Three surprises for first-time homebuyers

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Homeownership has become more and more out of reach for homebuyers due to record-high property prices and rising mortgage interest rates, and first-time buyers may be surprised by hidden expenditures, according to experts.

According to a June analysis from Zillow and Thumbtack, regular home expenses, such as energy bills, property taxes, insurance, and home maintenance, actually cost the average homeowner $14,155 annually, not adding the standard mortgage payment.

According to Vince Darling, a certified financial advisor with the Stonebridge Group in Forest Lake, Minnesota, many homeowners only pay attention to the principal and interest of their mortgage payment. This may cause people to pinch pennies after moving into a new house.

Here are three of the most typical unforeseen house expenses and advice on how to plan for each one, per experts.

1. Property taxes

Given that you have never directly paid property taxes, it is simple for a first-time house buyer to overlook them. It is more difficult to prepare for the bill because rates frequently vary greatly by city or county.

According to the assessed value of your home, it’s critical to understand which jurisdictions are responsible for collecting taxes and how frequently reassessments take place, according to Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center. “A good person to call up would be the local representative,” he advised.

2. Homeowners insurance

Homeowners insurance is another significant cost; according to Bankrate, the average yearly premium for $250,000 in housing coverage is $1,428.

However, CFP noted that in disaster-prone locations, it may be substantially greater. Vice President at Wealthspire Advisors in New York, Kevin Brady. Check your coverage carefully, he advised, as these insurance might not cover important weather occurrences.

You often need different coverage for earthquakes and floods. A different deductible and rules for hurricanes and other windstorms can apply to you.

Before submitting a house buying offer, you might start looking for a policy and getting quotations due to rising premiums.

3. Home maintenance

For first-time homebuyers, the cost of home maintenance and repairs might sometimes be an unanticipated expense.

According to Thumbtack, annual maintenance expenditures increased to an all-time high during the second quarter of 2023, reaching $6,493, up from —$5,984 the year before.

While a competent house inspector can inform potential purchasers about the state of main systems that frequently require replacement at predetermined intervals, such as the condition of the roof, they can advise additional savings for unforeseen costs.

As a first-time home buyer, you should ensure you have an adequate buffer for surprises, according to Nicole Sullivan, a Libertyville, Illinois-based CFP and co-founder of Prism Planning Partners. I’d suggest that this cushion should be at least 5% of the home’s purchase price. First-time homeowners should be aware that anything discovered during the house inspection will need to be rectified and may need to be done as quickly as possible, she noted.

Homebuyers have it difficult in the US

An increase to 6% in mortgage rates was shocking enough for a generation of homebuyers accustomed to extremely low borrowing costs. But the US housing market is now experiencing a whole new level of uncertainty as a result of this month’s rise beyond 7%.

Loan applications for purchases dropped last week to their lowest level in nearly three decades, significantly slowing down deals. Many purchasers are locking in rates right away out of fear of waiting and maybe missing the next upswing. Additionally, low supply is causing the opposite of what is generally seen during a slump in the housing market: prices are rising even while sales decline.

If prospective homebuyers pay heed to these tips, they very well might save themselves some valuable dollar while at it.

Read Also: America’s raging housing crisis

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