Prospective buyers visit an open house for sale in Alexandria, Virginia.
Jonathan Ernst | Reuters
With record-high home prices and soaring mortgage interest rates, homeownership has become increasingly unaffordable — and hidden costs can surprise first-time buyers, experts say.
Indeed, everyday home expenses, including utility bills, property taxes, insurance and home maintenance, cost the average homeowner $14,155 a year, not counting the typical mortgage payment, according to a June report from Zillow and Thumbtack.
Many homebuyers just focus on the principal and interest of their mortgage payment, said certified financial planner Vince Darling at the Stonebridge Group in Forest Lake, Minnesota. “This can lead people to penny-pinch once they move into a new home.”
Here are three of the most common surprise homeownership expenses and how to prepare for each one, according to experts.
1. Property taxes
2. Homeowners insurance
Another major expense can be homeowners insurance, with an average yearly premium of $1,428 for $250,000 in dwelling coverage, according to Bankrate.
However, it can be significantly higher in disaster-prone areas, said CFP Kevin Brady, vice president at Wealthspire Advisors in New York. These policies may not cover key weather events, so check your coverage carefully, he said.
Typically, you’ll need separate policies for floods and earthquakes. You may face a separate deductible and provisions for hurricanes and other windstorms.
With premiums on the rise, you may start shopping for a policy and gathering quotes before putting in a home purchase offer.
“As a first-time homebuyer, you need to make sure you have a sufficient cushion for surprises — I’d argue 5% of the home’s purchase price at least,” said Nicole Sullivan, a Libertyville, Illinois-based CFP and co-founder of Prism Planning Partners.
“Be aware that anything that comes up on the home inspection will need to be addressed and could happen sooner rather than later,” she added.