Photo: Flickr / Big Grey Mare
Despite the decreased value of housing in recent years, a new survey by the National Association of Homebuilders reveals that 75 per cent of Americans still believe that owning a home is the best choice for long-term investment.Home affordability is now at its highest level since first recorded in 1970, but once you’ve finally been given the keys to your American dream, there are a few hidden costs of homeownership that you should be aware of.
By keeping the following costs in mind though, you will be less shocked by home expenses that inevitably come your way:
1. Property Tax
Being a homeowner means having to pay property taxes. Although property taxes usually fall within part of your required escrow payments, taxes also usually go up a little within each year, thus increasing your monthly payments. Property taxes vary based on the location that your home is in and on the total value of your home, but according to Paul of The Frugal Toad, the National Association of Homebuilders currently averages property taxes at $2105 a year.
2. Home Appearance
Although not necessarily a requirement of homeownership, many new homeowners are anxious to alter or add to the appearance of their home upon moving in in order to better display their personal style and tastes. Whether it’s altering the landscaping, adding shutters, repainting a home’s exterior, or purchasing new furniture, improving your home’s appearance can quickly add to the costs of being a homeowner.
While The Frugal Toad reports that the average cost of landscaping is currently $4,000, even deciding to do something as minor as hiring a professional to take care of your yard work every week can add up to a significant chunk of change within a year.
Similar to changing your home’s appearance through small remodeling projects, maintaining your home’s current state can also lead to extra fees that you might not have originally taken into account. If you don’t want to pay for the costs of repairs, you will quickly find that your home will require regular maintenance in order to keep everything in tip-top shape.
Maintenance projects include everything from cleaning your gutters to changing your air filters to ensuring that you plumbing is working effectively. Each of these projects may cost only a small amount of money, but combine the costs and you could be looking at a significant chunk of change. The NAHB currently estimates that the cost of maintaining a home is an average of $558 per year.
Repairs are unfortunately an unavoidable part of homeownership — especially if you are staying in your home for upwards of 20 to 30 years — and unlike those who are renting and have a landlord, you will have to foot the bill for repair costs. Whether you are repairing a roof or removing mould from a basement, repairing a home can equate to a sizable amount of money. As a result, financial experts recommend that you budget 1 to 2 per cent of your mortgage balance each year for any unexpected costs that may arise.
It probably comes as no surprise that the cost of homeowners insurance for a four bedroom house versus a one bedroom condominium has higher fees. According to the financial services website Your Finances Simplified, if your home is older and more prone to heating, electricity, or plumbing issues then you will also pay a higher than average insurance payment.
Additional factors that can change the amount of insurance you pay include your home’s location, the materials used in the construction of your home, and even your credit score. Finally, if you live in an area known for natural disasters like earthquakes or hurricanes, then you may find yourself needing to pay for additional insurance.
6. Home Owner Association Fees
If your new home is located in a subdivision, planned community, or condominium area then it is likely that you have to pay Home Owner Association or HOA fees. HOA fees usually cover the costs of shared services such as community landscaping, water, sewer, and garbage costs, and the costs of community country clubs, playgrounds, and pools.
Discovering the hidden costs of homeownership may seem daunting, but by taking extra costs into consideration before applying for a mortgage, you will be able to provide yourself with financial security and ensure that your home becomes a valuable investment over time.