There comes a moment in every renter’s life when they realize that paying for the quality of the apartment they want puts them in the same ballpark as paying a mortgage on a house that could potentially offer them more space, freedom and future financial stability. For others, it’s always been a lifelong dream to own a home with a yard, or they need to size up for the sake of their family or job. Whatever the reason, many people will undertake the process of buying a home at some point in their lives. Signing the paperwork might feel like the light at the end of the tunnel, but it’s important to keep in mind when you’re making financial calculations that there are several hidden costs of owning a home that go beyond the known principal and interest.
Here are four less-realized costs associated with homeownership. Incorporate them into your plan early to avoid major surprises later.
In a rental situation, fixing an appliance is often as hands-off as realizing something is broken, alerting your landlord, and waiting for them to send a repairperson over as soon as possible. When the first machine goes awry in your new home and the responsibility falls on your shoulders, that’s when you may realize that you underestimated the cost of keeping everything up and running yourself.
This CNBC report sums it up by quoting the publisher of Inside Mortgage Finance, Guy Cecala: “Most people are unprepared for the big repairs — and even the small repairs. When the toilet starts flooding, you can’t call someone like you did when you were renting. You’ve got to fix it yourself.”
This could affect which house—not to mention which appliances—you ultimately choose to pursue. Factor in the age, condition, and structure before you determine whether you’re getting a good value or signing on for never-ending fixes and replacements.
When you buy a home, you’re typically getting more than just what’s inside the four exterior walls. Whether you want a huge backyard for your dog to run around in or a modest lot with enough space for a carport, property taxes will eventually become more familiar to you.
As this U.S. World News and Report article points out, it can come as a total shock that taking on a mortgage makes you suddenly responsible for property taxes, oftentimes several months’ worth up front. The cushion for homeownership is often thinner and less comfortable than many imagine, especially first-time homebuyers. Try to calculate potential hidden costs ahead of time, pad your savings account leading up to when you get the keys, and ask plenty of questions throughout the entire process.
Having outdoor space is highly desirable, but keeping up on yard care costs precious time and more money than you might be anticipating. Check out Home Advisor’s breakdown of average lawn and garden costs, and think about your landscaping plan so you don’t end up with a lot full of dirt because your budget ran dry.
Most people know that homeowners insurance is necessary, but some assume that it’s a blanket that covers everything. This is simply not the case. The Insurance Information Institute considers a standard policy one that includes these four types of coverage:
- Structural damage
- Personal belongings
- Liability protection
- Additional living expenses
But did you know that most policies cover damage from fire or a hurricane, but not flooding or an earthquake? Have you conducted a personal inventory checklist to make sure that your personal belongings fit within the limits of your policy? Is your liability limit high enough, or do you need to add on an umbrella? What if you must live outside of your home for a period of time but the reasoning doesn’t qualify you for policy assistance? These are all important questions to figure out before settling into your new abode. Finding the right homeowners insurance for your needs is one way to mitigate hidden costs and make sure you’re covered when you need it most.
You can’t put a price tag on the feeling of returning to your very own home at the end of a long day, but you can put a price tag on many sneaky costs that don’t show up when you’re calculating the mortgage. If you outline some worst-case scenarios and save accordingly, the less stressed you’ll feel if (when) these unexpected home costs come about.