fund separate from the down payment. An emergency fund prepares you for the unexpected expenses of homeownership, and you can avoid excess debt to care for these expenses. Here are some hidden costs of homeownership.
Closing Costs
One of the biggest costs of homeownership is the closing costs. Most lenders want your home to be appraised, so expect an appraisal fee. You’ll also have to pay the inspection fee after someone inspects the home you want to buy. Lenders charge an origination fee for processing your loan, so include this in your budget. You’ll need to pay commissions to your realtor and you’ll have to pay for title insurance. There is also a title search fee and this is to find out if there are any tax liens against the home.
If you’re putting down less than 20% on your home, you’ll need to pay private mortgage insurance. This insurance protects the lender in case you default on the loan. This is common for borrowers who buy their homes using an FHA loan. If you’re getting a VA loan, you’ll need to pay a funding fee.
Repair Costs
Homeownership means that you’ll always have to repair something, and these costs get expensive depending on the repairs that are needed. Foundation problems are an expense that you’re not always prepared for. It costs between $2000 and $8000, depending on the nature of the problem. Foundation cracks are among the most prevalent foundation issues homeowners face. Electrical problems are also common for homeowners. Other common issues are roof damage, water heater replacement, water damage from a flood, and a broken HVAC system. During your first year of homeownership, build your savings so you’ll have the funds to pay for these repairs.
Property Taxes are One of the Biggest Costs of Homeownership
Every year, homeowners pay property taxes. To make matters worse, these taxes may increase over time and cost just as much, if not more than, the mortgage itself. Your property taxes are based on the value of your home. The local government calculates how much you owe by multiplying the tax rate by the current value of the home. The tax assessor is the one who calculates everyone’s property taxes and mails the bills to homeowners. You have the right to contest the amount you owe in taxes. When you don’t pay property taxes, a lien is placed on your home, and you could lose your home.
Home Renovations
Most homeowners will renovate their homes, and the costs vary, depending on the type of renovations you’re doing. If you get a loan for renovations, this will be an ongoing expense since you’ll make payments on the loan. To save money on home renovations, focus mainly on the ones that will increase your home’s value the most. These include the kitchen, bathroom, home office, and yard.
Homeowners Association Fees
If you live in a neighborhood governed by a homeowners association, you’ll pay monthly fees to the association. Most homeowners associations, or HOAs, have guidelines that homeowners must follow. If you violate the rules or don’t pay the monthly fees, you’ll have to pay fines. The HOA uses the monthly payments to cover the maintenance of the community.
Home Insurance
You need home insurance to cover the costs of damage in the event of unfortunate situations. Unfortunately, home insurance does not cover damage from natural disasters such as floods and earthquakes, so you’ll need to purchase additional insurance to cover damage from those disasters.
Pest Control Expenses
Sometimes, termite infestation occurs in homes, and if you find yourself in this situation, you’ll need pest control services. The price varies, and pest control isn’t just for eliminating termites when they’re around your home. Some families use these services every few months to ensure that pests aren’t invading their homes.
Moving Costs
Now that you have signed the paperwork and paid the closing costs, it’s time to move from your current location to the new home. Moving expenses are costly, but there are ways to make the move more affordable. Declutter and donate or throw away items you don’t want. If possible, ask relatives and friends to assist with packing and transporting boxes to the new home. Keep in mind that peak moving times are during the spring and summer months, so save money on moving services by moving during an off-peak time, such as fall or winter, if you can. Look for free packing supplies. You can find them at supermarkets, dollar stores, neighbors’ homes, Facebook Marketplace, and home improvement stores.
Utilities and Daily Living Expenses
Water, gas, and lights are vital to a comfortable home life. You’ll pay for these utilities every month, and sometimes energy companies raise utility rates. Then there’s the cost of groceries, Internet service, trash pickup services, and gas for your car. You’ll need to budget for these expenses in addition to the other costs of homeownership.
Earnest Money
Earnest money is an upfront payment you give the seller after he accepts your offer. Earnest money shows the seller that you’re serious about buying his home. If everything goes well and you buy the home, you get the earnest money back. If problems arise at the seller’s home during the inspection and appraisal process, you’re entitled to a refund of the earnest money. However, if you back out of the deal for other reasons, then the seller keeps the earnest money.
In light of these costs, you wonder if homeownership is worth the expenses. It depends on your overall financial goals, what you’re currently paying in rent, your income, and the stability of your job. Before you buy a home, ask yourself if you’re financially, emotionally, and mentally prepared for this stage of life.