According to the Urban Institute, 63 percent of millennials who bought homes have regrets resulting from underestimating the hidden costs.
Zillow found that American homeowners spend nearly $9,400 in hidden costs to own and care for a median-priced home. Let’s first differentiate hidden costs from not-so-hidden costs.
Not-so-hidden costs: Mortgage, taxes, and insurance
Your mortgage payment is not a hidden cost. If you take out a loan to buy real property, then you will have a monthly mortgage payment.
Likewise, taxes and insurance are not hidden costs and are often (but not always) covered in your mortgage payment. An understanding of how much taxes and insurance will cost is an important part of the decision to buy a property.
Hidden cost: HOA fees
HOA fees. When you buy real property governed by a homeowners association, then you will have to pay a monthly or quarterly fee (or “assessment”). You agree to be bound by the HOA at closing on the property, so HOA fees are not hidden. But less obvious is how often and by what percentage the fees are increased. Only by reviewing the association’s documents will you be able to determine how often the HOA raises its rates (and by how much). Also look into the association’s history of “special assessments,” which is an amount additional to regular fees, charged
to make up for budget shortfalls for big-ticket items like roofs or boilers. Special assessments can be very costly.
Hidden cost: Maintenance
Fixtures and appliances periodically break down and need to be replaced. Know the age and replacement value of appliances and fixtures before you purchase the property. Upkeep and repairs can run thousands of dollars per year, depending on the property. Plan on spending between 1 percent and 3 percent of the total purchase price every year on home upkeep and maintenance. Roofs last about 20 years, refrigerators about 13 years. Eventually everything will need replacement.
Hidden cost: Closing costs
These costs include application and appraisal fees, attorney and/or title fees, courier, credit report, home inspection, etc. Estimate approximately 2 percent to 5 percent of the purchase price for closing fees. Zillow says that on average buyers pay about $3,700 in closing fees.
Hidden cost: Utilities
Water, garbage, cable and internet, electricity, gas. No one considers these costs “hidden.” But know before you buy what the average utility bills run for the property. Some HOAs include some of these costs in their fees. But other properties require enormous expenditures on utilities, especially for heat and electrical. Find out beforehand how much you will need to budget for ongoing utility bills, and where you may be able to trim.