what you need to know before buying a home: 10 unexpected costs that could break the bank

Photo Credit: Annie Spratt

Photo Credit: Annie Spratt

I wish you could have seen me in the first few weeks of owning my home.

First of all, picture a house that has no dining room table, fold-up chairs serving as seating in the living room and your grandma’s 1980s coffee table being used as a TV stand (that lasted for more years than I care to admit). I’d try to throw a meal together using what little kitchen utensils I had on hand and then eat said meal off of a paper plate in a chair my parents had spent many evenings in watching my soccer games. And why?

Because I had no idea of what it actually took to outfit a home.  Multiple trash cans? I now need multiple trash cans?

I had to buy a lawn mower and weed-eater that I had no idea how to use (thanks, bro, for that tutorial). Walking into my basement felt like I had stepped into the jungle, so I had to get a dehumidifier. And oh, the cleaning supplies. THE CLEANING SUPPLIES.  Plus toilet paper and paper towels and new keys…let me tell you it adds up. Fast.

But no one really warned me of this. I felt I was better prepared than most first-time homebuyers, but I was still caught so off-guard by some of the expenses I had to incur that it almost brought me to tears.  Okay, okay, maybe I did cry a bit, but don’t judge me for it.  You know I like holding onto my money.

The moral of the story is that homes costs are more than just your mortgage, and I’m here to make sure you are well aware of what you’re getting into. I want you to be prepared for the unexpected costs that come with the territory of home ownership and be able to plan for tackling them when they do show up at your front door. So without further ado, here are the top 10 unexpected costs of home ownership you need to be aware of:

HOME INSPECTION

I don’t know why I thought I wouldn’t be responsible for paying for this, but I was. And for 100% of the cost.

These typically run anywhere between $400-$500, and if you find something that is a deal-breaker, you won’t get your money back when you walk away from the home; however, don’t let that deter you from getting one. This is a must for all home purchases because you never know what’s hiding behind walls, and you don’t want to get in your home and 6 months down the road find out you have foundation problems.  Talk about a cash suck.

CLOSING COSTS

HGTV makes it appear as if the seller always agrees to pay closing costs, but that isn’t always the case.  When I bought my home, I was responsible for my portion of them, and it ran into the thousands. Oy. Vey.

When you’re saving up for a down payment, make sure you factor in an extra thousand or two to cover these costs in the event that the seller refuses to pay them as part of your agreement. Even if you do get these covered by the seller, you can always use those extra funds for one of the next expenses you are bound to see.

PRIVATE MORTGAGE INSURANCE

Until you have 20% equity in your home, you will have to pay 1-2% of your home’s value annually (split into monthly payments) in what they call “private mortgage insurance.”  What exactly is this?

Well, when you have little equity in your home, lenders don’t see you as being fully “invested” in the property and, thus, will charge you a few hundred a month in order to cover their behinds in case you default on your payments. This is why it’s important to save as much as you can for a down payment AND purchase a home that’s within your means so that you avoid this. I put 20% down on my home and have never had to make a PMI payment in my life. And it’s so, so sweet.

PROPERTY TAXES/HOMEOWNER’S INSURANCE

Renter’s insurance is pennies compared to what you have to pay for homeowner’s insurance.  And property taxes? Another slap in the face. I shell out over $200/month for these two items alone, and my home is far from mansion-status.

Make sure while you’re house-hunting you get an estimate of the property taxes. These normally are provided on the listing, but if not, get your real estate agent to find this out for you. Also, have your insurance agent provide you a quote on homes in your price range prior to signing the mortgage. You will have to pay these in addition to your mortgage payment, and you want to make sure you build these into your budget.

SECURITY

No lies, in the first 4 months of owning my home, someone stole that lawn mower I mentioned before right out of my garage. And took along with it that weed-eater, too.  Both were replaceable and didn’t cause too big a dent in my bank account, but it was the feeling of being safe in my own home that I lost.

Thus, I invested in a security system. And you may have to as well.  There is a lot to be said for peace of mind, and I have never regretted purchasing mine. However, it is an additional expense that costs a couple of hundred upfront and potentially a monthly fee as well, so consider this when deciding which neighborhood you want to live in.

FURNISHINGS

And not just furniture. Outfitting a home is more than just dining room tables and bedroom sets. It’s rugs and curtains and guest towels and vacuums and shovels and all the little things you never noticed before in your parents’ home.  But they’re there. And you need them.

Make sure to build some extra room in your budget to cover all of these items. You don’t need to get everything at once, but trust me, fold-up chairs in the living room get old pretty quickly.

INCREASED UTILITIES

Holy mother of pearl are utilities WAY more expensive in a home than an apartment. And granted, that’s pretty much common sense, but I don’t think I knew exactly how much they were going to increase.

This is another estimate you want to receive from home sellers so that you can verify whether or not those additional bills will fit into your budget.  Most will have this information and be willing to pass it along, and some make it even easier on you and put it on the listing itself. 

REPAIRS

Repairs will be the death of you, especially if you bought a home built in 1925 like I did.  Two years in, my entire HVAC system went bust, and I had to shell out thousands for a new unit. I’ve had to refinish my front steps (they were a death trap), put insulation in the basement, caulk my front porch….you name it, I’ve probably done it.  And none of that was especially cheap.

Some repairs may be large and others minor, but either way, make sure you have that emergency fund handy just in case. You don’t want to feel like you’re in Satan’s kitchen just because it’s mid-summer and you can’t pay to fix the air conditioner.

LOSS IN HOME VALUE

Let me remind you of a little thing called the housing market crash of 2008. Most people had bought their homes at the peak of the market and, just one year later, had lost a significant value in that property. Foreclosures were popular, and many people simply just walked away.

Experts used to always tout that real estate was one of the safest long-term investments, but these past 10 years have proven otherwise. You can never guess what the market is going to do, so don’t bank on your home increasing in value.

OPPORTUNITY COSTS

If you didn’t have this ingrained into your mind during high school econ class like I did, opportunity cost is basically defined as the cost of opportunities you’re giving up to pursue another option.  And when buying a house, you’re giving up a lot of them.

For instance, let’s say you it costs you $20,000/year to live in your home. The opportunity cost of that could be to rent a cheap apartment for $10,000 and use the other $10K to invest. Or travel. Or put towards a car. Or buy a 5-year supply of Wheat Thins.

Everything you buy has an opportunity cost associated with it, and with homes, it not only deals with your money but your time as well.  Homes need a lot of maintenance, and unless you’re living the good life and can hire help, it’s going to be your free time that’s sacrificed.  Just be wary of this and make sure you think about what you value and want out of life prior to chasing what everyone else considers the “American Dream.”

The #1 thing to remember when looking for a home is to always buy within your means. Doing so will keep you from being “house poor” and allow you to cover these unexpected expenses if and when they do arise.  Be a smart consumer and factor these in when you’re deciding how much house you can afford. You’ll thank yourselves later when you don’t have to resort to rice and beans for 6 months just to cover a hefty repair.  Now go out there and get yourself a house ;)

Feel free to share: What unexpected costs have you come across while owning your home? What’s your biggest unforeseen expense?

Photo Credit: Kari Shea

Photo Credit: Kari Shea