HOPE TO BUY A HOME THIS YEAR? CCCS SAYS, “THE COSTS DON’T STOP ONCE YOU CLOSE!”

As the summer descends full swing, this is a great time to reflect on the benefits and responsibilities of being a homeowner. Few investments are as challenging and satisfying as purchasing your first property. Consumers often spend months or years saving toward a down payment and closing costs, but these are just their first expenses. Once buyers become owners, there are many more. Housing counselor Matthew Gregory, who works at national nonprofit Consumer Credit Counseling Service of Maryland and Delaware (CCCS), thinks most first-time buyers recognize the long-term benefits of homeownership but are less aware of the ongoing expenses they will face. He says, “They know homeownership will help them build equity and lead to deductions on their taxes. They look forward to the stability it brings. But once they move in, it sometimes surprises them how much things can cost. Knowing and preparing for these expenditures is the best way to avoid sticker shock and stress over the long haul.” 

But if you’ve never owned a home, how can you know how much it will cost? Aside from your mortgage payment, here’s a preview of some of the other expenses you’re likely to encounter:

Tax and Insurance Costs

CCCS housing counselor Mary Rammel says, “Property taxes and homeowner’s insurance are two major expenses you are responsible for covering throughout the life of your home. These expenses are often placed in an escrow account by your mortgage company and are paid as part of your monthly mortgage payment. If by some chance they aren’t, you’ll be expected to come up with the money to pay them yourself.” 

Real property taxes are generally charged by your local government or municipality, county, or state to help fund public works projects, pay government employees’ or school boards’ wages, or other such items. Property taxes are assessed based on the current value of your home and can change periodically as its value goes up or down.

Property taxes also vary from area-to-area. Before you purchase a home, Rammel recommends checking out what taxes run in the community where you hope to buy. She cautions, “Once you become a homeowner, be sure your property taxes are paid on time and in full. Otherwise, you could lose your home.” You may be able to reduce the amount of property tax you pay by filling out a Homestead Property exemption or credit form. To learn how to apply for this discount, contact your State or County Department of Assessment and Taxation as soon as you take ownership.

Homeowner’s insurance is generally required by your lender to protect against damage to the property, but it protects you as well. A standard policy insures the house itself and the possessions you keep there. Destruction caused by many disasters may be covered, but there are exceptions.  For example, repair or replacement due to floods, earthquakes, and poor maintenance are rarely included. 

Gregory says, “Before taking out homeowner’s insurance, it’s wise to shop around. Different companies have different coverage for different amounts. You need to know what you can afford and think about the types of coverage you’ll need.” Rammel suggests talking with the company that underwrites your car insurance. “Given you’re already a customer, they may be willing to provide a better rate.”

If you make less than a 20% down payment on your home, private mortgage insurance or PMI is another expense you’ll probably be required to pay. This type of insurance protects the lender if the borrower defaults or is unable to make loan payments. PMI is normally wrapped into your mortgage payment, but it can really add up, as premiums generally cost $30 - $70 a month for every $100,000 borrowed.

Utility and Maintenance Costs

Gregory says if you’ve rented your whole life, you may not be aware just how much utilities cost, because your landlord has always paid this bill. “Before you become a homeowner, try to get a handle on what your utilities will run. Otherwise, that first freezing winter in your home might be a real eye opener.” For budgeting purposes, Rammel recommends homebuyers talk with their sellers or call the local utility company to ask what bills have averaged for the property they hope to buy.

If you buy a condominium, townhouse, or other property in a planned development, you may be required to join the community’s homeowner’s association (HOA) and pay monthly or annual fees for the upkeep on common areas and the building where you live. HOA fees generally run $200-$400 per month. The more upscale the amenities, the higher they are bound to be.  Before you buy a home in this type of setting, ask how fees are set and how much they currently run. Also inquire about the rules that govern the community. Otherwise, you may find you can’t afford and don’t enjoy the lifestyle you’ve bought in to.

Homeowners who don’t belong to an HOA don’t pay fees, but they are responsible for the full upkeep on their homes and property.  Gregory says the time and cost involved in even routine maintenance can be sobering, especially if you’ve never had to take care of your living space, yard, or appliances before. “Suddenly you’re responsible for mowing the lawn and removing snow. These chores take time and require the right equipment. Knowing this upfront will save you aggravation later on.”

Unexpected repair or replacement can be particularly worrisome and costly, especially if you aren’t comfortable making small repairs yourself.  Rammel recommends buyers find out as much as they can about the property they hope to purchase. “Pay attention to what the home inspector tells you, and don’t be afraid to ask the seller questions. ‘How old are the appliances? When was the roof replaced last? Have you kept records or receipts on work that’s been done? ’ Information like this can give you a better estimate of the expenses you may soon have to pay.” 

Once you buy a home, both Gregory and Rammel say it’s important to budget and keep spending on new furnishings to a minimum. Gregory says, “This will make it easier to build a nest egg to cover the necessary costs of ownership.”

 Rammel recommends buyers take CCCS’s online pre-purchase homeownership certificate course to learn more about the realities of owning. “You can take the course at you convenience. It’s flexible, so you can do as much or little as your schedule allows. Once it’s complete, you have the added benefit of working one-on-one with one of our trained housing counselors.”  

If you’d like to know more about the CCCS online course, visit the agency website or call 1-866-731-8486 for further details.  The more you know about the costs you’ll encounter as a homeowner, the better prepared you’ll be!

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Consumer Credit Counseling Service of MD & DE, Inc. (CCCS) is an accredited 501(c)(3) nonprofit agency that helps stabilize communities by creating hope and promoting economic self-sufficiency to individuals and families through financial education and counseling.  CCCS MD State License #14-01