How to Budget for Your First Home? Know These Hidden Costs of Home Buying and Owning

Anbarasan Appavu

Before you begin looking for a home to buy, take optimal time to gain an understanding of the associated costs.

While most prospective buyers are familiar with large expenses such as mortgage payments and property taxes, smaller costs such as homeowner's insurance, utility bills, and repairs also contribute to the overall cost of home ownership. Taking them into account before you start shopping can help you avoid unpleasant financial surprises.

Here are some common "hidden costs" that you may encounter, as well as ways to prepare for them.

Hidden Costs of Home Buying and Owning

Home repairs and beautification of the home

Depending on the age and condition of the home, you may need to update or repair certain features.

Last year's research and survey results from Zillow and the home services website Thumbtack revealed that 65 percent of active buyers are not looking for a fixer-upper. However, the research revealed that the average home for sale may require nearly $30,000 in repairs, and that new homeowners should anticipate spending $26,900 to make their new home move-in ready.

This is significantly more than the $10,000 to $15,000 that the average millennial surveyed by Thumbtack anticipates spending on repairs and upgrades.

The most expensive project, evaluating, repairing, or replacing heating and air conditioning systems, averaged $3,615 nationwide.

New furnishings

Everything in a home has a finite lifespan, including appliances.

The appliances in a newly constructed home should be new and under warranty. Depending on the age and condition of the appliances in a resale home, the necessity to replace or repair them can vary significantly.

Even the most fundamental models of the majority of home appliances cost several hundreds of dollars. Add bells and whistles, and replacing a refrigerator could cost thousands of dollars. You may also be required to pay for installation, which could be costly if it involves alterations to the electrical wiring or plumbing.

Utility expenses

If your previous rental home included utilities, the cost of utilities may surprise you if you are a first-time buyer.

Utilities for urban residents may include:



Garbage pickup


Natural gas

Water and sewer

Utility expenses in rural areas may include:


Garbage pickup



Septic repair and maintenance


Wood or wood pellets for heat

Larger homes are likely to incur higher heating and cooling expenses, and older homes may be less energy efficient unless new windows and/or insulation have been installed.

Homeowners’ insurance

The price of homeowner's insurance will vary based on your location, the type of coverage you purchase, and any discounts for which you qualify, as well as your insurer.

In general, you can anticipate to pay approximately $35 per month for every $100,000 in home value. For example, if your home is worth $300,000, you will pay approximately $105 per month for basic coverage. Hazard-prone regions are likely to incur a higher price.

Rebuilding or repair coverage after an earthquake or flood is typically excluded from standard homeowner's policies, so you may wish to purchase a separate policy — or, in the case of flood insurance, be required to do so.

The lender will typically include the cost of insurance in the monthly mortgage payment and pay the premiums on your behalf if you purchase with a mortgage.

Homeowner association fees

Homeowner associations (HOAs) are non-profit organizations that can establish and enforce rules, provide basic services such as water, and maintain and repair community amenities such as swimming pools, roads, and landscaping.

HOAs are commonly found in condominium, townhome, and planned single-family home communities; they are managed by a board of homeowners and typically require monthly or annual dues.

Dues can change based on the requirements of the community. For example, an association that has neglected maintenance or wants to develop a new park can increase dues or impose special assessments.

How to prepare for the hidden costs

Determine how much you intend to put down on the purchase and how much you're willing to spend on closing costs and improvements as a starting point. A good rule of thumb is to reserve 1 to 4 percent of the home's price for hidden costs.

Consider your home inspection a preview of what to anticipate.

Prior to submitting an offer to purchase a home, a home inspection is the best way to estimate potential costs for repairs and upgrades. A competent inspector can evaluate the electrical and plumbing systems, structural integrity, and condition of the roof, and some inspectors can also provide cost estimates for various repairs. Even seemingly minor repairs can add up over time, so anticipating what your home may require can help you budget accordingly.

Once you have an understanding of the necessary repairs, you can factor them into the cost of the home to determine the true cost of ownership and compare the price to other homes that may not require as much maintenance.

Plan for renovations and maintenance.

Consider what must be completed immediately, what can wait, and what you might be able to do yourself if you're handy. Be realistic. Some home projects, such as exterior painting or kitchen remodeling, can be time-consuming if you are employed and/or caring for a family.

• Get familiar with your appliances.

You should also request that your inspector test the appliances during the home inspection and that your real estate agent obtain the age of the appliances and the average summer and winter utility costs from the seller.

• Investigate the home warranties.

A home warranty, which is a short-term service contract that assists homebuyers in covering the costs of repairing or replacing certain mechanical systems during the first year of ownership, can alleviate some of the financial uncertainty. Home warranties typically cost between $300 and $800, depending on the level of coverage, and can be paid monthly or in a lump sum. You can either request that the seller pay for one or purchase one yourself.

• Consider HOAs.

Since HOA dues are fixed for the year, incorporating them into the budget should be straightforward. Request a copy of the HOA's three most recent annual financial reports to determine whether it spends money on routine maintenance to get a sense of how stable these costs are likely to be over time. The inaction of HOAs can result in costly projects that require special assessments or substantial dues increases.

• Compute the cost of maintenance.

If you are considering purchasing a home with a yard, consider the amount of time and money you are willing to invest in its maintenance. If you don't want to purchase lawn equipment or would rather hire someone to do it, include this in your budget.

Post a Comment

Post a Comment (0)