A home is the most expensive purchase many people ever make. Buyers understand that certain costs come with home ownership. However, some of the costs associated with home ownership can catch even the most savvy savers off-guard. And in recent years, those extra costs have been surging.
The following are some of the unexpected expenses that come with living the homeowner dream.
Property Taxes
Depending on where you live, property taxes can comprise a large portion of monthly expenses. Some people pay their property taxes separate from their mortgage payments. Others wrap the tax burden into their mortgage bill. Either way, Business Insider reports that New Jersey currently has the highest effective property tax rate in the United States, with a median Garden State property tax bill at $9,000 annually. The lowest property tax rate is found in Hawaii, and the average homeowner there pays only $2,000 in property taxes annually. Zoocasa reports that annual property taxes in Canada can cost anywhere from $2,500 to $10,000 depending on the province’s property tax rate and average cost of homes.
Home Insurance
CNN Business reports that home insurance premiums have surged in recent years, in large part due to extreme weather. In the U.S., insurance rates jumped 11.3 percent nationally last year, according to S&P Global. Severe storms, including hurricanes and wildfires, cost homeowners insurance agencies nearly $101.3 billion last year, and those losses have been passed on to policy holders through higher prices.
Mortgage Insurance
Many people do not have the standard 20 percent down payment necessary to buy a home. To circumvent this, lenders will require borrowers to take out mortgage insurance, also called PMI, to offset their risk. Credit Karma says PMI depends on factors such as down payment and borrowers’ credit scores, but typically it’s around 0.2 to 2 percent of the loan amount per year. You can remove PMI from your monthly payment once you have 20 percent equity in your home.
Maintenance
Even a brand new home will require some measure of maintenance and routine upkeep. Bankrate indicates one of the biggest costs of owning a home is maintenance, coming in at roughly $3,018 a year and an additional $3,300 for improvements. Lawn care, home cleaning, pest prevention, replacing smoke alarms and batteries, roof repair, and clearing rain gutters are some of those costs.
HOA and CDD Fees
Some communities impose homeowners association fees on those who live within the neighborhood. Such fees cover items like maintenance in and around the community and snow removal. A Community Development District Fee is imposed by the developer of a neighborhood or subdivision to finance the cost of amenities in a neighborhood. Homeowners should be aware of these fees before buying in an HOA community.
Apart from these expenses, annual utility payments can be quite expensive. Utilizing utility plans that offer a fixed cost per month can help homeowners budget for utility expenses more readily.
Home ownership can be costly. Buyers would be wise to familiarize themselves with some of the hidden costs of owning a home prior to purchasing one of their own.