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Deciding to purchase a home is a major decision that will impact many areas of your life for years to come. In order to take the leap and make this important financial commitment, it is crucial to do your homework.
While many people do a great job of factoring in the major components like down payments, interest rates, and mortgage payments; there are many additional costs associated with purchasing and owning a home that often blindside first-time buyers.
In fact, 63% of millennials who are homeowners say they have regrets about their purchase. The number one reason for these regrets is, not surprisingly, underestimating the hidden costs associated with both buying and owning a home.
Want to avoid any unexpected surprises?
We don’t blame you.
Here are a few hidden costs associated with homeownership that you should know before you close a deal.
Renovations and Home Maintenance Costs
When a prospective buyer visits a home, they will typically take note of whether or not the space needs any upgrades or renovations. Often, these costs will get factored into the prospective buyer’s overall budget. However, there is one area that is often overlooked and that is home maintenance. “Ongoing maintenance costs and annual fees are some of the most common surprises for first-time homebuyers after they finally become homeowners,” says Zillow senior economist Aaron Terrazas.
Whether or not you are buying a home that needs to be renovated, there will be costs associated with maintaining your new living space. Just how much you can expect to pay on a monthly basis to maintain your home will vary. The best way to get a sense of home maintenance costs is to reach out to individuals who own a well-maintained home or apartment that is similar to the one you are interested in purchasing. Ask them how they manage their maintenance and utility costs and how much they need to set aside for this purpose on a monthly basis. Remember, it’s not worth having a beautiful home if you can’t afford to keep it maintained.
Setting up your new home won’t likely be cheap either. If this is your first home you might be surprised by all of the little items you’ll need to purchase in order to make your new space functional.
Of course, you’ll need furniture and appliances but you might also need to purchase a number of basics you never would have previously considered needing. For example, shelving, shower curtains, and linens—to name a few. These items can quickly add up. Again, it is wise to ask a few people how much money they needed to set aside before moving into their new homes.
Homeowners Association Fees
A Homeowners Association Fee (HOA) is an amount of money that must be paid monthly by owners who are a part of a managed neighborhood or condominium. The fees go towards maintaining common areas and shared amenities. HOAs, or condo fees, tend to vary quite a bit depending on the building or neighborhood. Before you close a deal on a home in a managed community or condominium, be sure to add the corresponding fees to your mortgage payments.
Homeowners Insurance Coverage
You are making a major investment when you buy a home, and it’s crucial that you protect that investment. Talk to an insurance advisor before you close on your deal in order to determine how much you will need to cover the costs of your home insurance.
Be sure to add these costs into your budget and ensure that your insurance costs won’t hinder you from making your monthly mortgage payments. It is not worth making an investment if you can’t afford to protect it.
Many prospective homebuyers who have inputted their key information into a mortgage payment calculator think they are well-prepared for all of the costs associated with owning a home. However, most are blindsided by property taxes, HOA or condo fees, as well as closing and maintenance costs. Don’t make the mistake of underestimating these hidden costs as they often amount to a substantial amount of money and they will have a major impact on your monthly budget. Talk to experienced homeowners who have recently gone through the home buying process in order to make sure that you are well-prepared for the costs and responsibilities associated with owning a home.