November 17th, 2019 10:47 AM by Jackie A. Graves, President
Though the perks are many, watch out for these extra expenses.
mortgage rates and soft prices in some residential real estate markets are
creating renewed interest in homeownership, especially among young people who
are tired of seeing their rent costs rise every year and like the idea of
having equity—an ownership stake—in the place where they live.
A residence can indeed be a valuable asset and a path to a greater financial
future. However, novice buyers may be shocked by the bite homeownership can
take out of their wallet: In addition to their mortgage payments, the true cost
of owning property involves a multitude of hidden expenses. Let's look at the
most common, and how to deal with them.
The first three hidden costs are strictly financial; the rest add to money woes
the extra stress of home maintenance and repair.
As a homeowner,
you'll need to pay property
taxes, a monthly or quarterly fee to the town and/or the
municipality in which you reside. It's not the bank that determines the
property tax, it's the township, city, or county in which the home is located.
valorem levy, assessed according to the value of your
residence, a property tax payment can easily total $500 to $1,000 or more a
month, particularly in the northeast United States, where real estate values
have soared in recent years.
Property tax is
basically a guaranteed annuity in perpetuity at the homeowner's
expense. Although you don't have much say in how much it is, as with any tax, strategies
exist for lowering it.
HOA and Condo Fees
If you buy a residence within a homeowners' association or a condominium association,
you'll be required to pay a monthly or quarterly fee. This charge often
includes costs for things that benefit the entire neighborhood, like garbage
collection or snow plowing, if your association has contracted with a private
company to perform these services. These fees can rise, or your association may
need to charge a special assessment for projects such as repaving the parking
lot, installing a new security system, or revamping common areas or buildings.
insurance may not be that unexpected an expense: Banks and
mortgage companies often require it before issuing you a loan, and the premiums
may even be included in your mortgage payments (if your lender helped you
obtain the policy). Bear in mind that premiums can and often do, rise
annually—or if you increase coverage to reflect the rising value of your
property or possessions (which you should periodically do).
What can also afford a nasty surprise: What your policy doesn't
include. Typically, homeowners insurance does not cover "acts of
God," meaning that you will need to purchase extra coverage against
disasters like floods, hurricanes, and earthquakes. Even water damage from
storms is very rarely covered in a basic homeowner's policy.
Unfortunately, this extra insurance can be expensive or
have an unusually high deductible. For example, separate flood insurance
typically costs between $1,000 and $4,000 per year over and above the $500 to
$1,000 a year that most homeowners typically spend on their basic
Water is your home's biggest enemy, and one of the roof's
primary jobs is to keep water out. A leaky roof can cause cosmetic damage to
the inside of a home and,
depending on how severe the leak is, destroy the belongings inside,
cause health problems and structural issues.
Roof damage usually results when the asphalt shingles (the
most common roofing material in the U.S.) become loose,
cracked, blown off by the wind or damaged by hail. The nails that fasten them
to the roof could also raise, allowing water to get underneath and into your
home if any part of the shingles or roof had been poorly installed in the first
place. Asphalt shingles also have varying expected maximum life spans,
depending on the quality of the shingle. Under normal circumstances, the roof
will need replacement once at least every 20 years. However, roofs have varying
life spans, depending on the type of shingle used, installation quality,
climate, and weather.
Because of its complexity, your home's HVAC system—which
controls heat, cooling, and the circulation of air throughout the residence—is
not something you'll be able to inspect, repair or replace yourself. Unless
you're an HVAC professional, you should be prepared to hire one from time to
You'll probably need to buy new units at some point, as the
existing ones wear out over time. Replacing the furnace and air conditioner
filters frequently helps keeps the machines running efficiently. Homeowners
with gas furnaces should have them inspected once a year. In many areas, this
service is provided at no charge.
Arc faults, faulty wiring, and electrical shorts cause a fair
number of electrical fires that burn down homes. All homeowners should have a
basic understanding of how electrical systems work to keep homes and families
safe, but should also understand the limitations of their skills. Why risk
electrocution or damage save a few bucks? Whenever there's a systemic problem,
or you're doing significant rehab work, call in the pros—trusted, trained and
licensed electricians to make sure things are installed properly and according
to current codes and safety standards.
Small plumbing problems (like clogged drains) happen from time
to time no matter where you live, and they aren't a big deal to fix with basic
Some older homes present larger problems when it comes to
plumbing, though. These homes often contain galvanized iron water pipes, which
become clogged with mineral deposits over time and gradually reducing the water
pressure in your home. These pipes cannot be repaired; they have to be
replaced. Trust us: You do not want to deal with the issues of frozen or burst
pipes after the fact.
Also be sure to research whether your water could be contaminated with lead related
to your plumbing. Sometimes the problem is pipes in the home and sometimes it
is the pipes from the municipal system to your home.
Termites are attracted to wood and moisture, and they can get
into your house through even the tiniest of cracks. You don't want your home
turning to dust right under you.
To prevent expensive structural damage to your home, make sure
there is no wood touching the ground near your house (like lumber, firewood, or
tree stumps). Prevent any moisture from accumulating around your foundation by
making sure the ground slopes away from your house, and hire an exterminator to
regularly perform a pest inspection.
Mold can grow in humid or damp areas and can cause health
problems. If your HVAC system is contaminated, you can spread mold throughout
your home every time the furnace is running.
Preventing mold problems is a matter of keeping water out and
fixing any leaks to eliminate any environments conducive to mold growth. If
your home is very humid, an air conditioner or dehumidifier will help prevent
mold growth. Mold is not always visible; it can be hidden behind wallpaper,
under carpeting and in a variety of other places. Mold can cause allergic or
irritating reactions and asthma attacks.
Whether you handle your yard work yourself or hire a
professional, you will have to pay something to keep your landscaping in check.
Lawn equipment can be costly and, if you have a lot of acreage, you may need
items such as a snowblower or a leaf blower, too.
This isn't just cosmetic. Hanging tree limbs can fall and damage
roofs and windows; a plethora of leaves or overgrown plants can clog gutters,
impacting drainage and plumbing systems—both yours and your neighbors. Many
HOAs require members to maintain the grounds of their homes for these reasons.
When most people think about the costs of homeownership, they
think only about the monthly mortgage payments on their residences. But there
are also property taxes and insurance to consider and budget for. But
maintenance and repair costs will eat up their fair share of your (not-so) disposable
In fact, unexpected repairs—think replacing or repairing the
roof, fixing loose tiles in the shower, removing an overgrown or dead tree, or
paying for mold mitigation in a damp basement—typically leads to the highest
bills. The list of possibilities is endless, so the best thing homeowners can
do is to set aside savings for an emergency. Some financial experts suggest
budgeting for 1% or 2% of your mortgage balance as a yearly maintenance and
repair fund, but the amount you should save depends on the age, condition, and
size of your home.
Mortgage lenders won't factor this into their equations when
determining a loan amount, but you should. It's a good thing to own your own
home—but before you buy, make sure you're prepared for the true cost of your
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