7 Hidden Costs of Owning a Home (and How Homeowners Insurance Can Help)
Becoming a homeowner is a goal for millions of Americans. However, it can be a pricey one to fulfill. You need to save enough money for a down payment and closing costs, and establish credit that’s good enough to qualify for a mortgage.
However, the purchase price is just one part of the overall cost of homeownership; that reality can be a surprise to first-time homeowners. Understanding what other hidden costs there are – and the role that homeowners insurance plays in those expenses – can help you financially prepare and prevent any surprises.
1. Taxes
Property taxes are what you pay to your local government. It, in turn, uses the proceeds from that taxation to support infrastructure projects, like road maintenance or school construction, and to fund services, such as paying teachers to work in those schools. Taxes vary by county or municipality, but how much you owe will depend on your location, your property’s assessed value and your local tax rate.
In the U.S., the effective property tax rates range from 0.32% to 2.23%.1 To put those numbers in perspective, say you own a home valued at $300,000. Depending on your location, you’d have to pay between $960 and $6,690 in annual property taxes.
2. Homeowners Association (HOA) fees
HOAs are organizations that manage and maintain certain communities, enforcing rules and maintaining common areas, such as a community pool.
HOAs are more common than you may think; according to the Foundation for Community Association Research, approximately one-third of U.S. housing is in an HOA, or one of two similar organizations that also collect fees to maintain shared property and the like: co-ops and condo communities. In fact, in some states, finding a property that isn’t in an HOA is a challenge. For example, in Florida, 45% of houses are part of these associations.
HOA fees vary significantly by location, community, and the amenities or services provided. In general, the monthly fees can be anywhere from $100 to $1,000 and up – with a common range being between $200 and $300 a month.
These fees are ongoing, and they can increase over time.
3. Maintenance
Maintaining a home can be a major expense, especially if you buy a property that’s been standing for decades. Your property will need ongoing upkeep and repairs, such as periodically replacing heating and cooling systems, or repairing damage to the roof.
The cost of a new HVAC system can be a serious financial shock; to prepare, experts recommend setting aside between 1% and 4% of your home’s value each year to cover maintenance costs.
If your house is valued at $300,000, that means it’s recommended to save between $3,000 and $12,000 per year.
4. Utilities
Besides your mortgage, one of your most significant ongoing expenses is utilities. Your electric, gas, water, sewer, trash, recycling, and internet and cable service can together cost you hundreds each month. In fact, the U.S. Bureau of Labor Statistics reported that homeowners spend an average of $4,625 on utilities per year, or approximately $385 per month.
5. Furnishings and décor
Unless you have plenty of furniture and décor already, purchasing furnishings, rugs, artwork and other items to decorate your home can be a huge expense.
HomeAdvisor reported that the average cost of furnishing a home is $16,000. Depending on the home’s size and your taste, though, the cost could be substantially more. And periodic redecorating will only add to your homeowning costs.
While you’ll likely spend the most when you first move in, it’s a good idea to set aside some money each month for the future, so you can cover the cost of redecorating your bedroom or purchasing a new sofa.
6. Yard work
If you’re used to apartment living, the amount of work that a yard requires can be a big surprise. Mowing the lawn, trimming trees and bushes, pulling weeds, and putting down new mulch can all require significant investments of time and money.
If you decide to do it yourself, you’ll have to purchase tools like a lawn mower, weed wacker, trimmer and a wheelbarrow. Or, if you opt to hire a service, you’ll have to pay a monthly or per-visit fee. According to HomeGuide, the cost of full-service lawn care typically ranges between $100 and $400 per month.
7. Insurance
If you have a mortgage, your lender will require you to purchase homeowners insurance to protect their interest in the property. If you’re in an HOA, you may be required to carry certain coverages and limits. Even if you don’t have a mortgage, maintaining homeowners insurance on your property is a good idea.
Homeowners insurance premiums vary by location and that rate isn’t fixed; factors such as claim history, rising building material costs and more frequent natural disasters have led to an increase in homeowners insurance rates over time.
The Role of Homeowners Insurance
Homeowners insurance is a valuable investment, offering the following benefits:
- Peace of mind: Buying a home is an enormous investment. Between the amount of the down payment and your monthly mortgage installments, you pay thousands to become a homeowner. A homeowners insurance policy protects that investment – and will be required by the mortgage company. If your home is damaged in a storm or fire, or if you’re the victim of theft or vandalism, your policy can help you repair or even replace your property.
- Protection against liability: If a worker, delivery person or guest is injured on your property, it’s possible that you could be found responsible for their injuries and associated medical costs. Homeowners insurance includes liability protection that can help pay those costs and protect you financially. Your homeowners coverage can also help pay for a legal defense if a lawsuit is filed against you following such an incident.
- Coverage for your belongings and upgrades: Homeowners insurance doesn’t just cover the structure of your house; it also covers your personal belongings, including your furniture, clothing and electronics, as well as other structures on your property, such as a fence or garage. If a tree falls and wrecks your patio or a window blows out during a storm and your computer is ruined, insurance can reimburse you for replacing those items.
If you want to own your own home for the first time, understanding the hidden costs of homeownership will help you plan and save – and not just for your mortgage down payment.
Budgeting for these common expenses will ensure you can handle even the inevitable financial hiccups. Homeowners insurance provides a critical safeguard for your property and belongings.
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1 Property Taxes by State: Guide to Understanding Rates and Exemptions
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