Skip to main content

‘Hidden’ Costs Sink Too Many Ships

First-time homebuyers have to leave renters’ mentality behind when it comes to costs

Hidden Costs Sink Ships
Insider
National Mortgage Professional Contributing Writer

Are we sending too many marginal buyers into the homeownership abyss? Research suggests we are.

Not because they can’t afford their mortgage payments, which they often barely can. Rather, because the actual cost of owning and caring for a house can sometimes be overwhelming, if not downright devastating.

Never mind that more young home buyers can name the latest Taylor Swift tune than their lawmakers in Washington. More importantly, at least in the mortgage business, nearly two-thirds of them cannot ID the four elements of a mortgage payment, according to a study by Clever Real Estate. Spoiler alert: It’s principal, interest, taxes and insurance, or PITI for short.

Another survey, this one from insurance group Hippo, found that roughly half of recent home buyers said owning a house is more expensive than they anticipated; there’s just too much maintenance and upkeep. A Zillow study found that three out of four buyers have regrets; chief among them, the home needs more work or maintenance than expected.

Extra $1K A Month?

But maintenance is only one of the recurring expenses ownership entails. There are a host of other costs that should be considered — but often are not. Some call them “hidden.” Others say they’re “ignored.” And still others say they’re simply “forgotten.” But by whatever name you choose, they’re no roses.

Taken together, these costs add $1,180 a month on top of the typical house (principal and interest) payment, according to Zillow and Thumbtack, a site that links homeowners to local contractors. Hit by these expenses — expenses they did not expect or at least consider — it’s no wonder a good many buyers not only regret their decisions but also fall into default and maybe even lose their places to foreclosure.

In other words, home buyers who focus solely on the cost of mortgage interest and principal are doing themselves a disservice. And so are the lenders who allow them to do so. Might not it be better to at least warn would-be borrowers of the land (no pun intended) mines that lay ahead?

Two costs often ignored by buyers are insurance and property taxes, likely because they are usually included as part of their monthly payments. But unlike the P and I portions of a fixed rate mortgage, the total of which does not change over the loan’s term, the T and I shares change, mostly up and often annually.

Take property taxes, which are the principal means by which state and local jurisdictions pay for the services they provide their citizens, accounting for more than a third of their total receipts. Some $174 billion in taxes were paid by property owners in the first quarter, nearly twice the 15-year average, the Census Bureau reports.

Over the previous four quarters, moreover, tax growth has accelerated substantially in each quarter, quadrupling since the first quarter of 2022. Property tax revenue is catching up to home values — and in a hurray, says David Logan, an economist with the National Association of Home Builders (NAHB).

Property taxes are inescapable if you don’t want a lien placed on your place. And unless you want to go commando, you’ll need homeowners insurance for protection against fire, theft, and major disasters. What’s more, if you have a mortgage, insurance will be required.

The decisions by major insurers to leave California and Florida has opened the door for companies in those states and elsewhere to up the ante. One Miami owner reports his premiums are more than double his property taxes because of the cost of windstorm coverage.

The Insurance Information Institute tells me the average home insurance premium has increased 11% year-over-year in 2022 to $1,700 annually. Florida owners have experienced the highest one-year average increase: 42% to $6,000 a year.

Beware The Omnipotent HOA

Homeowners association dues are often forgotten until the first bill arrives. This cost is unavoidable as well. You have to pay whether or not you use the pool, play golf, or hang out in the clubhouse, And because their costs are rising, just like everybody else’s, they are continually marching upwards.

Almost a third of all housing is in properties governed by homeowners or community associations, and more than three-quarters of all new construction is under the auspices of associations, the Foundation for Community Association Research reports.

While there’s no specific data on dues, about a third pay between $100 and $300 a month. And as with everything else, dues are increasing. Two-thirds of associations report increasing their assessments in 2022, and 84 percent expect to increase assessments in 2024 to keep up with rising costs.

If dues don’t keep up, the property could go downhill. Dues in my small neighborhood have never, ever been raised. And now we can’t afford to repair the community basketball court or fix and powerwash the entryway fencing. A big jump in dues is in the offing.

Then there’s the cost of utilities, which varies depending on your location, age, and size of the property and the number of occupants. According to figures developed by the NAHB from Census Bureau data, fuel runs about $2,500 a year while water and trash costs $845. And that was in 2021.

Move.org, a site that matches people to household moving outfits, has far more detailed and up-to-date monthly numbers: $117 a month for electricity, $45 for water, $62 for natural gas, $66 for sewer, $60 for the Internet, $48 for streaming services, $114 for mobile phone service and anywhere from $25 to $100 for trash. That is a total of at least $537 for everything on the list.

Improvements are a discretionary decision, but maintenance is necessary to keep your place in good working order. Maintenance costs vary widely, depending on your location. But more than half of the first-time buyers polled by U.S. News and World Report said they encountered unexpected repairs after moving in.

Based on what Thumbtack considers 17 “essential” maintenance projects, the average cost nationally is $6.413. But they range from a low of $3,467 in Las Vegas to a high of $8,639 in Los Angeles That’s more than a $5,000 difference!

“What I find frustrating is how fast things like appliances fall apart and head for the dump,” warns a Tennessee homeowner. “If someone tells you the washing machine will last 10 years, don’t believe them.”

No doubt that owning a place is more costly than renting. But some buyers/borrowers, especially those doing so for the very first time, come into it with a renter mentality. At the very least, they need to be forewarned of what lies ahead.

This article was originally published in the NMP Magazine October 2023 issue.
About the author
Insider
National Mortgage Professional Contributing Writer
Lew Sichelman has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been the real estate editor at two major Washington, D.C.,…
Published on
Sep 27, 2023
More from NMP Magazine
NMP MAGAZINE
The New Commission Equation

Who’s really footing the bill in the new real estate reality?

Dave Hershman
NMP MAGAZINE
In It To Win It

Why awards are important for the success of your business

Erica LaCentra
NMP MAGAZINE
Wishing Regulations Away

What mortgage leaders want to see revised in the wake of Supreme Court undoing of government favoritism

Lew Sichelman
NMP MAGAZINE
Practice Makes Perfect In Public Speaking

The art of being debonair while being terrified

Harvey Mackay
NMP MAGAZINE
False Moves, Real Consequences

Don’t let missteps mortgage your future

Mary Kay Scully
NMP MAGAZINE
Navigating New Norms

Unpacking changing issues in loan servicing

NMP Magazine

Webinars

Brokers - Why Are You Doing Lender's Work? OriginatorTech Deep Dive: AngelAi

The majority of brokers are just chasing pricing, yet they are spending more time and money doing the lender’s...

Webinar
Oct 22, 2024
Investor Confidence in Today’s Non-QM And Why Originators Are Paying Attention... A Virtual Town Hall

We host Angel Oak Mortgage Solutions for a special 2021 edition of their virtual town hall series they ran fro...

Webinar
Apr 08, 2021
How to Help Real Estate Pros in a Post-Refi World

Hear from Melissa Merriman, REALTOR® with The Melissa Merriman Team at Keller Williams, on what real estate pr...

Webinar
Mar 18, 2021
Connect with your local mortgage community.

Meet your your colleagues, both national and local, by attending an event in your area.