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12 Hidden Costs of Homeownership for First-time Buyers

Buying your first home is exciting and nerve-wracking all at once. It’s thrilling to envision living in each house you walk through – especially the home that you decide is THE ONE. But it can also be anxiety-inducing for first-time homebuyers to go through the experience.


You’ll probably wonder:

Are we selecting the home that’s right for us? 
How much should we offer? 
Will the buyers accept our bid? If they don’t, do we accept their counteroffer or make a counteroffer of our own?
What will the home inspection turn up?

With all the questions and apprehension that can go into purchasing a home, you’ll want to be sure one question is answered before you begin: 

How much home can we afford?


The general rule of thumb says you can afford a house that costs 2.5 times your annual income. But, in reality, it isn’t that simple. 


Many real estate and personal finance websites can help you determine what you can afford, given your financial situation. However, you’ll want to take the hidden costs of homeownership into account in setting your homebuying budget.


Consider these hidden costs of homeownership

  1. Your interest rate – In January 2022, the average interest rate for a 30-year mortgage (the length of mortgage most first-time buyers chose) was about 3%. Just four months later, 30-year rates are up to about 5%. On a $200,000 mortgage, the 2% change means you’ll pay about $200 more a month. Mortgage rates may continue to climb, so keep an eye on them as you select a home to ensure your mortgage payment will be within your monthly budget.

  2. PMI insurance – If you’d like to get a conventional mortgage but don’t have a 20% down payment, you may qualify with the help of private mortgage insurance (PMI). Lenders require PMI because mortgages with low down payments are somewhat risky because they believe you are more likely to default on a loan in which you have little invested. So, lenders generally require PMI if you are borrowing more than 80% of the home's value. The amount you pay for PMI will vary according to your down payment, interest rate, and length of the mortgage, so look at this closely when choosing a home and mortgage. The bright side of PMI is that you can contact your lender and request that they cancel your PMI once you’ve built 20% equity in your home. Many lenders will automatically do this once you reach 22% equity.

  3. Property taxes – Usually, your property taxes will be included in your monthly mortgage payment, but you should understand the estimated amount and include it in your home buying budget. The amount of property taxes varies considerably based on which city/township and school district the home is in. Most online real estate sites will estimate each home’s property taxes, but if you don’t see it, talk to your realtor, or you can find what the current owners are paying on the county website.

  4. Homeowners insurance – Lenders will generally require proof that you have homeowners’ insurance. Of course, since your home is most likely the most significant purchase you’ve ever made, you will want to insure it. Just like property taxes, the cost of homeowners insurance can range, so you’ll want to get several quotes before your closing.

  5. Earnest money and closing costs – When your relator writes an offer on a home, they will include an amount of earnest money, which is a deposit that proves your commitment and financial ability to purchase the house. Generally, the earnest money will be between 1 and 3% of the purchase price and will go towards your closing costs. Closing costs are the fees involved in the actual purchase, such as appraisal fees, realtor commissions, title insurance, and interest. Closing costs can range between 3 and 6% of the purchase price. 

  6. Repairs and routine maintenance – When you’re in the honeymoon phase of your home buying journey, it can be easy to overlook the fact that every home has multitudes of moving – and not moving – parts that may break or need to be replaced eventually. That quaint older home may have a water heater or a roof nearing the end of its life span. Your home inspector will point out any possible near-future concerns, but for the long-term, a good rule of thumb is to budget 1% of the home’s value for repairs each year.

  7. Utilities – If you’ve been renting and paying for utilities, chances are you’re going to have to pay more once you’re in your new home simply because you’ll probably have more space. You can estimate how much to budget by calling each utility provider. And don’t forget that some of the services will require a deposit or a connection fee. 

  8. Landscaping, lawn care, and snow removal – This is an area where you can save money by doing the work yourself. But remember, even if you’re going to mow the grass yourself and commit to getting out of bed extra early in January to clear the driveway, you’ll still need to purchase a lawnmower and, probably, a snowblower. If you’d rather have someone else do the lawn care and snow removal, get several quotes to ensure you’re getting the best deal.

  9. Trash removal and recycling – In some areas, trash removal and recycling are included in your property taxes. But if they aren’t, prices can vary by service provider so call around before committing.  

  10. HOA fees – If you’re purchasing a condo or buying in a neighborhood with a homeowner’s association, there will be a monthly or annual fee. Usually, the HOA fee will provide lawn care, outside maintenance, and community building fees. The amount will vary according to your HOA, so be sure to ask about the fee and include it in your budget.

  11. Furniture and decorating – You may not have enough furniture to fill the rooms of your new home. And you may want to change or add curtains, paint, or add area rugs. All of this can add up quickly. It’s a good idea to list your “must do’s” and budget accordingly. 

  12. Security system – If your new home comes with a hard-wired security system, there will be a monthly fee to use it. Or, if you’d like a portable security system, consider how many rooms you’d like to cover and the level of service you’d prefer. Just be sure to include the amount in your budget.


Of course, this list doesn’t include every possible hidden cost of homeownership and, unfortunately, there will always be surprises. But, if you consider these 12 categories, at least you’ll be better prepared when things do happen.

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