
Buying a house is a milestone for many, but the expenses extend far beyond the cash purchase price or the down payment and mortgage. If you’re considering becoming a homeowner, understanding the full scope of associated costs is crucial.
Here’s a breakdown of the key hidden expenses to prepare for when purchasing a home.
1. Homeowners Insurance
While budgeting for a mortgage, don’t overlook property insurance costs. Homeowners insurance typically amounts to 0.5% of the home’s value annually. However, in areas prone to natural disasters like wildfires, flood, or hurricanes, premiums can be significantly higher.
San Diego Real Estate Agent Tip: Get specific quotes for properties you’re considering before making an offer to avoid surprises. Due to some properties being located in high wildfire risks, insurance may not be available through private insurers and a homeowner may have to get insurance through the California FAIR plan. Remember that these costs may increase annually due to inflation or risk-pricing re-assessments from the insurance companies.
Homeowner’s insurance is required in homes that have a mortgage and flood insurance if the property is located in a flood zone. Beyond that, homeowners may want to consider the costs of adding earthquake insurance for California properties.
Important note: Homeowner’s property insurance recently became a Contingency on California Purchase Contracts, meaning that the buyer has a predefined amount of time to secure a reasonable insurance quote before removing the Contingency and proceeding to finalize the purchase of the property.
2. Routine Maintenance and Repairs
Maintaining your dream home doesn’t come cheap. Routine maintenance—covering tasks like HVAC servicing, landscaping and lawn care, appliance repairs, and even pest control (i.e. termite) can add up quickly.
Unexpected major repairs, such as a roof replacement or plumbing fixes, can quickly escalate costs. Financial planners recommend setting aside 1% of the home’s value annually or more to cover such expenses.
San Diego Real Estate Agent Pro Tip: Schedule regular inspections and maintain a home repair fund to manage these costs proactively. Look into an annual home warranty to help minimize cash outlays in the event of system failures.
3. Homeowners Association (HOA) Fees
If your new home is part of a community with an HOA, expect to pay monthly or yearly fees for amenities and shared maintenance. These can range from a few hundred dollars a year to thousands monthly, depending on the neighborhood. Also plan for annual increases in the monthly HOA dues.
San Diego Real Estate Agent Pro Tip: Check the HOA’s financial health and meeting minutes to anticipate potential special assessments for large projects. In our local San Diego real estate market, we’ve seen roof replacements and community electrical system upgrades by the HOA as some of the examples of big-budget projects that can cause large one-time HOA assessments.
4. Property Taxes
Property taxes often equal 1% of a home’s value annually, though rates vary widely by location. As your property appreciates, your tax bill will likely increase. In California, some properties may also be located in a Community Facilities District (CFD) that assess CFD bonds that could add less than a percent annual assessment to the annual property taxes.
San Diego Real Estate Agent Pro Tip: Research local tax rates and consider the impact of periodic property reassessments or new voter-approved tax initiatives.
5. Utilities
Energy bills, water, and waste management fees add up quickly.
San Diego Real Estate Agent Pro Tip: Ask the seller or neighbors for typical utility costs in the area to set accurate expectations. Your utilities of course will depend on your personal consumption. Some homes within an Homeowner’s Association may have some utilities included in the monthly HOA fee. With San Diego’s mild climate, heating and cooling is not as bad as other areas. Solar panels may also be helpful in reducing utilities bills.
6. Moving and Post-Move Costs
Buying a house often comes with unforeseen post-move expenses. From purchasing new furniture and appliances to covering home improvement costs based on your personal tastes, these additional expenses can strain your budget.
During a purchase there are often negotiations with the home seller for certain repairs to the property. Few home sellers agree to every item requested, often leaving some repairs for the eventual buyer to complete at their own cost.
San Diego Real Estate Agent Pro Tip: Reserve some savings to cover initial setup costs and lifestyle adjustments.
7. Emergency Repairs
Unlike renters, homeowners are responsible for unexpected breakdowns. Imagine moving in and discovering the furnace needs immediate replacement—costing $5,000 or more.
San Diego Real Estate Agent Pro Tip: Maintain a robust emergency fund to cover such contingencies without stress. Beyond the initial one-year home warranty provided at the purchase of your home, as mentioned above in #2, homeowners may want to continue coverage and shop for a good home warranty coverage.
Plan Ahead to Avoid Surprises
Owning a home is rewarding, but preparation is key to avoiding financial strain. Factor these hidden costs into your budget and consult with a real estate expert to make informed decisions.
It is often said that in real estate ‘cash is king’, and we believe that this applies in numerous ways. Having an emergency or rainy day fund can be a comfort for homeowners, knowing that they’ve got most things covered. Remember too that a homeowner can open a Home Equity Line of Credit (HELOC) to help in case of emergencies.
At DreamWell Homes Realty, we’re here to guide you through the complexities of homeownership. From choosing the perfect property to understanding all associated costs, we’ve got you covered. Contact us today to learn more and make your homeownership dreams a reality!
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Contact Jean and Ken Tritle, a husband and wife real estate broker/agent team at DreamWell Homes Realty.
Call or Text: 760-798-9024
Email: jeanken@dreamwellhomes.com