5 Expenses That Shock First-Time Homebuyers

Young girl putting up a painting in her new home
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First-time homebuyers are often shocked by how much it costs to buy and take care of a home. Some costs that come along with owning a home are predictable, such as your mortgage payment. There are other costs of owning a home that take homeowners by surprise. They may include property taxes, insurance, utility bills, and more. U.S. homeowners can spend more than $9,000 per year on these hidden home purchase and maintenance costs, according to a report by Zillow and Thumbtack.

You don’t want to fall in love with a home, only to find out that living there will cost more than you can afford. Here’s a guide to the line items you should know about so you won't be shocked when these costs come up.

Closing Costs

Closing is the last step in the mortgage process. Your loan has been approved, your home inspection is done, and you're ready to get your keys. Once your purchase is complete, you'll have a closing meeting to sign your final papers and pay for a laundry list of costs, including:

  • Mortgage interest
  • Taxes and insurance escrow payments
  • Lender application fees
  • Legal fees
  • Title insurance
  • Recording fees—paid to the county clerk’s office to record the deed
  • Potential real estate tax reimbursements if the seller has paid them upfront

You can expect to pay 2%–5% of the total cost of the home, says Rebecca Mason, executive vice president and head of sales at OneTitle, a national title underwriter. Some costs will vary from state to state. For instance, one county might charge $20 per page for recording fees, while another might charge $5.

The first loan estimate you get will have a ballpark figure for your total closing costs, but they won't be official until closing time.

Home Maintenance

You should plan on paying at least 1% of your home's value in upkeep costs every year. That number will vary. Jeremy Wacksman, president of Zillow, notes that upkeep on condos or attached townhomes tends to be lower than single-family homes on their own land.

Some of the most common maintenance requests from Zillow and Thumbtack’s study were house cleaning, yard care, gutter cleaning, and pressure washing. Prices can vary widely based on the area. Your agent and home inspector can help you figure out what routine jobs will cost in your area when it comes to first-year costs. Sites such as Angie’s List and Thumbtack can also help with estimates.

Property Taxes

Property taxes don’t just vary by state. They also vary by city and increase or decrease based on city, county, or neighborhood. The Tax Foundation has a property tax data lookup tool by county, which you can use when planning costs.

If you believe that your property taxes are higher than they should be, compared with other homes in your area, you can ask for an appeal of your tax assessment. In some areas, you might need legal help to do that, or you can do it yourself and save the fees.

Utilities

Utility costs can be as high as property taxes, says Wacksman. They can run a couple of hundred dollars per month or more. Costs vary with climate, local costs, and certain appliances. Annual costs range from over $7,000 in Hawaii to just over $4,100 in New Mexico. The national average is just shy of $5,000.

To get a clear sense of what to budget for utilities, ask a friend with a home in the area to give you a peek at their monthly bills. Be sure to adjust for the size of their home compared to the one you're buying.

Homeowners Insurance

If you’re getting a mortgage, you’ll be required to have homeowners insurance. Even if you pay cash for your home, you should have it anyway. You should aim for getting a replacement cost policy, which will cover the cost of replacing the items that get stolen or damaged in a fire, rather than one that gives you the depreciated value of the items lost.

According to the Insurance Information Institute, the average yearly cost for home insurance was $1,249 in 2018, the most recent year with data. Premiums will vary based on your area and the value of your home. You can save yourself a large amount by shopping around both online and in person. Ask about what discounts you can get, including discounts for security systems and bundling coverage for your home with your auto policy.

Be aware of the things home insurance won't cover. Policies tend only to protect your home and the items within, but if you’re buying a condominium, the co-op might require a liability rider for accidents on any shared property. If you’re in a flood zone or an area with a high risk of earthquakes, you’ll need more protection.

The Bottom Line

A home is one of the best purchases you can make, but the costs of buying one might be shocking if you're a first-time buyer. As much as possible, you want to avoid being caught by surprise. Before you buy a home, make sure you know what you're getting into—and whether you can afford it.

Key Takeaways

  • Closing costs, which include taxes, escrow payments, and various fees, are typically 2%–5% of the total cost of the home.
  • Regular home upkeep, such as cleaning, yard care, and repairs, can total at least 1% of your home's value every year.
  • Property taxes vary by city or even neighborhood; if you believe that your costs are higher than they should be, you can appeal your tax assessment.
  • Utility costs and home insurance can add thousands of dollars every year to your housing expenses.