08/02/2024
This may be funny coming from a real estate agent, but my responsible is to provide a quality service to each buyer and seller - no matter how difficult the conversation. To educate as we go through the buying and selling process. Buying a home is, for most people, the largest single investment they will make. Time, energy and understanding each step in the process is to be completely understood before you take the plunge in the homebuying arena.
If you have a real estate agent that makes appointments to open a door that is on the market, helps to fill out the contract and send it to your closing attorney without educating you as you proceed through the buying or selling process --- you may want to find another agent.
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.
With current mortgage rates between 6% to 7%, 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 consider.
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.
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.
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.
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.
Homeowners typically face substantially higher costs 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.
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.
I know this is lengthy, but if you're thinking of buying or selling a home these items should be heavily considered before moving forward.
