If you are buying a home or for the first time, it is very important to understand the necessary costs of being a homeowner beyond the down payment and mortgage costs.

You have to understand the costs of home insurance, property taxes, maintenance, utilities, association expenses and other costs you might not anticipate.

Home insurance

When you are looking to buy a house or condo, be sure to obtain actual insurance quotes for properties you are considering. A ballpark estimate of annual insurance cost of insurance is 0.5% of the value of a home. But get actual costs, not an estimate.

Take into consideration whether the area you are considering is prone to natural disasters such as hurricanes, tornadoes or wildfires. The annual cost of home insurance in areas prone to natural disasters could be three times, or more than the national average.

You should also consider that in subsequent years, because of inflation, the costs are likely to increase, not decrease.

Maintenance

According to a Zillow and Thumbtacks report of 2023, routine home maintenance averages about $500 per month. If you are purchasing an older home, you should estimate the cost to be higher. These estimates refer to appliance repairs and lawn care. The cost of a new roof, air conditioning, water heaters and the like would be more expensive, so you should take into consideration the age of those items. Many experts recommend estimating a budget of 1% per year to cover large items. You can review real estate websites for additional estimates.

Association fees

Association fees can be several hundred dollars a month, depending on the type of home and neighborhood you choose. For example, I owned an apartment in a well-built condominium and paid over $900 per month in association dues. It was worth it because of the quality of the neighborhood and the condition of the property. After living there for only two years, I was able to sell the property at a profit of over 15%.

Make sure that you will not be subject to a special one-time assessment in addition to yearly association dues. If possible, ask your agent if he or she can obtain recent association meeting minutes and financial statements, which will help you identify current problems. Also, determine how stable the yearly association dues have been.

Property taxes

Generally property taxes are typically 1% of the value of the home each year. However, they vary substantially within states and neighborhoods. Tax bills generally increase as the property values increase in the neighborhood. You should investigate whether there are upcoming spending proposals in the area that would increase property taxes. Read local newspapers to determine local business conditions.

Utilities

Determine from your agent, the seller and neighbors the size of their utility bills. Homeowners in the U.S. spend an average of $3,000 on energy, including electricity and natural gas.

Miscellaneous

If you have children of school age, make sure that the local school system is as good as or better than the school system you are leaving. You should also take into consideration other factors such as commuting expenses if you are moving away from your present job. Other factors to consider are the convenience and associated costs of local restaurants, entertainment, grocery stores, department stores and medical professionals.

Bottom line: Before you make a final housing decision, analyze closely the costs associated with home ownership, as well as indirect or miscellaneous factors. If possible, talk to the prospective neighbors and ask them how satisfied they are living in this neighborhood. I would hesitate purchasing in a neighborhood where the neighbors are dissatisfied with local conditions.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.