Wait, I have to pay to be part of an association of homeowners?
Perusing home listings can certainly be deceiving. Sure, the numbers can be daunting but there are also frightening hidden costs lurking behind those posted values. There is much more to purchasing a home than just the downpayment and monthly mortgage payment. Knowing the true cost of living in your new home will help you choose the best property for your budget.
Just scrolling through the available properties on real estate websites is enough to make you break out in a cold sweat. Seeing $400,000 is shocking, and rightly so; buying a home will likely be one of, if not the single most, expensive purchase you will make in your life.
If you have crunched the numbers and figured out what you will need for a 10-20% down payment and a monthly mortgage payment, you are off to a great start! But you will still need to drill down a little further. You will have monthly and annual expenses in addition to your mortgage. These can include a variety of things from taxes to HOA fees.
What Hidden Costs are Lurking Behind That Listing?
We are about to take a deep dive into real estate, so buckle up!
Closing Costs. First up is closing costs. I feel like this is a term that most people are familiar with but may not fully understand what it entails. Closing costs are actually a group of expenses that you will be expected to pay once you decide to move forward with buying a home.
It includes all sorts of unpleasant fees such as inspections, escrow, and application processing. That last one seems a little absurd, but it's a fact! Some of these things you may be able to get out of paying, or at least convince the seller to take on a portion of them. Others are determined by your state or local government and are non-negotiable. When it is all said and done, closing costs could equal 2-5% of the total purchase price of your home.
Here are some common fees associated with closing costs:
- Escrow Fee
- Appraisal Fee
- Inspection Fee
- Application Processing
- Credit Report Fee
- Origination (Lending) Fee
- Title Search
- Title Insurance
- Legal Fees
Not all of these costs may apply to you and you should be provided with a list of closing costs a few days before the actual closing. But by that point, you are pretty locked in, so it would be a good idea to investigate and get a general idea beforehand.
Property Taxes. Property taxes can be somewhat of a foreign concept to renters. You likely assisted with paying them as they were probably included in your rent, but now you will be responsible for them all on your own. Property taxes vary greatly depending on where you choose to buy a home. New York and New Hampshire have some of the highest property taxes in the country.
You will likely need to pay property tax twice a year. The amount you pay is based on two things, the assessed value of your (new!) home and the tax rate of the local government. Thankfully, there are calculators online that can help you ballpark this amount.
HOA Fees and Neighborhood Fees. Nothing in life is free, not even friendly neighborhood living. If you move into a subdivision, a gated community, a condo, or even an apartment co-op, be prepared for homeowners association fees (HOAs). A club you may not even want to be part of, but are still forced to pay club dues to.
Similarly, houses on private roads may also charge fees annually or semi-annually. In both scenarios, these expenses help fund a plethora of things. Many times they go towards community maintenance and upkeep, especially if the neighborhood has shared spaces such as a pool or clubhouse. They can also help to cover road paving and maintenance, and even a leaky condo roof!
Homeowners Insurance. Next, is insurance, between medical, dental, auto...it is an expense that infiltrates nearly every aspect of your life. Homeowners insurance covers a lot and it can be super helpful, such as in the case of a break-in or natural disaster.
Speaking of natural disasters, they are one of the factors that can determine your insurance costs. In addition, your property value, history of claims, and deductible amount all play a role. Like other insurance costs, you will be able to choose a provider and a level of coverage.
Utilities. The utilities you pay for will depend on where you live. If you have city water, expect a water bill. Other common utility fees include electricity, sewer, gas, waste, and who could forget Netflix?!
Maintenance. You may be able to get away with paying a little less for regular maintenance depending on how much of a handyman (or woman) you are. But yard care, gutter maintenance, and driveway care can certainly add up over time.
Renovations. Finally, it is a pretty safe bet that you won’t be forever content with the interior or exterior of your home. Alternatively, maybe you purchased a fixer-upper! Renovations, from new paint to a new roof are required from time to time.
How Do You Plan For These Revealed “Hidden” Costs?
There are a few simple steps that will work to keep you from overextending yourself. The primary goal is to get a general idea of all, and I mean all, the costs associated with a prospective home. Determine the mortgage down payment, closing costs, and all the little necessary expenses that add up monthly or annually. You want to gauge not only if you can afford to buy the house but if you can afford to truly live there longterm.
Once you have decided on the perfect new pad, keep these tips in mind.
● Factor all ongoing expenses into your budget. Taxes aren’t going anywhere anytime soon, hence the saying “death and taxes”. Your friendly neighborhood HOA isn’t likely to disband either. Be sure to immediately put all known regular costs into your budget.
● Don’t overlook maintenance and renovations. Chartreuse walls aren’t cool in 2025? Don’t let the costs of regular home upkeep surprise you. Try to set aside some funds for the unexpected window repair or carpet cleaning.
● Be prepared for utility and insurance increases. Those who aren’t new to adulting know that bills rarely stay the same, and it will probably be a cold day in hell before insurance costs decrease. Knowing that your rates could go up at any time, it isn’t wise to purchase a home that will result in you living paycheck to paycheck.
Whew. That was a lot, hopefully, you haven’t run from your computer screaming! The upside is that these costs are no longer hidden to you. Now that you know what to expect you can prepare. And in the words of Alexander Graham Bell “Before anything else, preparation is the key to success”.
And away we go
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