Financial Advice

Additional Financial Home Buying Obligations

Additional Financial Home Buying Obligations

You have found your dream home in the perfect neighborhood for you and your family. You have even determined that you will 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 of owning a home. Property taxes, homeowners insurance, utility bills, home repairs, and, depending on where you live, homeowner's association fees can all drive up the monthly costs of living 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 Zillow, New Jersey residents paid, on average, $10,745 in property taxes in 2021 on a home worth $444,000. Hawaii homeowners would pay $1,243 in median real estate taxes for the same home value. The national median average stood at $2,471.

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 best 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.

Homeowners Insurance

If you take out a mortgage to finance your home, you will 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 will also protect you financially from cases of theft or robbery.

However, homeowner's insurance also adds to the bottom-line costs of owning a home.

The national average for your homeowner's insurance policy is roughly around $1,312. 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

Depending on your lease when you rented, you might not have been responsible for paying utility bills. When you own a home, though, these bills -- for everything from electricity and water to weekly garbage pick-up and gas -- become one more monthly cost.

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 $746 on average. An additional expense is what you will pay for electricity. The U.S. Energy Information Administration reports that the average home spends $126 per month on electricity. Of course, that amount varies by the size and location of your home. Hawaiians pay the most for electricity at $184 per month. Washington residents pay the least at $81.

Before buying a home, ask what the average utility costs have been for the last two to three years. Sellers are under no obligation to share this information with you. Most, though, will. Don't forget, then, to add these fees to your monthly cost of owning a home.

Homeowner's Association Fees

If you buy a condominium, the odds are good that you will have to pay monthly homeowner's association fees. You might also have to pay these fees if you live in a gated community or other housing subdivision where the HOA performs maintenance tasks.

These monthly fees 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, adding a high cost of owning a condo, townhouse, or single-family home.

Home Maintenance

The last big bite on your monthly budget is home maintenance.

Ask anyone who's purchased a home. Maintaining it costs money. One year the hot-water heater might go. The next, the roof might start leaking. Another year? You might need to reseal the driveway.

Real estate giant Coldwell Banker advises homeowners to be prepared to spend from 1.5 percent to 4 percent of a home's original cost on annual home maintenance. A house that costs $200,000 comes out to $3,000 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. Try not to disregard the intangible benefits that come from ownership, however. Therefore, it is essential to understand the costs before you invest in homeownership fully.

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