Buying a house is an expensive and complex endeavor. Most first-time homebuyers are focused on securing a mortgage and making sure they have enough money for a down payment and closing costs. But many first-time homebuyers fail to prepare for the unexpected costs that follow a house closing.
To help you get a full picture of what costs you can encounter when buying a home, I chatted with first-time homebuyers from across the country. Here are the three costs that shocked them the most after buying their first property.
[READ: What Does It Cost to Own a Home?]
1. Property Tax Increases
Property taxes can be a home cost that shocks many first-time homebuyers. Virtually all homeowners are aware that they will have to pay property taxes each year, yet what’s often overlooked is how quickly the property tax amount can change after the first year of ownership in certain states.
Property taxes are assessed differently depending on the state you are buying property in. Some states reassess the taxes annually while others assess every two, four or even 10 years. Each municipality has specific guidelines for how much property taxes can increase when reassessed, which you should understand before buying.
For most states that operate on an annual or biannual basis, the reassessment change is usually between 1% to 3%, which equates to a minor increase in your tax payment compared to the prior year. However, in some states — such as California or Florida — when a property is sold, the assessed value automatically adjusts to the fair market value, and that value determines the property tax.
In some states, such as Michigan, property taxes are capped at a certain annual increase, but that cap comes off with the sale of a home.
If the property hasn’t sold in a long time, this could be a massive increase compared with the previous tax bill. My husband and I found ourselves in this position after closing on our first home in St. Petersburg, Florida. My husband, Dennis Smith, shared his shock when we received our tax bill in November because our property taxes increased by $600 compared with the previous bill. Our closing agent used the prior tax bill to deduct the taxes owed from the previous seller, so we were left paying the difference.
“The previous tax bill was $2,300, which was based on a tax-assessed value of around $111,000,” Smith says. “Since we purchased the property for $225,000 in June 2023, it jumped to $2,900 in the fall, which is a 26% increase. Luckily I was prepped that this could happen by my Realtor and closing agent, but I think a lot of homeowners don’t know to check what the property tax rate will be based on the sales price.”
Most tax assessor websites have a free tool to estimate your property’s future tax rate based on the sale price. It’s not 100% accurate, but it’s a great way to budget and prepare for the increase that will undoubtedly come.
[READ: Guide to Average Home Maintenance Costs.]
2. Condo Costs
Homeowners associations (HOAs) and condos can be less hands-on for homeowners when it comes to property maintenance, but that comes at a fee.
Military couple Mikayla and Scott Simeral of Imperial Beach, California, have owned four homes since 2012. Even though they were veteran homebuyers, during their second home purchase there were a lot of surprising costs.
“Our second home was a condo in Arlington, Virginia. We assumed the process of owning and the costs of maintaining the condo would be similar to our first single-family home in Florida, but we were very wrong. Looking back, we will never buy a condo with an HOA again,” Scott Simeral says.
The Simerals knew they were responsible for paying a monthly condo and HOA fee that contributed to the maintenance and upkeep of the entire property and shared spaces. However, they didn’t realize the HOA could place special assessments for large expenses unexpectedly.
“There was a major repair needed on the condo that the HOA didn’t have the funds for out of our normal monthly assessments. They made a special assessment and we were forced to pay a lot of extra money each month,” Mikayla Simeral says.
She added, “We also had our insurance premium rise randomly because a neighbor had a water leak in an upstairs condo.”
Before buying a HOA property or condo, make sure the HOA is in good financial standing. Sellers are required to provide HOA governing documents, like the HOA bylaws, articles of incorporation, rules and regulations and annual budget. Any HOA with less than 30% of its operational costs in reserves is considered underfunded and could be in a pickle if an unexpected repair pops up.
Even when things look good at the time of purchase, HOAs can run a deficit if large expenses happen simultaneously. Keep an eye on their ledger and make sure to participate in HOA meetings. Also budget for a gradual increase in HOA fees. Like property taxes, the increases each year are usually small to account for the cost of inflation, but they do add up over time.
[READ: HOA, POA, COA: What’s the Difference in These Homeowner Associations?]
3. Big Repairs Are Inevitable, Even in a ‘Turnkey’ Home
The last big cost that surprises many first-time homebuyers is repairs. A lot of prospective homeowners search for turnkey properties in hopes that a renovated home will reduce the cost of repairing big items on the property. But buying a turnkey home doesn’t mean you won’t face big repairs right away.
The Simerals’ third home in Florida had been recently renovated by investors when they bought it in 2017. “The property looked stunning, but after moving in we realized the quality of the work and finishings wasn’t great. We had to spend close to $5,000 in the first year repairing the brand-new front porch because it wasn’t properly sealed by the flippers. We also had appliances break shortly after moving in even though they were new, costing us another $1,000. Now, we make sure there is a home warranty to help cover large appliances,” Scott Simeral says.
Greg Hayes, a homeowner in American Valley, California, also faced similar challenges with unexpected home repairs. “There’s always something to repair with a home,” Hayes says. “I always set aside around $10,000 for home renovations each year. This way I make sure the property is being maintained. For example, I’ve upgraded my heating and air conditioning, garage doors and interior doors in the past. This year I’ll be painting the exterior of the home and new flooring upstairs.”
But that doesn’t stop other unexpected repairs from happening. “My water heater just went out before we were going on vacation,” says Hayes. “We couldn’t delay the replacement of the water heater, but it cost $2,000 to replace, which was pretty much my entire vacation budget. And this cost is on top of the $10,000 I spent for this year’s improvements.”
There’s no way to time when something will go wrong in a house. Make sure you have an adequate buffer for unexpected repairs on top of your annual home maintenance. A good rule of thumb is to set aside roughly 10% of the property value for repairs each year, but you may need to save more depending on the condition of the property.
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Confessions of a First-Time Homebuyer: 3 Costs That Shocked Me After Buying originally appeared on usnews.com
