If You Want to Buy a House, First Figure Out Hidden Costs

You saved for the down payment and worked the mortgage bill into your monthly budget. But what about all those other costs that come with owning a home?

Homeowner's insurance, routine maintenance, property taxes and utilities have all been getting more expensive lately.

Those expenses added up to an average of $1,180 a month, according to a report in June 2023 from the real-estate firm Zillow and the home-improvement tech company Thumbtack. The monthly mortgage payment for a typical home, assuming a 20% down payment, was $1,770.

"People think that once they are over that hump of making that big purchase, that the rest of it is just smooth sailing," says Noah Damsky, the founder of Marina Wealth Advisors in Los Angeles. "In reality, it's just the start of the costs."

The burden of these nonmortgage extras can come as a surprise to first-time buyers and can be the difference between a happy homeowner and an unhappy one. Here's how to run the numbers.

Home insurance

Many buyers don't figure out the price of insuring a house until after they have committed to buying it. That can be a mistake.

"Get actual quotes for some of the properties you are looking at so that you're not blindsided," says Eric Tyson, a financial adviser and co-author of "Home Buying for Dummies."

Buyers can ballpark the annual cost of insurance at 0.5% of a home's value.

But financial advisers recommend getting more specific than that, especially if you're shopping in an area prone to natural disasters such as hurricanes or wildfires. The cost of $1,000 of coverage in some of those areas is more than three times the national average, according to Intercontinental Exchange. The premium you pay will also grow over the years alongside inflation, just like other costs outside of your home loan.

Maintenance

Routine home maintenance comes to an average of about $500 a month, according to Zillow and Thumbtack's 2023 report. That included services such as appliance repairs, carpet cleaning and lawn care.

Bigger repairs, such as a new roof or water heater, can cost much more-and be a surprise. You might get a good idea of what will need replacing soon from a pre-purchase home inspection.

Damsky recommends setting aside 1% of the home's value annually to cover those big costs. He says to update that figure each year based on the value estimates on real-estate websites, to account for inflation in maintenance and repair costs.

Association fees

These are disclosed in real-estate listings. They can be hundreds of dollars a year or thousands a month, and some have been rising faster than overall inflation. They often cover shared upkeep and amenities in a condo building or neighborhood.

Associations can issue special assessments to collect money from members for big one-off expenditures.

Though they may be unforeseen, prospective buyers might be able to get a sense of what's coming from the association's meeting minutes and financial statements.

Property taxes

Property taxes typically amount to roughly 1% of the value of a home each year, but vary across states and cities.

Tax bills rise as the home's value appreciates, though occasional reassessments of property values can cause increases to come in big bursts.

Depending on the timing, someone who buys in the summer might find their tax bill is higher the following January.

Tax rates might also tick up after a local election if voters approve a new spending proposal, says Daryl Fairweather, chief economist at real-estate firm Redfin. They could drop if a city starts generating more of its tax revenue from commercial properties.

Utilities

Homeowners spend an average of about $3,000 a year on energy, including electricity and natural gas, according to Intercontinental Exchange. Their average water bills are nearly $1,000 a year.

To get around the imprecision of estimating utility bills, ask the seller or a neighbor what they pay.

After you move in

Fairweather adds that a detailed projection of homeownership costs should also account for the indirect effects of buying. For example, you might spend more on gas because of a longer commute, or you might be moving to a place where auto insurance costs are higher.

A down payment and closing costs may drain most of your savings, but it's important to keep a cash cushion.

"When you buy that house," Damsky says, "the next day the furnace might blow, and there you go-you need five, 10 grand."