When you add up all the hidden costs of house ownership, you can get a genuine picture of affordability. Before you start looking for a home, the best time to get a feel of the prices involved is before you start looking.
While most potential buyers are aware of large-ticket expenses like mortgage payments and property taxes, minor charges like homeowner’s insurance, energy bills, and maintenance all contribute to the overall cost of owning a house. Considering them before you start buying might help you avoid unpleasant shocks that deplete your bank account.
Here are some frequent “hidden costs” that you may encounter and how to plan for them.
Home Repairs and Cosmetic Updates Hidden costs
You’ll probably come upon stuff you wish to upgrade or fix depending on the age and condition of the house.
According to statistics, 65 percent of active buyers aren’t seeking a fixer-upper. However, according to the study, the average for-sale property would require roughly $30,000 in repairs, and new homeowners should budget $26,900 to make their new home move-in ready.
That’s a lot more than the $10,000 to $15,000 that the average millennial expects to spend on repairs and improvements, according to Thumbtack’s poll.
The most costly job was inspecting, repairing, or replacing heating and air conditioning systems, which cost an average of $3,615.
New Appliances
Appliances, like everything else in the house, have a lifespan.
The appliances in a freshly constructed home should be brand new and under warranty. If you’re buying a resale house, the requirement to replace or repair appliances varies greatly based on their age and condition.
Most appliances will set you back several hundred dollars at the very least for the most basic models. If you want all the bells and whistles, a refrigerator replacement might cost thousands of dollars. You may also have to pay for installation, which may be costly if it requires alterations to electrical or plumbing wiring.
Utility Bills Hidden costs
If you’re a first-time buyer, the cost of utilities could surprise you, especially if your previous rental home included utilities.
For people in urban areas, utilities could include:
- Water and sewer
- Garbage pickup
- Electric
- Natural gas
- Cable
- Internet
Rural utility costs could include:
- Water
- Septic repair and maintenance
- Garbage pickup
- Electric
- Propane
- Wood or wood pellets for heat
- Internet
Larger homes are likely to cost more to heat and cool, and older homes may be less energy efficient unless they’ve had new windows installed and/or the insulation upgraded.
Homeowner’s Insurance
Homeowners’ insurance costs vary based on your region, the type of policy you get, any discounts you may be eligible for, and your insurer.
In general, for every $100,000 in house value, you may anticipate spending around $35 each month. For example, if your property is worth $300,000, basic coverage will cost you around $105 per month. In hazardous places, the cost is likely to be greater.
Because ordinary homeowners’ policies seldom cover rebuilding or repairs after an earthquake or flood, you may want to — or, in the case of flood insurance, must — purchase a supplemental policy.
If you’re buying with a mortgage, the lender will typically roll the cost of insurance into the monthly mortgage payment and pay the premiums on your behalf.
Homeowner Association fees
HOAs, or homeowner associations, are non-profit organizations that can set and enforce regulations, supply basic services like water, and maintain and repair community facilities like pools, roads, and landscaping.
HOAs are often found in condominiums, townhouses, and planned single-family home communities, and they are governed by a board of homeowners who levy monthly or annual dues.
Dues vary greatly and are subject to change based on community requirements. For example, an organization might raise dues or levy special assessments if it has neglected upkeep or wishes to construct something new, such as a new park.
How to prepare for hidden costs
Calculate how much you want to put down on the property, and then determine how much you’re willing to spend on closing expenses and upgrades. A reasonable rule of thumb is to set aside 1-4 percent of the home’s cost for unexpected expenses.
Look to your home inspection for a preview of what to expect
The easiest approach to estimating repair and upgrade expenses is to have a property evaluated before making an offer to purchase it. A qualified inspection can evaluate electrical and plumbing systems, structural soundness, and the roof’s condition, and some inspectors may even provide cost estimates for different repairs. Even apparently little repairs add up, so understanding what your property may require ahead of time will help you budget.
Once you know what repairs are required, you can add them into the house’s price to estimate the real cost of ownership and compare it to comparable properties that may or may not require as much work.
Plan for Updates and Repairs
Consider what needs to be done right away, what can wait, and what you might be able to do yourself if you’re handy. Be practical. When you’re working and/or caring for your family, some house renovations, such as painting the outside or renovating the kitchen, might take a long time.
Get to know your Appliances
You should also request that your inspector test the appliances during the house inspection and that your real estate agent obtains the seller’s age of the equipment, as well as the normal cost of utilities during the summer and winter months.
Research Home warranties
A house warranty, which is a short-term service contract that helps home purchasers cover the expenses of repairing or replacing specific mechanical systems within the first year of ownership, can help alleviate some of the financial stress. Home warranties normally cost between $300 and $800, depending on the amount of coverage, and can be paid monthly or in one big payment. You may either ask the vendor to cover the cost or purchase one yourself.
Factor in HOAs
Because HOA dues are set for the entire year, they should be simple to factor into the budget. Request a copy of the HOA’s most recent three-yearly financial reports to see whether it is spending money on normal maintenance to get a sense of how steady those expenditures are likely to be in the long run. HOAs that put off renovations might wind up with costly projects that need special assessments or significant dues increases.
Add Up Hidden costs for maintenance
If you’re thinking of buying a house with a yard, think about how much time and money you’ll need and want to spend on it. Put that in your budget if you don’t want to buy lawn tools or would rather hire someone to do it.
Remember that your list doesn’t have to be thorough; it only has to get you near to your budget. With that monthly cost in mind, you can assess whether or not the property you wish to buy is within your budget.