6 Hidden Costs of Homeownership Millennials Aren’t Prepared for in 2024
The typical home in the U.S. goes for $417,700 right now, but the cost of homeownership doesn’t end there. Aside from the base listing price, owning a home also comes with additional fees like interest — unless you’re paying in cash — property taxes, HOA fees and maintenance. But these aren’t necessarily the only expenses you’ll need to pay as a homeowner either.
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Here are some of the hidden costs of owning a home that millennials — and other new homeowners — aren’t prepared for this year.
Insurance Hikes
“The single most important cost of ownership that millennials may not be prepared for is insurance increases,” said Mark Severino, a millennial and real estate investor at Best Texas House Buyers, LLC. “The cost to purchase the house is going up but more importantly the cost to keep and maintain the home is increasing. The expectation is [a] 6% increase in 2024.”
More expensive properties are generally also more expensive to insure. But environmental conditions also lead to insurance hikes.
“As weather patterns continue to become worse (heat, tornado, hurricane, and flood) insurance companies are moving away from protections available in the past,” Severino said. “High probability of a flood? Flood insurance goes up exponentially or insurance companies stop offering it. Long stretches of dry heat? Less options for fire damage insurance.”
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Exorbitant Real Estate Transfer Taxes
Purchasing a home means having to pay a one-time real estate transfer tax.
“The transfer tax applies to all residential real property, whether it is a single-family home, a co-op, or a condominium,” said Niklas Hackstein, a multicultural real estate agent and part of the luxury real estate team The Leonard Steinberg Team at Compass in New York.
In some places, like New York City, if you’re buying a new construction, the developer will pay the transfer tax for you. In other cases, you’ll have to pay it yourself — except in the rare case of a tax exemption.
“The transfer tax is based on the purchase price of the property,” Hackstein said.
For example, it’s 0.4% for properties below $3,000,000 and 0.65% for those with a higher purchase price in New York State. The fee may be higher on a citywide level.
Monthly Homeowners Association Fees
Aside from those millennials who skip the HOA neighborhoods altogether, these are pretty much unavoidable fees — and an easily forgotten one.
“Homeowner association fees are no joke and they tend to increase over time. Before you buy a home in an HOA, ask to see the financials,” said Joel Carson, president and principal broker at Utah Real Estate. “The national average is $191 per month. Anywhere from $200 to $300 is standard. Luxury properties can run higher.”
HOA fees can also increase based on projects done in the community.
“Ask property managers if any capital improvement projects are planned,” Carson said. “Homeowners participate in the cost of planned and unplanned maintenance and repair. An unexpected project could result in an additional assessment.”
Closing Costs
Closing costs typically range from about 1% to 3% of the home purchase price, but it all depends on factors like location and the property’s appraised value. Some closing costs include appraisal fees, credit report fees, inspection fees, title fees, transfer taxes and recording fees.
“Closing costs for a $5M new development with a, let’s say, $2.5M mortgage are around $300K to $400K which is, at least for me, significant,” Hackstein said.
Of course, you will be paying for these things upfront before officially closing on the loan — unless you choose to roll them over into your monthly payments. You’ll need to ask your lender about this, however, as not all will allow it.
Routine Maintenance and Repairs
While you might not be hit with expensive maintenance and repairs on day one, they’re going to happen eventually. So, just because they’re not part of your monthly payment doesn’t mean they don’t exist.
“Home repairs can be very costly. If you want to sleep easy at night, save for home repairs,” Carson said.
One option is to purchase a home warranty that covers the cost of certain repairs with a monthly deductible.
“A home warranty will cost from $30 to $80 per month. Each repair requires a deductible from $75 to $125,” Carson said. “Now, consider the cost of replacing a water heater, $880 to $1,800. A new HVAC system costs $8,000 or more to replace. If the seller does not pay for a warranty when you buy the home, definitely get one and keep it as long as possible!”
Certain Utilities (and Seasonal Fluctuations)
Homeowners might be prepared for things like gas, electric and water. But additional expenses like trash pickup or recycling services are often forgotten about. Many first-time buyers are also unprepared for price fluctuations based on the season.
“Utilities can be unexpectedly high during certain seasons. Contact the relevant utility company and ask for a billing history for your home so you can be prepared. The first time you leave a hose on all night or accidentally leave the A/C running on high all day, you will understand why your parents constantly reminded you to conserve energy while growing up. It doesn’t take long to run up a utility bill,” Carson said. “The responsibility to pay for water, sewer, gas, electricity, cable, phone and internet add up fast.”
Other Hidden Fees of Homeownership
Even the best-prepared millennials can forget about or be unaware of the full cost of homeownership.
“Most homeowners understand that eventually, something will need a repair, whether it’s an HVAC unit or an electrical outlet,” said Omer Reiner, a licensed Realtor and president of FL Cash Home Buyers, LLC.
“However, things you might not have thought about include pest control, landscaping and, depending on what type of siding you have, pressure washing,” he continued. “While these things aren’t technically required, they are tasks that need to be handled or else consequences will cost you much more down the line.”
John Bodrozic, co-founder of HomeZada, had a few other general surprise expenses millennial homeowners and first-time buyers don’t often plan for. This includes home warranties, private mortgage insurance, remodeling and regional specialty insurance beyond the standard coverage. It also includes property taxes that aren’t impounded and come due every April 10 and Dec. 10.
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This article originally appeared on GOBankingRates.com: 6 Hidden Costs of Homeownership Millennials Aren’t Prepared for in 2024
