Homeownership comes with more responsibility than living with your parents or renting from a landlord. However, most Americans look forward to buying their own home, one of the largest single purchases that they make in their lives.
In terms of financial responsibilities, many soon-to-be homeowners primarily focus on saving up for a down payment and monthly mortgage payments. Among the most overlooked financial considerations, particularly among first-time home buyers, are hidden costs.
Property Taxes
Property taxes are imposed by local governments and are a reality for homeowners in all states. Owners have property tax obligations for primary homes, rental properties, vacation homes, timeshares, and commercial properties.
Cities or counties may use property taxes as a principal source of revenue to fund fire and police departments, local public-school systems, roads and bridges, water systems, and libraries. Property tax rates vary between local jurisdictions, and the amount that an individual property owner pays is usually based on the assessed value of the home.
The following table shows the average property taxes paid in various states in 2023.
| State | Effective Rate | Average Tax |
| Arkansas | 0.54 % | $1,296 |
| Louisiana | 0.62 % | $1,418 |
| New Mexico | 0.62 % | $2,190 |
| Oklahoma | 0.90 % | $1,884 |
| Texas | 1.20 % | $4,464 |
Homeowner’s Insurance
Property owners maintain homeowner’s insurance to compensate for property damage resulting from a fire, to replace items resulting from theft or liability, and medical expenses if someone is injured on your property.
Homeowner’s insurance rates tend to increase over time and have significantly increased in recent years due to inflating material and labor costs. The national average cost of homeowners insurance is currently $2,728 per year.
Keep in mind that standard homeowner’s insurance policies will contain some exclusions. For example, additional insurance coverage for earthquakes, floods, or termite damage may be required.
Private Mortgage Insurance (PMI)
Buyers who finance a home using a conventional mortgage loan must typically maintain private mortgage insurance (PMI) unless they have a 20% down payment. PMI provides coverage for the lender in case the borrower defaults on the mortgage loans.
The cost of PMI often ranges from 0.5% to 2% of your loan balance per year. Federal data reported by Freddie Mac explains that monthly PMI prices range from $30 to $70 a month for every $100,000 financed; thus, those with a $400,000 mortgage balance should expect to pay $120 to $280 per month.
While PMI applies to conventional home loans, those with a Federal Housing Administration (FHA) insured mortgage will pay for similar coverage known as mortgage insurance premium (MIP).
Homeowners Association Fees (HOA)
Private organizations known as homeowner’s associations are formed to govern specific neighborhoods of single-family homes and condominium communities that enforce rules and maintain responsibility for certain services. Those buying a property in these communities must pay homeowner’s association fees (HOA).
HOAs often pay for snow removal, security, lawn care, or maintenance for community swimming pools. A recent U.S. Census indicated that the national average monthly HOA due was approximately $191, roughly $2,300 yearly.
Home Maintenance and Repairs
Roof
Damage to your home’s roof can be a major expense. Roofs may need replacement every 20 to 30 years. While minor roof repairs might cost only $500, the average roof replacement project costs nearly $8,700.
Heating, Cooling and Ventilation Systems (HVAC)
Your home’s HVAC system keeps you warm in the winter and cool in the summer. Most experts suggest having a technician visit your home for basic inspection and maintenance every year. Replacing significant components of an HVAC system may get expensive, as a new air conditioning unit can easily exceed $5,000.
Electrical and Plumbing Systems
If indications of an electrical system problem occur, promptly having help from a licensed electrician is critical, as faulty wiring, shorts, or similar concerns could trigger a fire. Further, the electrical system should comply with the latest codes and standards.
Plumbing problems might range from minor clogged drains to more significant concerns, such as wastewater backups that might create costly water damage. According to Homeguide, the hourly labor cost for electricians ranges from $50 to $130 and approximately $45 to $150 for plumbers.
Pest Control
Homeowners should quickly respond to minor problems with household pests such as ants, rodents, cockroaches, bed bugs, or termites. What begins as a nuisance may rapidly escalate into a substantial infestation that requires treatment from a pest control professional.
Exterior Property Maintenance
The property area outside your home will also require ongoing maintenance expenses and less frequent larger concerns.
Ongoing Costs
The exterior of your home, including the lawn and garden area, may need regular care and maintenance. Some of the most common maintenance tasks include pressure washing the exterior façade, cleaning the gutters, mowing the lawn, and removing leaves or snow. Many homeowners invest in the tools, supplies, and equipment needed to minimize costs by performing these regular maintenance tasks themselves.
Repair or Replacement Projects
There are some costly exterior repair or replacement projects, which (fortunately) are infrequent. For example, repainting your home’s exterior, replacing siding, or repaving the driveway can all cost thousands of dollars.
Possible Junk Fees
The Consumer Financial Protection Bureau (CFPB), a government agency, recently began investigating the possibility of “junk fees” driving up closing cost expenses in the home mortgage loan process. Closing costs include appraisal fees, title insurance, and attorney fees that are paid as part of the finalizing or “closing” of a mortgage loan.
A report suggests that between 2021 and 2023, total mortgage costs rose by approximately 36%. Traditionally, closing costs equate to roughly 2 to 6% of the amount borrowed. The CFPB is seeking to determine the reasons for the recent surge in fees and hopes to minimize any anticompetitive fees.
Homeownership Costs Vary by Location
While homeownership’s “hidden” costs typically average approximately $15,000 per year, they vary based on location. For example, you should expect to pay more in large metropolitan areas. The top five most expensive U.S. cities have the following amount of hidden costs:
- The California “Bay Area” (San Francisco, Oakland, and San Jose): $22,791
- New York City: $22,776
- Los Angeles: $22,347
- The Seattle / Tacoma region: $20,915
- Boston: $20,897
Paying for Costs
While homeowners may cover minor household expenses with money in savings or short-term borrowing using credit cards, some major projects might require longer-term financing. In these situations, you might speak with a financial institution regarding a home equity loan, home improvement loan, or other options.
Understanding the Total Costs of Homeownership
One of the most essential tips for buying a home is accurately calculating the total ownership costs. Some of the best financial practices for new homeowners to adopt include carefully reviewing the fees contained in the mortgage loan agreement, performing preventative maintenance, and having some money saved for the inevitable costs of repairs and replacement.
