If you’re a first-time homebuyer, you’re probably already overwhelmed. You might think that a monthly payment along with your down payment is the bulk of the financial responsibilities you’re taking on.
The mortgage is just the tip of the iceberg, however. There are plenty of other costs of homeownership you need to factor in before you buy something.
You need to fully understand all of these costs so that you’re not buying something ultimately more than you can afford.
1. Closing Costs
Closing is the final step in getting a mortgage, and it’s something many homebuyers underestimate as far as how much it will cost. When you close, your loan is approved, the inspection is done, and you’re about to get the keys to your new home.
When you complete your purchase, you have a closing meeting to sign all the paperwork, and you also have to pay for several costs.
These costs include mortgage interest payments, taxes and insurance escrow payments, legal fees, lender application fees, recording fees, and title insurance.
Closing costs can average between 3-4%, but the costs vary from state to state.
2. Property Taxes
When you own a home, you pay property taxes. The bank doesn’t determine these. Instead, the city or town where you live does.
The property tax payment you owe is assessed based on the value of your home. It can be anywhere from $500 to $1,000 a month.
The average effective rate nationwide is around 1.1% of the assessed value of your home.
3. HOA or Condo Fees
These fees don’t apply to every homeowner, but if you purchase a house in a homeowners’ association or condo association, you’ll have to pay a fee monthly or quarterly. The fee covers services for the neighborhood, like garbage collection.
The fees of an HOA can rise, or they might charge an assessment for a large project, so there’s some unpredictability in these costs to be aware of.
Homeowners insurance is something mortgage companies and banks require before they’ll issue your loan. The premiums are probably already included in your monthly mortgage payment. Usually, the premiums are paid from your escrow account, which is true of property taxes in many cases.
Premiums can rise annually, and most typical homeowners policies don’t cover what are described as acts of God. That means you’ll probably need to get additional coverage for natural disasters.
The cost of your utilities can be as much as your property taxes. Electricity alone can be $100 a month or more, especially when energy costs are high.
Most homes will come with appliances, but if you’re purchasing new construction, they won’t. There are also some sellers of used homes that take their appliances with them.
You’ll probably need to buy a washer and dryer at a minimum. Most contracts stipulate that the seller will leave the dishwasher, refrigerator, stove, and potentially the microwave, but this isn’t a given.
7. Lawn Care
If you manage your lawn care, you have to set aside time, and you’re probably also going to have to buy lawn equipment. Inevitably there will be lawn maintenance tasks you can’t do on your own as well. For example, you may have hanging tree limbs or dead trees that need to be removed.
Paying someone for regular lawn care becomes a monthly expense rather than a once-in-a-while experience.
Finally, along with everything above, when you own a home, you’re responsible for all the maintenance, which is quite a shift from being a renter.
There are so many systems in a home that can need maintenance, repairs, and even replacing.
You’ll be maintaining the electrical system, the HVAC system, the roof, and the plumbing. If you’re buying an older house, expect the maintenance costs to potentially be significantly more than they would for new construction.