10 Hidden Costs of Homeowners Insurance

You might be looking to buy a new house this year because mortgage interest rates are so low and the real estate market is flourishing. Perhaps you’ve created a budget to determine the size of your monthly payment. You also reasoned, “I can afford that,” while you looked for a property. But the less noticeable costs that go beyond a mortgage payment are something that many would-be homeowners fail to factor in. These may take prospective homeowners and their finances by surprise.

Ketan Parikh, the proprietor of ReKonnection real estate, asserts that owning a home is likely one of the biggest things you can do. According to Parikh, “you should consider your options and make sure you are aware of the genuine price. We compiled a list of 10 unexpected out-of-pocket expenses related to purchasing a new house after consulting experts. In this manner, you can make a thorough budget and choose a house that is actually inside your price range.

 

1. Moving Fees

You must find a way to transport your belongings to your new home, right? There is a price for that. Many folks neglect to budget for this expense. You can use a rented truck to move yourself or hire movers. Depending on how far you’re moving, your costs may change. The average cost of hiring professional movers is $1,366, depending on the size of the rental truck, the amount of belongings being moved, the distance being traveled, and the time of year.

2. Closing Costs and Earnest Money

Closing costs and down payments are two very different things. A down payment is a buyer’s initial up-front payment. Title insurance, appraisal fees, broker fees, and interest are just a few of the expenditures that go into a home’s closing, but closing costs cover all of these expenses as well. This expense may account for 3% to 6% of the buying price.

Earnest money, often known as “good-faith” money, is a down payment given by the buyer to demonstrate their willingness and ability to buy a home. These monies, which might be between 1% and 3% of the home’s value, are typically used for closing fees or a down payment. Earnest money can be more than you anticipate. According to Parikh, if a bank views you as having a bigger credit risk, it might demand more earnest money.

3. Maintenance and Home Repairs

Homebuyers frequently concentrate on expenses like private mortgage insurance (PMI). Even yet, according to Dr. Jared Pickens, a Texas A&M professor of economics and personal finance, the highest costs will come from unforeseen circumstances that arise after you purchase the home.

The likelihood of future home repairs increases with age. The biggest hidden costs, according to Pickens, are items like 20-year-old water heaters and 30-year-old roofs. “Older properties can have structural difficulties that aren’t identified in the examination,” he said.

10 Hidden Costs of Homeowners Insurance

Pickens advises considering the extra expenses you’re not used to budgeting for while switching from renting to owning. According to Parikh, maintenance and repair expenses are often covered by the landlord when you rent. Homeownership entails significant out-of-pocket expenses for things like leaky pipes and faulty air conditioning. According to Parikh, a brand-new air conditioner can easily cost up to $5,000.

4. Homeowner’s Insurance (HOI)

This kind of hazard insurance provides liability protection in the event of accidents that happen on your premises, as well as compensation for any property losses. Your lender will typically want proof of homeowner’s insurance. The average annual premium for homeowners insurance in 2023 was $1,211, according to the National Association of Insurance Commissioners, or NAIC. However, the price you will pay might vary significantly depending on factors like your home’s location, so get quotations before closing to avoid unpleasant surprises.

5. Mortgage Insurance (PMI or MIP)

Private mortgage insurance, or PMI, is a requirement for traditional loans for homebuyers who don’t put down the 20% minimum required by the lender. Any loan sponsored by the Federal Housing Authority must include a mortgage insurance payment, or MIP (FHA). MIP and PMI both offer protection to lenders in the event that a borrower fails on a loan. For a home worth $250,000, PMI or MIP can add another $100 to $200 to your monthly mortgage payment.

6. Lawn Care

One of your new obligations when moving from an apartment to a house could be a yard. You have the option of doing it yourself or hiring a lawn care service. You’ll need the tools if you do it yourself. In either case, Parikh estimates that “lawn upkeep may cost roughly $100 per month.” Some homeowner associations include lawn care in their monthly dues. However, this typically means that the HOA dues will increase.

7. Homeowners Association Fees (HOA)

There may be a monthly or yearly homeowner’s association charge in some neighborhoods. The local HOA is responsible for managing and collecting these fees. The money can be used by each HOA for things like grounds upkeep, community amenities, and lawn and garden maintenance. Make sure you account for this expense in your affordability budget because it is distinct from your mortgage and property taxes.

10 Hidden Costs of Homeowners Insurance

8. Utilities

Your square footage will most certainly grow if you relocate from an apartment to a new house. You will pay a higher utility bill since larger spaces are more expensive to cool and heat. According to Natural Resources Defense Council data from 2016, annual utility expenses range from $1,104 to $2,112. Remember that in order to start providing services, certain of these utilities may require an initial payment or connection charge.

Electricity

The average monthly energy cost in the United States is $115.49, according to the U.S. Energy Information Administration.

Water and Sewer

The average monthly cost for water and sewer is roughly $104.

Gas

In 2020, the National Foundation for Credit Counseling states that the average gas bill was around $55 per month.

Internet

The features and packaging can affect the price of your internet bill, but the average cost for internet is approximately $60 per month.

9. Property Tax

You will be responsible for paying property taxes in addition to your principal mortgage payment. Some lenders will include this in your monthly mortgage payment, but it’s important to recognize this extra expense when planning your budget.

The location of the home can have a considerable impact on the property taxes. They can cost anything between $200 to $10,000 a year. Property tax estimates are typically included on each real estate listing when searching for a home online. You might also visit the county government website or ask your real estate agent.

10. Decorating

You might not have all the furniture you need to furnish your new area when you move. The cost of furnishing your new house is one frequently overlooked expense. Make sure to factor in new furniture, paint, drapes, and other design items into your budget planning as they can add up quickly.

More FAQ For You

01) What is the most common form of home insurance?

HO-3. The most common type of homeowners insurance is the HO-3 Special Form policy, which covers your home, your personal property, liability, additional living expenses and medical payments.

 

There are eight different types of homeowners insurance policies for various home types and coverage needs: the HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8.

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