As we become older, we take on full-time jobs, more freedom, and more responsibilities. One of the many responsibilities in adulthood is finding a place to live. If your choice of housing includes purchasing a home one day then this article will walk you through the 9 hidden costs of buying a home and how we shouldn’t settle for the sticker price. The purchase of home can be stressful because it is a big financial decision, but when we break down all of the numbers it can become less overwhelming.

As previously mentioned, there are 9 overlooked costs when buying a home, and knowing these are very important because it sets us up for success when deciding which home to buy. Hidden fees may include but not limited to homeowners’ association fees (commonly known as HOA fees), mortgage rate, closing costs, maintenance, property taxes, renovations, utilities, home insurance, and private mortgage insurance.

Homeowners Association Fees (HOA). A homeowners association fee is a regular fee to homeowners, paid monthly, quarterly or annually, for a list of services provided in the designated area. For example, an HOA fee may cover streetlights, neighborhood signage, snow removal, trash removal, gate security guard, public pool, etc. The more services your HOA provides, the higher the HOA fee will be. A homeowner’s association may also provide restrictions in your neighborhood. Therefore, prior to purchasing any home it’s important to ask  if the property has a homeowners association and if they do, discover what the fees, services and restrictions are prior to purchasing the property. This fee is not applicable to all properties.

Mortgage Interest Rate. If you need a loan to purchase a home, then you will be approved for an interest rate on your mortgage. This interest rate will vary depending on your credit score, income, debt, down payment, and length of the loan. Mortgage interest is an amount that you will pay annually for living in your property. This is highly variable depending on your income, debt, credit score, down payment, and length of your mortgage. Interest rates have jumped substantially in 2023 and are currently averaging between 5% to 8% on a mortgage loan.

Closing Costs. Closing costs are extra costs associated with the “closing” of buying a home, or the final steps of buying a home. These costs may include appraisal fees, realtor fees, title insurance, and inspections. Closing cost fees may be negotiated in the contract. It is also possible to reduce closing cost fees but buying or selling a home without a realtor.

Maintenance. The ongoing cost of maintenance seems to get overlooked when purchasing your first home. Landscaping, gutter cleaning, fertilization, house cleaning, snow removal, and other tasks are all ongoing expenses that you’ll need to factor into your budget when purchasing a home. U.S. household pay an average of $3,435 each year to outsource maintenance costs.

Property Taxes. Property tax is the tax that you will pay each year depending on your home’s value. This tax may change each year and will vary upon your location. Americans pay an average of $2,216 in property taxes each year.

Renovations. Renovation expenses may be applicable if you purchase a fixer-upper or if you desire to change the homes interior or exterior design. If you are interested in renovating your home, be sure to estimate how much you will need to spend on equipment and supplies, as renovations can add up quickly.

Utilities. Utilities may include electricity, gas and water. Some properties may exclude water if you have a well, as well water is usually free. Therefore, it’s important to find out what all is included in your utilties bill. In 2023, it is estimated that an American living in Indiana will pay approximately $367 per month which is $4,404 per year. The size of the property and usage will fluctuate this monthly fee.

Home Insurance. Home insurance is a type of insurance that covers a private residents property in the event that something tragic were to occur. Home insurance will vary based on your properties location, the choice to purchase add-ons, and the year and condition of your home. The national average for home insurance in 2022 was $2,770 per year.

Private Mortgage Insurance. Private mortgage insurance, also known as PMI, only applies to homeowners that do not put 20% on a down payment of your property. PMI rates can be substantial as this is in addition to your mortgage interest rate. This interest rate ranges between .19% to 1.86% of your mortgage. A homeowner can remove the PMI rate once they have 20% equity in their home.

These are the 9 hidden costs of buying a home and after breaking down each of them, buying a house should seem a little less frightening, and more manageable. Buying a house can be a stressful situation but when we plan for the unexpected, we can avoid a lot of these stressors.

References

Cost of living in Indiana (2023). SoFi. (n.d.). Retrieved January 27, 2023, from https://www.sofi.com/cost-of-living-in-indiana/#:~:text=Average%20Utility%20Costs%20in%20Indiana,%24367.51%20in%20monthly%20utility%20costs.

Current indiana mortgage and refinance rates. Bankrate. (n.d.). Retrieved January 27, 2023, from https://www.bankrate.com/mortgages/mortgage-rates/indiana/?mortgageType=Refinance&partnerId=br3&pid=br3&pointsChanged=false&refinanceCashOutAmount=0&refinanceLoanAmount=306000&refinanceLoanTerms=30yr%2C5-1arm%2C5-6arm&refinancePoints=All&refinancePropertyType=SingleFamily&refinancePropertyUse=PrimaryResidence&refinancePropertyValue=510000&searchChanged=false&showingStacked=all&ttcid&userCreditScore=740&userFha=false&userVeteranStatus=NoMilitaryService&zipCode=47432

Kasperowicz, L. (n.d.). Average homeowners insurance rates by state in 2023. Insurance.com. Retrieved January 27, 2023, from https://www.insurance.com/home-and-renters-insurance/home-insurance-basics/average-homeowners-insurance-rates-by-state#:~:text=The%20average%20home%20insurance%20rate,country%20at%20%245%2C317%20a%20year.

Peter Warden MyMortgageInsider.com Contributor . (n.d.). How much is PMI (private mortgage insurance)? My Mortgage Insider. Retrieved January 27, 2023, from https://mymortgageinsider.com/how-much-is-pmi-private-mortgage-insurance/