So: you've found it. The One. The house you see your life unfolding in. You've worked very hard to save and scrape together the down payment, and you are ready to make that offer. But did you know there's a lot more involved with getting your home beyond the downpayment? A recent survey found more than half of those asked were unaware and actually shocked at how much it costs to get those keys. Sure, some costs are predictable, like your mortgage payment. But as Dave and I have seen first hand, many of the ancillary costs of homeownership take new homeowners by surprise, including property taxes, insurance, utility bills, and more. U.S. homeowners can spend more than $9,000 per year on these hidden homeownership and maintenance costs, according to a report by Zillow and Thumbtack.
You don’t want to fall in love with a home only to find out that the cost of living there will have you over-extended. Here’s a guide to the line items you should be considering, so you’re not shocked when the bills start arriving.
As you close on your mortgage, get ready for a laundry list of costs: Mortgage taxes, lender application fees, attorney’s fees, title insurance (the insurance policy for the deed), recording fees (paid to the county clerk’s office to record the deed), and any potential real estate tax reimbursements if the seller has paid them upfront. All in, you’re usually looking at an average of 2 to 5 percent of the total cost of the home, says Rebecca Mason, executive vice president and head of sales at OneTitle. They’ll vary from state to state — for example, one county might charge $20 per page for recording fees, while another might charge $5. To get a better idea of the total closing costs you should budget for, Bankrate has an interactive map.
In general, you should plan on paying 1 to 2 percent of the value of your home every year in maintenance and upkeep, according to the Harvard University Joint Center on Housing Studies. But that number varies, and Jeremy Wacksman, chief marketing officer at Zillow, notes that upkeep on condominiums or attached townhomes tends to be lower than single-family homes on their own land.
Some of the most common maintenance requests from Zillow and Thumbtack’s study were house cleaning, yard care, gutter cleaning and pressure washing. Prices do vary widely based on location. Your agent and home inspector can help you estimate what routine jobs will cost in your neighborhood and area, especially when it comes to first-year costs. Sites like Angie’s List and Thumbtack can also help with estimates.
Property taxes don’t just vary by state, and they’re not stagnant — they also increase or decrease based on city, ordinance, and even specific house. The Tax Foundation has a property tax data lookup tool by county you can use when planning expenses. If you believe your property taxes are higher than they should be compared with other homes in your area, you can hire a lawyer to help grieve your taxes (usually for a percentage of the money that person saves you). You can also do it yourself and save the fees.
Utility costs can be as high a number as property taxes, says Wacksman — running a couple hundred dollars or more. Estimates change with climate, ranging annually from $2,616 (in Atlanta, GA, for example) to $3,480 (Portland, OR). The national average is $2,964. But to get a clear sense of what to budget, ask a friend with a home in the neighborhood you’re considering to give you a peek at his or her monthly bills, making sure to adjust for the size of their home versus yours. This can also be eye-opening when it comes to lawn care, water bills, and even the local price of groceries.
If you’re getting a mortgage, you’ll be required to have homeowners insurance. And even if you pay cash for your home, you should have it anyway. You’re best off buying a replacement cost policy which will cover the cost of replacing the items that get stolen or damaged in a fire, rather than one that gives you the depreciated value of the items lost. According to the Insurance Information Institute, the average annual premium is $1,132. But you can save yourself a significant amount by shopping around, both online and off. Ask about what discounts you can get, including discounts for security systems, working from home, and bundling coverage for your home with your auto insurance policy.
Finally, be aware of the limitations of homeowners insurance. Policies tend to only protect a home and possessions within, but if you’re buying a condominium, the co-op might require a liability rider for accidents on the property. And if you’re in a flood zone, you’ll need flood insurance as well.
With Jean Chatzky & Hayden Field