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You've found your dream home in the perfect neighborhood for you and your family. You've even determined that you'll be able to afford the monthly mortgage payments that will come with this home.
However, have you factored in the other costs of owning a home?
Your monthly mortgage payment is just the start of the costs to own a home. Property taxes, homeowners insurance, utility bills, and potential home repairs can increase the monthly costs of owning a home in a home.
Here is a look at these costs and what impact you can expect them to make on your monthly budget.
Property taxes
When considering a home, be sure to review the property taxes. These taxes can add significantly to the cost of that house.
Property taxes vary widely by state and county. According to data from the Census Bureau's 2021 5-Year Estimates, New Jersey residents paid, on average, $8,796 in property taxes in 2023 on a home worth $355,700. Hawaii homeowners would pay $1,017 in median real estate taxes for the same home value. The national median average stood at $2,690.
Many homeowners take out an escrow account with their mortgage lenders to cover their property tax payments. Under such an arrangement, lenders pay homeowners' property taxes. Homeowners cover this by paying more each month when they write out their mortgage loan payments.
That means if you have to pay $3,000 each year in property taxes that your monthly mortgage payment will include an additional escrow payment of $250 to cover them.
In considering property taxes, it is important to remember that the 2017 Tax Cuts and Jobs Act put a $10,000 cap on the State and Local Taxes (SALT) deduction for federal taxes. Property taxes are part of that equation, along with income and sales taxes.
Homeowner's insurance
If you take out a mortgage to finance your home, you'll also have to pay for a homeowner's insurance policy. No mortgage lender will lend you money without one.
It is a good idea to have homeowner's insurance regardless. These policies can provide you with financial protection should your home be damaged or destroyed. It can also protect you financially in case of theft or robbery.
The national average for your homeowner's insurance policy is estimated to be $1,383. The cost depends on several factors: If you own a larger home, you will pay more for homeowner's insurance. If your home rests in an area prone to tornadoes, earthquakes or other natural disasters, you will pay more, too.
Utility bills
If you rented, depending on your lease, you might not have been responsible for paying utility bills. When you own a home everything from electricity and water to weekly garbage pick-up and gas -- become additional monthly costs.
These costs are not insignificant. For instance, according to the Energy Information Administration's "Winter Fuels Outlook," U.S. homeowners who use natural gas for heating will pay about $931 on average. An additional expense is what you will pay for electricity. The U.S. Energy Information Administration reports that the average home spends $146 per month on electricity. Of course, that amount varies by the size and location of your home. Hawaiians pay the most for electricity at $214 per month. Utah residents pay the least at $93.
Before buying a home, ask what the average utility costs have been for the last two to three years. While sellers are not obligated to provide this information, many may. Then add these figures to the monthly cost projection of owning that home.
Homeowner's association fees (HOA fees)
If you buy a condominium, the odds are good that you'll have to pay monthly homeowner's association fees. You might also have to pay these expenses if you live in a gated community or other housing subdivision where maintenance tasks are performed by the HOA.
These monthly fees go to cover the costs of mowing lawns, shoveling snow, repairing cracking driveways, maintaining common areas and other maintenance issues. Again, these expenses can be significant. Fees can range from $100 to $700 per month with roughly $200 on average, which can add a significant cost of owning a condo, townhouse, or a single-family home.
Home maintenance
For anyone who's owned a home, maintaining it costs money. One year the hot-water heater might go. The next, the roof might start leaking.
Real estate giant Coldwell Banker advises homeowners to be prepared to spend from 1 to 4 percent of a home's original cost on annual home maintenance. A house that costs $200,000 comes out to $2,000 to $8,000 a year. Again, that can be a significant drain on your monthly budget.
Owning a home can be a wise financial decision. It is important to fully understand the costs before you invest in homeownership.
