Buying a home in 2024 comes with many challenges. You’ll face fierce competition, high home prices, and high interest rates. However, the benefits of owning a home are still significant for most Americans.
While there are many costs associated with buying a home, some of the hidden costs are often overlooked by many prospective homebuyers. Let’s take a look at the most common hidden costs of buying a home and how to navigate these financial responsibilities while preparing to buy a home this year.
Hidden Costs of Buying a Home
We all know the upfront costs of purchasing a home: the down payment, real estate agent fees, and closing costs. However, there are some costs that many aspiring homeowners aren’t aware of until it’s too late.
Home Inspections
A home inspection is just as it sounds – a thorough examination of a property to assess its condition and safety for new homeowners. They are typically conducted by a trained home inspector to provide an unbiased assessment on the core components of a property. This includes:
- Electrical systems
- HVAC
- Plumbing
- Foundation
- Roof
- Insulation
Before making an offer to purchase a home, buyers must have an understanding of the condition of the home and any repairs that will be necessary after purchase. Home inspections are also important since some issues may not be visible to the untrained eye and could present safety issues for the new owner.
Home inspection costs vary depending on your location, the size of your property, and current market rates. However, Americans pay $342 on average for home inspections.
Property Taxes
Property taxes are state tax charges assessed to property owners based on the assessed value of their home. Unfortunately, property taxes are mandatory for all homeowners in the United States and may fluctuate year-over-year due to changes in property values.
Property taxes are often considered a hidden cost of buying a home because they’re not included in your monthly mortgage payments. Lenders typically show you the estimated mortgage payment for your new home but may not include property taxes or the impact it will have on your housing expenses.
Just like home inspections, property taxes vary widely depending on the area you live. For example, average annual property taxes in Tennessee total $1,659 while homeowners in California pay $6,492 on average.
Homeowners Insurance
Another hidden cost that comes with buying a home is homeowners insurance. This insurance protects homeowners from damage, destruction, and other covered events under the policy. Events like fires, natural disasters, or vandalism are typically covered under homeowners insurance.
Similar to property taxes, some lenders don’t include homeowners insurance on their monthly estimation of mortgage expenses. Mortgage companies may project your mortgage payment and other upfront costs without factoring in homeowners insurance.
Additionally, homeowners insurance premiums can vary depending on your home’s location. For example, homes in Florida often have higher premiums due to the risk of hurricanes and natural disasters.
Homeowners Association Fees
Most communities, condo complexes, and neighborhoods require residents to join a Homeowners Association (HOA). The HOA requires residents to pay yearly dues to maintain and improve the common areas and amenities within the community.
HOA fees cover a variety of expenses and projects for the community, including:
- Landscaping
- Upkeep of parks, pools, gyms, etc.
- Trash collection
- Insurance
- Unexpected expenses
HOA fees are generally influenced by the size of the community and the amenities offered to residents. Location also plays a role in determining HOA fees, which means communities in areas with higher property values are likely to charge higher HOA fees.
Mortgage Insurance Premiums
Aspiring homeowners seeking an FHA loan benefit from low down payment requirements and less stringent credit qualifications. However, FHA loans also come with mortgage insurance premiums for first-time homebuyers and those who cannot afford a conventional mortgage.
The mortgage insurance premium hits new homeowners in two ways: the upfront mortgage insurance premium (UFMIP) and the monthly mortgage insurance premium.
The upfront mortgage insurance premium for FHA loans is charged at closing and amounts to 1.75% of the home’s purchase price. This means a $500,000 home comes with an added $8,750 in UFMIP. On the other hand, the monthly mortgage insurance premium is an added cost to your mortgage payments for the life of the loan and varies depending on the loan amount and term.
Final Thoughts
Buying a home is one of the best decisions you’ll make in your lifetime. Regardless of the current economic landscape, real estate and homeownership continues to be an effective way to generate generational wealth for you and your family in the long-term.
Are you interested in buying a home in the Tampa area? Give Teresa Williams a call at 813-434-0290 to get your homeownership journey started with Prospera Realty!
