The 3 hidden costs of home ownership

Library | 4/5/2021

Share this article:
Facebook Icon LinkedIn Icon Pinterest Icon Email Icon


When you think about how much money you need to buy your first home, you probably consider three main things: your down payment, monthly mortgage, and closing costs (which generally run from 3% to 6% of your purchase price). You’re on the right track — but it’s easy to forget that there’s so much more to home ownership than up-front costs and a monthly payment.


As you know, your house is unlike any other purchase you’ll make. There are a lot of ongoing fees associated with owning a home that should be built into your budget from the beginning. It’s crucial to plan for these costs before you take out a home loan, otherwise you could end up stretched too thin.


Here are the 3 hidden costs of home ownership:


1. Homeowner’s insurance


Tell me about it

You probably know you need home insurance. But now that you’re ready to buy, you should get to know the nitty-gritty.


Homeowner’s insurance covers three major things: your actual home, your personal property inside the home, and medical or legal bills associated with someone being injured on your property. You’ll look to your homeowner’s insurance in case of robbery, fire, or natural disaster, among other things. While it isn’t required by law, most lenders require homeowner’s insurance. And even if they didn’t, it’s crucial for protecting your biggest asset.


Keep in mind that there are some things homeowner’s insurance won’t cover, like intentional damage, wear and tear, and infestations. You’ll also need specialized insurance if your home is at risk of flood, earthquake, or hurricane.


What will it cost me?

Rates vary by state because they take into account things like the incidence of natural disasters in your area and population density. Your premium will also be based on your home’s age and condition, what it would cost to rebuild, and your credit score, among other things. To make it easier, some banks have an in-house insurance agency and can shop for you while you’re going through the mortgage process.


The average cost of homeowner’s insurance in 2020 was $1,631 a year, according to NerdWallet. Currently, the state with the most expensive homeowner’s insurance is Louisiana ($1,967), while Oregon is the least expensive ($659). Like other types of insurance, you’ll pay monthly and have a deductible, which may be a flat rate or a percentage of your home’s value. 


2. Property Taxes


Tell me about them

Property taxes (or real estate taxes) are the fees you pay to your local government as a property owner so they can provide infrastructure and public services. The money from your property taxes goes toward funding things in your community, from roads and sewers to police, fire, and even trash collection. Property taxes are also used to fund your public schools.


Like most taxes, there are a lot of complexities. There are some property tax exemptions, such as for people with disabilities, but these very by area. You can also currently deduct up to $10,000 worth of state and local property taxes if you itemize rather than take the standard deduction.


What will they cost me?

The amount you pay in property taxes varies by your state or city/town and is based on the assessed value of your home. Generally, you can estimate your annual property tax by multiplying your home’s value by the local tax rate. Keep in mind that tax rates fluctuate, and some states assess these taxes every few of years or when a home is sold, rather than annually. Currently, the average spent on property tax is about $2,500 a year, but you’ll need find out what your local tax rate is to really understand what you may owe.


3. Repairs and maintenance


Tell me about them

Okay, so you know your home will require repairs and maintenance, but you may not be considering the cost the way you should. It’s easy to think of home repairs and maintenance as things to deal with as they come up: a busted fridge, a leaky roof, a paint job — things that’ll come around once every few years, right?


But what we’re really talking about are all those little things you’ll have to deal with that you didn’t think about when you were renting, either because the landlord took care of them or you just didn’t care. Trust us: when your home’s resale value depends on these things, you’re going to care.


There are literally thousands of things you’ll be on the hook for, from clean air filters for your heating ducts to the plumber who’ll fix your garbage disposal. And don’t discount those bigger jobs — they’ll come around faster than you think.


What will they cost me?

The frustrating thing about home maintenance and repairs is that you can’t predict what’s going to come up in a given year. But you can come up with a budget for them. Homeowners spend an average of $1,505 on annual maintenance, according to Home Advisor, and more than 30% had an emergency repair costing an average of $1,206. A common rule of thumb is to expect to spend about 1% of your home’s value on maintenance and repairs annually, or $3,000 for a $300,000 home. The age of your home and the climate where you live (think roof damage from ice dams) will also affect how much you spend.


Now that you know all about the hidden costs of home ownership, you can budget for them in advance. While you may need to alter your expectations slightly in terms of how much house you can afford, you won’t be taken by surprise when these costs start adding up.


Residential Lending

Residential Lending

At Valley, each of our Home Loan Consultants take great pride and care in helping you determine which lending option is right for you—and we’ll do so whether you’re looking to buy your first home, invest in a vacation property or refinance your existing mortgage.