When navigating the current hell that is our housing market, it’s natural to have financial tunnel vision for things like the down payment and steep mortgage rates. However, in addition to all the major upfront costs, buying a home is also full of hidden money pits that could trap you down the line. When I pitched this piece, it was especially supported by Lifehacker managing editor Meghan Walbert, aka someone who owns a 98-year-old home and is “literally paying $1,500 today to install a radon mitigation system.” In her words, “tear up my basement and take my money, thank you!”
If you’re in the market for a new home, here are the money pits you need to consider—and how you can avoid them.
Factor in maintenance and repair costs
When you think about what it costs to buy a home, you might be focused mostly on upfront costs. What you also need to factor in are “hidden” ongoing costs, like for maintenance and repairs.
The general rule of thumb is for homeowners to budget between 1% to 4% annually of the purchase price of their home for preventative maintenance and repair costs. And naturally, the older your home, the more you can expect to spend. According to Money.com, that 1% to 4% equates to between $4,500 and $18,000 on a median-priced house.
Think of it like an emergency fund for your home. This means you’ll need to budget a cash reserve for all the surprise expenses that come with taking care of your home, like HVAC cleaning or patching roof leaks.
Among the biggest money pit areas: the basement and foundation. Not only do you want to get a good inspection before you buy, but also, look into the property’s renovation history. On that note...
Check the renovation history
In most cases, the seller must disclose any major work done on a home. It pays to do your own research, too. You don’t want to discover that some renovations were made with mistakes and without a warranty, leaving you in charge of fixing whatever costly damage has been done.
One step you can take is to request a CLUE Report on the home to see every insurance claim made on it in the last several years. You can also ask the listing agent for the name and license number of the contractor who performed the work. Then, look them up through your state’s licensing agency or board. Make sure you’re not signing on to shouldering the expense of sketchy contractors and never-ending renovations.
Look into HOA rules in your area
HOAs—homeowners associations—are private organizations that can determine everything from the color of the mulch in front of your home to where you can place your trashcans. They also come with plenty of sneaky fees. According to Morning Brew, if your home is one of the roughly 40 million housing units that fall under an HOA, you can expect to pay around $200 to $300 per month. Check your prospective HOA’s Covenants, Conditions & Restrictions (or CC&Rs) to know what sorts of fees you can expect, as well as their history of fee hikes over the years. And make sure to know before you even see a house whether there’s an HOA to worry about.
The bottom line is that while buying a new home is always going to be a financial whirlwind, it’s important to do your due diligence beyond daunting upfront costs. You don’t want to commit to a house before you’re truly financially ready. Here’s what else you need to know before buying your first home.
