The Concealed Costs of Owning a Home

The interest in homeownership is again on the rise, thanks to declining home prices and mortgage rates in many markets. Renters are getting tired of seeing their expenses rise every year, and owning a home is one of the easiest paths to financial solidity. Every mortgage payment you make will build equity, and when home values rise, your assets will grow. Before applying for a mortgage, you should learn about some of homeownership's hidden costs, and how to minimize them. 

Appraisal and Inspection: Before buying a home, you will almost certainly need to get it inspected and appraised. In some areas, additional inspections for things like radon gas and pest infestation may be required. Buyers are responsible for these costs, but they're necessary in order to insure you're not buying a distressed property, or paying more than it's worth.

Closing Costs: You may be able to negotiate for a seller contribution toward these costs, but you should be prepared to pay anywhere between 2% and 4% of the balance of your mortgage; closing costs will vary depending on where you live.

Taxes/fees: Homeowners must pay property taxes, which are generally rolled into the escrow fees you'll pay every month. Even with fixed-rate loans, property taxes always have the potential to rise, making expenses rise as well.

Home insurance: It's required by all lenders, and its cost depends on factors such as your home's location and the materials from which it was built. Even if you already pay for renter's insurance, you may be shocked at the cost of homeowner's coverage. It usually costs more, because you're not only paying for the chance to rebuild your home, but for the replacement of your possessions. If you live in an earthquake- or flood-prone area, you may need supplemental coverage. 

Condo or HOA costs: If you're buying a property that's part of an HOA or condo association, you will have to pay quarterly or monthly fees, which have the potential for increase. Associations sometimes charge "special assessments" for things like structural repair and improvement.

Relocation costs: These are part of every move whether you're a homeowner or not, but you'll still have to pay for truck rental or moving assistance, and you'll probably have to pay deposits in order to get utilities turned on in your new home. Your utility bills may be higher, depending on where you'll be living.

Upkeep and Repairs: Maintaining a home costs both money and time. While you might be able to install skirting boards, change AC filters, and hang oak doors by yourself, you will probably need to hire outside help for jobs like HVAC maintenance and fireplace/chimney cleaning (if applicable). The greatest expenses come from unexpected needs for roof repair, mold remediation, and the like. You should set aside a minimum of 1-2% of your mortgage balance as an emergency repair fund, but the amount saved will depend on your home's age, size and condition. 

Becoming a homeowner does come with its share of expenses, but it can be a worthwhile investment. Buy only as much home as you can afford, and be sure to budget for expenses both planned and unplanned. It may take as much as a decade to recover your investment, so you'll need a measure of patience, as well.

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