First-Time Buyers, Get Ready for These Extra Costs

Seriously? Ordinary home expenses now cost the average homeowner more than $14K every year? That’s above and beyond the owner’s mortgage loan payment, according to Zillow and the home improvement estimate company Thumbtack, in their 2023 study.

Mortgage interest and high property values aren’t the only price a buyer pays. And the totality of homeownership costs can take first-time buyers by surprise.

Ordinary costs of owning a residence include repairs and maintenance, as well as the inevitable utility charges, property taxes, and insurance premiums.

What Could Possibly Go Wrong? (A Home Maintenance Checklist)

Home repairs and maintenance add up to the most unpredictable costs for first-time homebuyers. As of 2023, a year’s worth of home maintenance costs $6,500 — a few hundred dollars more than last year’s average. And that’s just an average. For some new owners, the surprises just keep coming.

Yes, becoming a homeowner is a revelation. Especially when a home sale is not contingent on the seller paying for any needed repairs — but even when the buyer thought all the needed work was done! Suddenly, knowing where to find trustworthy local contractors makes a world of difference. Here’s why:

  • If there’s a fireplace, you’ll need a chimney inspection and possible cleaning about once every two years. The cost per visit could be $200, but depends on whether a cleaning is needed or not, and whether a homeowners’ association covers the bill.
  • If the homeowner is responsible for the exterior, then roof and gutter replacement can go over $10,000. Pressure washing for a home that needs it will create a large water bill in addition to the worker’s hourly rate.
  • For small repairs, tools, and paint touchups, an owner could expect to spend $500-1000 each year.
  • New flooring (including removal of any damaged subflooring) could easily cost $5000.
  • An HVAC replacement, if needed, could cost more than $9,000.
  • Replacing a garage door motor could cost more than $500. Adding new remote controls and other garage door gear could double that.
  • Need to install a water softener system? Count on spending at least $1,500.
  • Unless the appliances are new, you’ll need to budget for replacing them as they give out. Prices vary considerably, and going cheap is usually not the best decision in the long run.
  • Water damage on or around a door or a deck? The tab could be $5,000.
  • Need a new dehumidifier and/or fans? You might spend around $250.
  • A plumber’s visit could be around $300.
  • Landscaping and tree-trimming can cost around $200 monthly.

If new windows are needed, or new circuit breakers or wiring… well, you get the picture.

Home Warranties: Yay, or Meh?

A buyer receives a home inspection report, and that spells out the fixes that must happen sooner rather than later.

It’s pretty common for a seller to want to conclude the transaction, and many sellers offer to toss in a home warranty to get the deal done. Buyers might want to ask for money off the sale price instead.

A home warranty is typically good for the first year of home ownership (renewable if the buyer so chooses). Home warranty companies tend to push repairs and avoid replacing old appliances or systems. This tendency on the part of warranty companies very often just puts costs off, and can make them worse. And when they send out repair people, most of these companies charge the homeowner co-payments—not only for each visit, but for each specific job ticket.

The policies tend to be full of limitations. For example, the repair person might demand proof of regular maintenance before carrying out the work.

Of course, these policies vary and we can’t paint them all with the same brush. The point is not to expect home warranty policies to take care of all surprise repair costs throughout the first year of ownership. They usually don’t.

Need more information about home warranty policies? Check out the US News “Best Home Warranty Companies” comparison chart, updated in August 2023.

Another major expense can be homeowners’ insurance — especially in disaster-prone areas. Homeowners should watch for deductibles and coverage limitations. There’s a lot to be said for getting insurers’ estimates before buying!

Furnishings: Thinking Outside the Box

Furnishings add up to another cost of moving into a new home. This has to be on the checklist, because who doesn’t need some number of new furnishings during the satisfying task of personalizing a new home’s interior? 

But this spending category can be a great place to make moves that offset spending, too. Because more and more, people are finding alternatives to ordering new home goods.

For example, indoor flea markets are popular draws. And the internet makes them so easy to find. Or run a local yard or estate sale search. Options will come up for automatic alerts for sales at local homes.

Shopping at garage sales may not be the solution for a run-down dishwasher, but the opportunities to find paintings, bedding, lamps, rugs, and kitchen gadgets is endless. While yard sales are hit-or-miss, they’re still a fun element of interior decoration. And estate sales can be treasure troves.

 Check out these 4 tips for making a home feel wonderful without spending a bundle.

Reserve Funds: The Power of Cash on Hand

There’s a good reason your mortgage lender didn’t want you to spend all your money on the down payment. Cash reserves are critical for a new homeowner. We hope this article makes that point indisputable.

Cash reserves are funds that the owner keeps to one side for unexpected but necessary spending. Often, they’re for unplanned maintenance. They can also save the day when a homeowner faces unexpectedly high taxes, insurance premium hikes, special assessments from a property’s association, health expenses or home conversion needs, or even disaster remediation.  

A common mistake of the first-time buyer is to budget for the mortgage loan’s principal and interest rate, without clarity on all the extras that add up in a new home. This can lead to financial stress. Home buyers should take care to maintain ready funds in an account to cover the unexpected. For every $100K in the home price, a mortgage consultant might tell you, expect to have at least $5K in reserve. Of course, a buyer needs more than that if the home requires a new HVAC system, a roof replacement, or significant restoration.

Be sure to check the county deed records right up to closing day and beyond. A seller’s local city or county taxes can create a tax lien on the buyer’s real estate title, creating an unexpected cost.

The Takeaway This Time? Savings Are Crucial

John Joclebs Bassey wrote, “Saving is the foremost financial education we need, not finance.” When we’re buying a home, we do need finance — but we need savings, every bit as much.

Supporting References

Kate Dore, CFP® CNBC LLC, a division of NBCUniversal, via Here Are Three Costly Financial Surprises for First-Time Homebuyers — And How to Prepare for Them (Sep. 1, 2023). When Your Seller Offers You a Home Warranty – Instead of Repairs (Feb. 5, 2021).

And as linked.

More on topics: Housing costs, Budget for repairs

Photo credits: Karolina Grabowska and Tima Miroschnichenko, via Pexels.