5 Hidden Costs of Homeownership
Whether you’re planning on buying a property short term or long term, there are costs of homeownership you should prepare yourself for ahead of time. In addition to mortgage payments if you borrow money to buy the property, there are additional costs that property owners often don’t expect. Here are 5 additional costs of homeownership you should expect to pay when you buy property.
1. Property Taxes
When you rent, you are not responsible for the property taxes on the property, but when you become a homeowner, you’re expected to pay property taxes, so when you’re trying to determine what your property payments will be for the year, the quarter or monthly, don’t forget to factor in property taxes.
2. Home Maintenance
When you live in a rental property, most maintenance is performed by the landlord or a property manager. When you become a homeowner, those maintenance costs fall upon you. When you purchase a home, all maintenance items should be considered when it comes to your overall budget. Will you want to replace all the appliances? Will the property need new windows or a new roof? Does the home need basic upgrades? Some people suggest you allocate 1% of your home’s worth for maintenance costs every year, but the reality is that 1% is likely the minimum – you should plan on more than 1% maintenance costs each year as a homeowner, and if you plan on any larger renovations, bet on the costs being even higher.
3. Mortgage Insurance
If you take out a mortgage when you buy a property and you put less than 20% of the cost of your property down, you’re normally required to have Private Mortgage Insurance (PMI). PMI protects lenders if the borrower defaults on their loan. PMI is charged annually, and it will typically cost 0.5% to 1% of the entire loan amount. The payments are generally paid each month rather than in a large one-time payment. If you plan on taking out a mortgage loan, and you don’t have 20% to put down, expect to add private mortgage insurance payments to your other monthly bills.
4. Supplemental Insurance
As a homeowner you’ll need to have regular home insurance to protect your home or property from typical things (plumbing issues, roof leaks, etc.) that homeowners encounter. If you live in an area prone to natural disasters or weather-related issues (floods, tornadoes, earthquakes, hurricanes) you will want to purchase supplemental insurance to make sure your home is covered.
5. HOA Fees
If you’ve been renting your previous residence, it’s likely you haven’t had to pay Homeowners Association (HOA) fees for your apartment or rental. Should you buy a house, condo or townhouse in a neighborhood with common areas, a clubhouse, pool, or any other kind of community meeting places, it’s likely you’ll move into a neighborhood with an HOA. HOA fees can vary in terms of what the HOA covers within the community so make sure you check before you buy.
So there you have it, 5 hidden costs of property ownership. For more real estate tips and information, visit my blog at geraldlucas.com.