Hidden Costs of Homeownership: Watch Out for These Rising Costs Before Buying a Home
Updated July 22, 2024 at 2:29 pm
Purchasing a home is a dream for many, symbolizing stability, investment and personal achievement. But beyond the initial price tag, there are hidden costs that can quickly turn the dream of owning a home into a financial nightmare.
From unexpected repairs to rising property taxes, these unforeseen expenses can turn your dream home into a financial burden. Before signing on the dotted line, make sure you understand the full scope of homeownership costs that go beyond the mortgage. Preparing ahead and budgeting for the hidden costs of homeownership can make it less likely that you’ll face financial surprises or regret down the road.
Vault’s Viewpoint on the Hidden Costs of Homeownership
- Homebuyers should be financially prepared for homeownership costs that include more than the principal and interest on their mortgage.
- Property taxes, homeowners insurance premiums and utility costs have increased in recent years and are anticipated to continue rising.
- Homeowners association fees and condominium association dues are also rising due to inflation and increased insurance premiums.
Prepare for These 6 Hidden Costs of Owning a Home
With mortgage rates exceeding 6%, higher home prices and inflation squeezing household budgets, it’s important to know about the true cost of homeownership. Maintenance, taxes, insurance, and unexpected repairs have always been part of owning a home, but many of these expenses are on the rise.
According to a study by Clever, a real estate agent network, the combined costs of homeownership—beyond the principal and interest on a mortgage—reached nearly $18,000 annually in early 2024.
Here are some of the hidden and not-so-hidden costs you need to be aware of.
Property Taxes
Before you buy a home, you can check the previous year’s property tax bill to estimate your own expenses. Depending on the jurisdiction, your home may be reassessed every one to five years. Given the increase in home values in recent years, along with inflation impacting local government and school budgets that depend on property taxes, there’s a good chance your property tax assessment will increase.
The average property tax bill on a single-family home in the U.S. is $4,062 in 2024, according to ATTOM Data Solutions. That represents an increase of 4.1% over 2023.
Your property tax bill is based on your home’s assessed value and the tax rate. In 2023, the average tax rate nationally was 0.87%, up from 0.83% in 2022. Property taxes vary widely from one location to another.
Depending on your lender and loan program, you may pay your property taxes through an escrow account. Your lender will collect money with your mortgage payment to set it aside to pay your property taxes, which are often collected annually or biannually. This can make it easier for you to budget. If you pay property taxes separately, you’ll need to set aside those funds on your own.
Homeowners Insurance
Homeowners insurance premiums depend on a wide range of factors, including the age and size of your home, construction materials and its location. Increasingly severe and more frequent storms, wildfires, tornadoes and floods, along with the rising cost of construction materials and labor for repairing or rebuilding damaged homes have led to higher home insurance premiums in many areas.
In 2024, the average homeowners insurance rate is $2,601 annually or $217 monthly, according to Insurance.com, an online insurance marketplace. That premium provides $300,000 in dwelling coverage and liability with a $1,000 deductible. If your home value is higher or you live in an area with higher home insurance costs, your premium could be much more costly.
For example, Oklahoma is the most expensive state for homeowners insurance. The average rate there is $5,858 annually, according to Insurance.com. In Hawaii, homeowners insurance averages just $631 per year.
Mortgage Insurance
If you buy your home with a down payment of less than 20% or finance it with a mortgage backed by the Federal Housing Administration (FHA), you’ll need to include mortgage insurance in your housing budget.
Your lender will calculate your mortgage insurance premium based on your credit score, your down payment and loan balance for a conventional loan. Conventional loans with a down payment below 20% usually require private mortgage insurance (PMI).
Private mortgage insurance typically ranges from 0.5% to 1.5% of the loan amount annually, often paid in monthly installments. For example, a $400,000 loan would require $2,000 to $6,000 annually in private mortgage insurance, adding $166 to $500 per month to your payment. You’ll have to continue making PMI payments until you’ve built at least 20% equity in your home.
FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% of the loan amount and a monthly premium for 30-year loans with a down payment of 3.5% of 0.55%. On a $400,000 loan, the monthly mortgage insurance would cost $2,200 per year or $183 per month. FHA mortgage insurance lasts for the entire 30-year loan term.
Homeowners Association (HOA) Fees
According to the Community Associations Institute, approximately 30% of homeowners live in a community with a homeowners association (HOA). HOA fees can vary widely depending on the amenities, location, and type of community—whether it’s a condominium, co-op, or homeowner association. On average, homeowners pay $291 per month, as reported by Doorloop, a property management software company.
Rising costs for these associations, including property insurance, maintenance, and staffing, are expected to lead to increased dues for homeowners. To prepare for potential dues increases, homeowners should attend association meetings and review meeting minutes regularly.
Utility Bills
Homeowners typically face substantially higher costs for their home warranties and expenses in their new homes compared to renters. This increase is often due to utilities, such as having more space to heat and cool, as well as additional appliances like washers and dryers.
According to Move.org, a moving services platform:
- The average electric bill is $135
- The average water bill is $39
- The average gas bill is $91, totaling $265.
These expenses don’t include potential additional bills for sewer services, trash removal, streaming services, and internet.
Maintenance and Repairs
Homeowners will also need to watch out for maintenance and emergency repairs. The amount you’ll spend will vary widely depending on the age and condition of your home, along with unexpected equipment failures that occasionally occur.
If you have a home inspection before you purchase your home, you can ask for an idea of what you’ll need to repair or replace and when.
For example, you can ask about the approximate age of the appliances and systems in the home and get an estimate of how long they will last and the general cost to install new ones. You can also compare maintenance contracts on some equipment such as your heating and air conditioning system that may extend its working life.
Many financial advisors recommend budgeting between 1% and 4% of your home value annually for maintenance and repairs. The median home sales price in May 2024 was $419,300, according to the National Association of Realtors. Given the high cost of homes, setting aside funds for maintenance and emergency repairs can be significant. For a median-priced home, this would range from just under $4,200 to nearly $17,000.
Frequently Asked Questions
What is a Major Expense Associated with Homeownership?
For many homeowners, the most expensive cost of homeownership is their utility bills, according to a survey by Clever, a real estate agent network. In their 2024 survey, homeowners paid an average of $5,362 for their utilities.
What is a Hidden Cost of Homeownership?
While homeowners expect to pay their mortgage principal and interest each month, 88% said they were surprised by the true cost of homeownership in a survey by Clever, a real estate agent network. The survey found that the largest percentage of homeowners (29%) were surprised by their property taxes, which averaged $2,904, followed by maintenance (24%), which averaged $4,392.
Are the Costs of Homeownership Skyrocketing?
Yes. While higher than average mortgage rates and high home prices are the main culprits, the cost of property taxes and homeowners insurance are also increasing. Overall, a recent survey by Clever, a real estate agent network, found that homeowners spend an average of nearly $18,000 on homeownership costs other than their mortgage principal and interest in 2024, an increase of nearly 3% over 2023.
How Can I Prepare for the Costs of Owning a Home?
To avoid buyer’s remorse after buying a home, you can estimate all the potential expenses you’ll face as a homeowner. Create a budget that includes everything from your mortgage principal and interest to your property taxes, homeowners insurance, homeowner association dues, utilities and regular maintenance costs. You can get some of this information by asking your lender, real estate agent, home inspector and the listing agent of the house you buy for their input. Then add a buffer for emergencies and make a long-term plan for future home improvements.
Article Sources
At Newsweek Vault, our team of dedicated writers and editors are not just experts in their respective fields but also committed to delivering content that meets the highest standards of journalistic integrity. We analyze primary sources, including peer-reviewed studies, authoritative government sites and insights from leading industry professionals and ensure that every piece of information is researched, fact-checked and presented with accuracy and relevance.
- Property Taxes on Single-Family Homes Up 7 Percent Across U.S. in 2023, to $363 Billion. Attom Data. Accessed on July 20, 2024.
- Average homeowners insurance rates by state in 2024. Insurance.com. Accessed on July 20, 2024.
- 2023 U.S. National and State Statistical Review. Foundation for Community Association Research. Accessed on July 20, 2024.
- HOA Statistics for 2024 – Making Sense of Benchmarks. DoorLoop. Accessed on July 20, 2024.
- Utility Bills 101: Utilities Tips, Average Costs, Fees, and More. Move.org. Accessed on July 20, 2024.
- How Much Does a Heat Pump Cost? [2024 Data]. Angi. Accessed on July 20, 2024.
- Existing-Home Sales Edged Lower by 0.7% in May as Median Sales Price Reached Record High of $419,300. National Association of Realtors. Accessed on July 20, 2024.
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