4 Hidden Costs of Homeownership

The price of a home is not the same as what you'll actually pay for it. Be aware of all the costs before you decide to buy.

Aug 10, 2014 at 11:29AM

Home prices look like they're finally beginning to cool off, and summer is historically a very busy time for real estate. So, naturally, a lot of new buyers might be considering taking the plunge and buying their first house.

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Before you jump in, be aware that the price you agree to pay is by no means the true cost of buying the house.

With today's mortgage rates, the principal and interest payments on a 30-year, $200,000 mortgage would be about $975 per month.

However, there are several other expenses you need to take into consideration, some of which are one-time costs and some are recurring and even growing over time, like property taxes.

Closing costs
This is a long list of fees and other charges you'll have to pay in order to finalize your mortgage. There are too many individual costs to mention here, so I'll just name a few of the larger expenses.

The bank will order an appraisal to confirm the home's value, and this will cost around $450. The escrow or closing fee can cost $500 or more, depending on the home's price. Title insurance costs can go well into the thousands, some states require a property survey (around $400), and the closing attorney will charge you at least $400.

Additionally, your lender will charge processing and underwriting fees totaling around $2,000.

Then, you'll have to pre-pay six months to a year of taxes and insurance up front. Generally, closing costs add up to 3-5% of the home's price. If you want to see a more complete list of costs, Zillow has one here.

Mortgage insurance
If you put less than 20% down when buying, you can expect to pay mortgage insurance, especially with an FHA loan. And, you'll most likely be responsible for an upfront payment as well as an additional amount tacked onto your monthly mortgage payments.

With conventional financing, the premiums vary, but to give you an idea, the FHA has set amounts. You'll pay an amount equal to 1.75% of the mortgage amount upfront, as well as a recurring premium of 1.35% of the loan balance for most loans, which gets divided by 12 and added to your payments.

So, on a $200,000 loan, expect to have $3,500 added to your closing costs and about $225 added to each payment.

Taxes and insurance
Property taxes are assessed by the county where you live, and go toward schools, emergency services, and other local government activities. In some places, your garbage collection and sewer charges are added into your taxes.


Flickr / JoeInSouthernCA.

Taxes vary widely depending on where you live. A typical 2000 square foot house in South Carolina might have annual property taxes of about $1,000, while the same house in New Jersey could come with $9,000 in taxes. Your tax bill will be divided by 12 and added to your payments, so it's definitely worth checking the property's tax records before making an offer.

Insurance also varies widely depending on the location-specific hazards facing your home.

For example, coastal homeowners with a mortgage may be required to obtain windstorm and flood insurance, in addition to regular homeowner's insurance. Insurance will also be added to your payments on a monthly basis.

Don't forget about maintenance
Last, but certainly not least, is the cost (both monetary and time) of maintaining a home.

Simply put, over time things break and need fixing. And, some of these things can be quite expensive.


Flickr / wheeldog.

If your central air and heat unit dies, for example, you'll need several thousands of dollars available for a replacement. And, the older your house is, the more you should plan to spend on it.

If your home has a yard, you'll need to invest in some lawn equipment, and be prepared to spend a considerable amount of time doing yard work, or else the property's appearance will begin to suffer very quickly.

Know what you're getting into
My purpose here isn't to talk you out of buying a house. Quite the opposite actually. The goal is to get future homebuyers prepared and knowledgeable enough to make wise decisions.

Make sure you know the true cost of the home you're considering, so you only buy as much house as you can truly afford and so that you don't buy until you're ready for the expenses.

With these added costs, that $975 monthly payment can easily become $1,300 or more, not to mention the upfront expenses.

However, if you do your homework and know this from the start, homeownership can be one of the most rewarding experiences of your life, both financially and emotionally.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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