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You have the money saved for a down payment, and you’re house shopping. It’s an exciting time. You can’t stop thinking how good it’s going to feel to say goodbye to landlords forever and in the words of that one Seinfeld episode, be the master of your domain.
But not so fast happy home buyer. Before you sign that purchase contract here are some things you need to take into consideration so that a year from now you won’t be tearing out your hair because you’ve learned – the hard way – that your down payment was just the start. There are a lot of hidden home costs you didn’t take into consideration.
According to an article published on USNews.com, buying just about anything, from houses to a simple toothbrush holds various hidden costs.
The fact is that the money you have to spend on your home isn’t limited to just your down payment or even your monthly mortgage payments. So what are these hidden costs? Here are the eight of them.
Your mortgage payment
Your mortgage payment isn’t exactly a hidden cost but it’s important to know what it will be before you sign on the dotted line. This is actually one of the hidden costs that’s predictable and that you could factor into your monthly budget. It will naturally be based on how much you pay for the house, the amount of your down payment and your interest rate. A good lender, and we certainly hope you’ve found one, should be able to give you a very close estimate as to what your payment will be before closing. However, it’s important to understand that it may fluctuate a bit until the day you get the key to that new home.
Property taxes
These taxes are assessed by your county and can be substantial. Most counties allow homeowners to pay half their taxes in January and the other half in June. It’s likely that you could have your property taxes included as part of your monthly mortgage payment and this is something you should seriously consider. The pro of this is that instead of having to pay your taxes 50% at a time you would be paying only 1/12th each month, which should ease the burden. But if you choose to do this make sure you factor in those taxes when estimating your monthly payments. Also, be aware that if you renovate the house, make significant improvements or if it increases in value your property taxes will probably go up. For that matter, they’ll probably increase every year anyway because that’s just what happens.
Homeowner’s insurance
How much homeowner’s insurance costs vary by state and region. It could cost you anywhere from $500-$1500 a year depending on where you live, the value of your house and the amount of coverage you buy. You could choose to bundle this insurance with your auto and life insurance, which should earn you a very nice discount. You could have the cost of your homeowner’s insurance also included in your monthly payment. If you choose to do this it’s called PITI or Payment Including Taxes and Insurance. You should definitely discuss this issue with your mortgage company or broker so you’ll have a good idea of what your total payment would be if you include these costs. Of course, you should then ask yourself if you could afford this or not.
Hazard insurance
This is insurance to cover emergency situations such as a flood, earthquake or hurricane. You may not need this given where you live but it’s always better to be safe than sorry so you should check them out. And if you decide you need to pay for hazard insurance make sure to read your policy very carefully. For example, flood insurance generally does not include water damage not caused by a flood. If your basement floods because your water heater failed, too bad. That will be on you. In short, it’s always important to read the fine print so that you’ll know what you’re paying for.
Homeowners’ association, condo or co-op fees
If you’re buying a townhouse, a condo or a co-op there will be a fee you’ll be required to pay monthly or annually to maintain the building and grounds. Also, some single-family homes have homeowners’ association dues. This is generally true if your house is located in a subdivision or neighborhood that has common property such as a pool, a play area or open space. If you’re buying in a gated community there may be tennis courts, security guards, and a clubhouse and you’ll be charged for these common amenities, which could be $200 a month or even a lot more. As explained in Investopedia.com, the more upscale the amenities are, the more you are expected to pay each month.
Utilities
When you rented some or all of your utility costs were probably included in your rent. If not, you at least, got a taste of what these expenses could be. However, the odds are that when you buy a house you’ll have some extra bills beyond just electricity. This could include gas, sewer, water and trash removal. Some cities provide trash removal and others don’t. Where we live we’re required to pay for our trash removal, which is $75 every three months. So make sure you check this out.
Normal maintenance
One of the biggest benefits of renting is that you didn’t have to worry about routine maintenance. But now you will. This is a wildcard in that it’s difficult to know what will wear out or break and what it will cost. But it does happen. You need to put aside some emergency money to fix that roof if it starts leaking, unclog that kitchen sink, replace that garbage disposal or stop those pipes from dripping. The best answer to this is to budget a couple hundred dollars a month for these unexpected expenses. If not, you might end up accumulating a lot of debt that can compromise your financial situation.
Yard and pool care
If your new house comes with a pool be prepared to pay a good deal of money for its upkeep. If it doesn’t, you need to try to determine how much you will need to budget to cover routine outside expenses. You may be planning on taking care of your lawn yourself but you will still need to hire some professionals from time to time for heavy duty things such as tree trimming, tree removal or deck or patio repairs.
It can be a bit scary
When you add up all of these hidden costs you could be looking at a pretty scary number. But it’s important to know what that number is before you sign a sales contract. In fact, knowing that number should help you choose a house that you could really afford instead of one that will leave you wishing you’d never purchased it.
