What Are Costs Associated With Homeownership?

Mar 21, 2022 | Mortgage Guides

Uncovering the True Costs: A Comprehensive Guide to Homeownership Expenses

Many first-time homeowners are focused on affording the mortgage on their dream home. Once they see a figure that’s within budget, they may think that they can finally afford a new house. But these same potential homeowners often don’t account for the hidden or additional costs of homeownership. Some of them are upfront and predictable, such as fees for closing on your mortgage. However, others will vary wildly depending on the home’s condition, location, and utilities.‍

What costs can you expect to pay once you become a homeowner? Keep reading to learn all about them so you can choose the right house within your price range!‍

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Mortgage Upfront Costs

When buying your home, expect to pay several one-time upfront costs. These are some of the typical expenses that you should prepare to pay before settling into your new home.‍

Closing Costs

These are all the fees that you should expect to pay when you close the mortgage on your chosen house. This includes lender fees, title insurance,  and appraisal fees.   Also, if you establish an escrow account for the payment of taxes and insurance, you may have additional amounts required at closing to fund the escrow account initially.‍

Down Payment

Your down payment is an initial, upfront payment that is counted towards the overall purchase price of the house and your loan amount. The amount you will be required to pay for a down payment depends on the type of mortgage loan you choose. For example, conventional loans typically need at least a 20% down payment, but a VA loan or USDA loan can be taken out with no down payment requirement.

‍Don’t let a lower down payment be the only deciding factor. While some loans may require a higher down payment, you still benefit from a lower principal as your monthly mortgage payment will be lower, and you will pay less over the loan’s lifetime. ‍

Property Fees And Taxes

Your local government taxing authority, such as the city or county, may require you to pay property taxes and other fees when you purchase your home. Examples of such costs are transfer fees and real estate taxes.  You will then be required to pay property taxes annually.  The amount of property taxes you will pay varies by taxing authority and the taxing authority’s assessed value of your home. 

‍Ask your loan officer how much you may expect to pay to the taxing authority. This should already be factored into your early disclosure, the Loan Estimate.   

‍Most lenders will require an escrow account to be established to ensure timely annual payments for property taxes.‍

Mortgage Insurance and Homeowners Insurance

You will be required to have homeowners insurance on your new home and may need to pay for mortgage insurance as part of your mortgage loan. Mortgage insurance and homeowner’s insurance are not the same things.

‍Lenders typically require mortgage insurance when you put down less than 20% on your home purchase or in a refinance situation when the loan-to-value is more than 80%.  Mortgage insurance protects the lender in case a borrower defaults on their payments.

‍Homeowner’s insurance covers your property if an accident happens on it or it is damaged and provides liability coverage for the property owner.  The property insurance carrier will determine the replacement value of your home, which will be the minimum amount of homeowner’s insurance you must carry.  The cost of your homeowner’s insurance policy will vary depending on the carrier, the value of your home, and the amount of liability coverage you carry.

‍Additionally, suppose your property is located in a particular flood hazard area (subject to a major flood event within 100 years) as determined by FEMA. In that case, you will also be required to purchase an additional flood insurance policy to cover your residence.  ‍

Home Maintenance And Repair Costs

Home repairs may be necessary depending on the age and condition of the home you plan to buy. There have been many cases of homeowners who think they’ve gotten a bargain, only to be surprised that necessary repairs weren’t spotted during inspections prior to purchase.

‍Generally, the older the house you’re buying, the more likely you’ll have to spend for repairs, rehabilitation, or even a complete replacement of utility lines, systems, and plumbing. Though a newer home may come at a higher price tag, you are less likely to spend on replacements and repairs if it was newly constructed or if the home has been properly maintained.‍

Utilities

The recurring water, electricity, and gas costs will depend on your location. A general rule of thumb is that the larger the property, the larger the utility bill. Estimate this to get an idea of how much to add to your monthly mortgage payments so you can gauge if you can actually afford a certain house.

‍A homeowners association may already cover some common utilities, so ask the seller or real estate agent which ones are part of your HOA fees. The seller can give you an estimate of their average monthly utility costs.

Landscaping And Lawn Care

Landscaping is a must to keep your lawn, trees, and plants healthy and looking nice. The larger the lawn, the more you may need to spend for regular maintenance, including irrigation or watering. Add extra if there are trees or hedges surrounding your prospective home. These will need to be trimmed and regularly watered.

‍This isn’t just to make your house look pretty. Fallen branches and leaves can damage your roof and clutter your drains. Homeowners associations also typically have lawn and yard maintenance rules, so consider how much the potential upkeep will cost you!‍

HOA (Homeowners Association) Fees And Condo Association Fees

Your desired neighborhood may have an annual or monthly HOA fee. These are fees collected by the homeowners association to provide funds for maintaining common areas in the neighborhood, such as tennis courts, clubhouses, and swimming pools.

‍Condo association fees are fees paid to the condominium association to maintain common areas and some utilities. Examples include elevators, garbage disposal, and pest prevention. 

‍It’s a good idea to know the amount of the annual HOA or condominium association fees before you purchase a home so that you can factor it into your monthly property-related expenses.

Home Furnishings

A home isn’t complete without furniture and appliances! While you may have factored in the purchase price of your house into your budget, you should also leave some wiggle room to furnish your home.

Big-ticket items such as a refrigerator and furniture for your new home may cost a lot. Consider investing in well-built, high-quality choices so that you get the most and best use out of them, although keep in mind that these often come with a higher price tag as well.

‍Start drawing up a list of what kind of furniture and appliances you’ll need in your home so you can estimate how much to save for them. Add this rough figure to your mortgage costs. You may try to convince yourself that you can skimp on these items or delay these purchases, but they are the key to a comfortable home!‍

We Can Help You Find The Best Deal For Your Future Home!

When you purchase a house, you aren’t just paying for the cost of the property. You need to account for many other expenses in your budget. While some of them are upfront, others are continuous and will require careful financial planning.

‍Need help preparing for homeownership? Consult Wesley Mortgage for expert advice on mortgages and property purchases! We’ll help you find the best loan type for your budget and desired property!

Start Your Homebuying Journey Today with Wesley Mortgage

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