Hidden homeownership costs: clearing the confusion that 4 in 10 Americans experience

family taking a break from painting the house

Buying a home is exciting, but for first-timers, there can be a lot of unexpected expenses, both upfront and long-term. To help homebuyers prepare for the unexpected, we first needed to know: how much does America understand about these hidden costs of homeownership?

The hidden costs of buying and maintaining a home

There are a lot of things to take into consideration when closing on your home — especially if you're a first-time buyer. Because of common yet confusing home-buying jargon, closing can often feel more stressful and overwhelming than it needs to be. And sometimes fees hide in the fine print and can surprise you if you're not expecting them, making the whole ordeal even more painful.

To help make home-buying surprisingly painless, we first needed to understand how prepared Americans are for closing costs as well as the cost of ongoing maintenance after closing. We polled 2,000 Americans, and as it turns out, there's a lot of confusion around the various hidden costs of homeownership. Read on to learn more about:

4 in 10 Americans don't know what to expect for closing costs

According to our survey results, almost half — 44% — of respondents don't know what to expect for closing costs and fees. Another 37% took their best guess at a percentage of the home's purchase price from preset options ranging from 1–11%.

Infographic: How much do Americans expect to pay in closing costs?

Fourteen percent of respondents nailed it right on the head. Fees associated with closing typically range from 2–5% of your home's price. However, not everyone was so realistic. Nineteen percent of respondents expect to pay absolutely nothing in closing costs. Zilch.

Infographic: 1 in 5 Americans expects to pay nothing in closing costs and fees

While we'd love to say this is true, it's rarely the case. To help clear the confusion, we've outlined a few of the most common closing costs. You should expect to pay some combination of the following fees:

  • Lender-related fees – To cover the cost of processing your application, your lender may ask for an application fee. Ask your lender what this encompasses and if it can be waived. You'll also likely pay an origination fee of 1% of your total loan amount. However, not all mortgages include an origination fee, so keep an eye out for opportunities to skip this fee, too. Lastly, your lender may charge an underwriting fee. This covers the cost of researching whether to approve your loan.

  • Inspection fees – These may include a general home inspection to check the condition of the property, a lead-based paint risk inspection, and an inspection for pests, including termites and dry rot.

  • Tax-related fees – Usually you'll be asked to put down 60 days worth of property taxes. There may also be a transfer tax that is paid when the title passes from seller to buyer.

  • Exam fee – This is paid to the title company for researching the deed to your home. They'll thoroughly search the property's records, making sure that you're the only one who has a claim to the property.

  • Private mortgage insurance (PMI)Completely separate from homeowners insurance, PMI is designed to protect the lender if you default on your loan. You'll likely need to purchase this if your down payment is less than 20% of the home's purchase price.

43% aren't sure what to expect for ongoing homeownership expenses

Once you've closed on your home, it's time to celebrate! Pop the cheap champagne and dine on takeout in lawn chairs in your empty living room. It's fun. Because it's yours.

But once the celebratory rituals have passed, do you know what to expect from ongoing maintenance costs? You're a homeowner now, and there will be some costs you didn't previously have when you were renting.

Excluding monthly mortgage payments, the average annual cost of homeownership is approximately $9,400. This is meant to give you a rough estimate, but note that factors like property taxes and utilities can vary greatly depending on where you live. It's a good idea to estimate these annual costs before you buy a home so that you're fully prepared for all the costs of being a homeowner.

Infographic: How much do Americans expect to spend on their home?

As is the case with closing costs, many people don't know what to expect for these home care costs. Our overall survey results showed that 43% percent weren't sure about the expenses — but Gen Z and Millennials ages 18–34 showed the biggest knowledge gap. Fifty-one percent of respondents ages 18–34 said "I don't know," compared to just 40% of those ages 35–54 and 39% of those ages 55 and up.

Infographic: Over half of respondents ages 18-34 don't know what to expect for home-related costs

This is likely because younger people are less likely to buy a home than their parents were at the same age. After all, experience is the best education. But if your homebuying dreams have yet to come true, we've made preparation simple. Outlined below are some of the most common home-related expenses outside of a mortgage:

  • Property taxes – Property tax rates are usually on your home's MLS listing. Find out what they are and divide by 12, adding it to your monthly mortgage payment to get a more accurate representation of your costs. Keep in mind that property taxes can increase annually, so have wiggle room in your budget to account for that.

  • Homeowners Association Fees (HOAs) – Not all single-family homes have HOA fees, so you'll need to check with your particular neighborhood. However, if you live in a condo or townhouse, you'll likely pay these fees to maintain the building and grounds.

  • Utilities – Utilities may include phone, internet, cable, electricity, gas, garbage, and more. On the plus side, as a homeowner there are things you can do to make your home greener and reduce your monthly utility bills.

  • Maintenance and repairs – Regular maintenance costs include pest control, yardwork, pool upkeep, plumbing and repairs, and cleaning supplies, for starters. These may all be necessary for the safety and everyday functions of your home.

  • Insurance – You'll need to make sure you're covered in case anything happens to your home and the stuff inside of it. That's where homeowners insurance comes in. Esurance makes it simple by providing insurance that's actually easy to understand and affordable. To figure out how much protection is right for you, check out our home insurance calculator.

Make closing surprisingly painless

When closing time rolls around, you'll be glad you prepared. Keep these tips in mind to make the entire process surprisingly painless:

  • Check your finances – Even if you were pre-approved for a loan, your lender will check your credit one last time before your mortgage is a done deal. If you're closing soon, make sure not to make any major financial moves. Hold off on making big purchases, opening new lines of credit, or anything else that could cause your credit score to take a hit. The goal here is to show you're not a high-risk borrower.

  • Do one final walkthrough – You've hopefully walked through your new home before, but the final walkthrough should take place 24 hours before closing. Take this time to make sure the condition of the home matches the agreed-upon state. You should test light switches, toilets, major appliances, and anything else you can think of. Flag any problems right away by letting your real estate agent know.

  • Review and organize your documents – Expect to spend a couple of hours at the closing agent's office. You'll need to bring an ID, income and asset statements like W-2 forms, insurance information, and a copy of the final purchase and sales contract. Ask your real estate agent for a more detailed list of documents so you'll have everything in-hand upon arrival.

  • Make sure you have home insurance – Your lender will require you to buy homeowners insurance before closing. You'll need proof that you've prepaid one year's worth of coverage. Homeowners insurance is made up of a bunch of coverages. They protect your home, stand-alone structures (your shed, detached garage, gazebo), and personal belongings. Coverage can even step in if you accidentally damage someone else's property. Or if someone gets hurt on your property and you're held liable. A regular homeowners policy is meant to help guard you from the crazy things you don't think about but can — and do — happen. Things like fire, hail, windstorms, theft, vandalism and more.

We're not going to sugarcoat it — there's a lot to remember when closing on a home. But insurance doesn't have to be just one more confusing cog in the machine. That's why we're committed to making insurance simple, transparent, and affordable for everyone. Get a quote today to see for yourself.

Methodology: This study consisted of two survey questions conducted using Google Surveys. The sample consisted of no less than 1,000 completed responses per question. Post-stratification weighting has been applied to ensure an accurate and reliable representation of the total population. The survey ran during September 2019.

Sources: Zillow | MarketWatch

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