The Money Advice Nobody Gives New Homeowners (But Really Should)

Many new homeowners end up feeling blindsided by the true cost of owning a home — and the first six months can be the most stressful financially. Not only are savings depleted from the down payment, but a host of unexpected expenses often pop up, from repairs to rising escrow costs and insurance gaps.

“I also think many buyers underestimate how emotionally exhausting homeownership can be,” says real estate expert Ben Mizes. “Renters are accustomed to paying the same amount each month. In contrast, homeowners are responsible for all of the issues, and there’s no landlord to contact.”

We asked the experts for their advice about the financial pitfalls of buying a new home and how to plan for them. Here’s what they said.

Ever-Increasing Escrow

If your property taxes and insurance are wrapped into your monthly mortgage payment, the amount of that payment will rise over time as those costs increase. Also, every year when your lender recalculates the escrow payment, your monthly bill could increase even more, to make up for shortages in the funds they collected — sometimes to the tune of $200 to $400, says mortgage expert Cody Schuiteboer.

“Most buyers call in a panic, asking why their payment suddenly increased,” says Schuiteboer. “But budgeting for the house also entails considering the changing payments, so don’t expect the same payment after year one.”

Pro-tip: Ask for the annual escrow report from your lender, so you understand what your escrow account holds and why.

Property Tax Reassessment

In some places, a home’s value is automatically reassessed after a sale, and that often leads to increased property taxes. “If the previous owner had the house for twenty years, while paying much lower taxes, the new owner will likely face higher property taxes, even up to four times higher,” says Schuiteboer. “That means a homebuyer can inherit a $2,800 annual tax bill that suddenly becomes a $7,500 obligation due to reassessment.”

Pro tip: Ask your real estate agent or lawyer what the value of the home is likely to be after it’s reassessed.

Move-In Costs

All of the little expenses associated with getting settled in a new home — like utility deposits, small repairs and window coverings — add up quickly. “First-time homebuyers are often shocked at the total costs of the first six months of home-ownership,” says real estate professional Jonathan Ayala.

Pro-tip: Make a savings account to cover these expenses, and don’t confuse them with your emergency funds, says Schuiteboer. “Not keeping sufficient emergency funds for three months of expenses is dangerous for your finances,” he says.

First-Year Costs

It’s exciting to be in a new neighborhood, and that often means more entertaining, eating out and opting for house upkeep services. It’s also tempting to speed ahead with renovations and landscaping projects.

“I’ve noticed homeowners spend tens-of-thousands their first year on things like smart home tech, new appliances and furniture,” says Mizes. “And they purchase all of the above on a line of credit or personal loan, because they have already exhausted the bulk of their savings on the down payment and closing costs.”

Pro-tip: Live with the house as-is for a year. You’ll get to know seasonal changes and better understand what to prioritize.

Maintenance Costs

Financial planners recommend putting aside at least 1% to 2% of a home’s purchase price, each year, toward repair costs like water heaters, HVAC systems, roof replacement and other necessities. “But few new homebuyers do that,” says real estate professional Sain Rhodes. “Instead, they resort to using a credit card to cover the expenses.” Not only does that end up costing a lot more down the road, it can also tank your credit score.

Pro-tip: Instead of relying on interest-heavy credit cards, create a separate high-interest savings account at the time of closing, and add your monthly contribution to the account automatically, says Rhodes.

Insurance Gaps

Homeowner’s insurance doesn’t cover floods. As such, many homeowners are either required to, or choose to purchase a separate flood insurance policy. “Flood insurance seems unnecessary at first, until it becomes the only protection from financial disaster,” says Rhodes. “One inch of flooding may cause $25,000 in damages, and two feet completely totals the property.”

Pro-tip: Roughly 40% of flood damage claims come from houses outside of FEMA-designated high-risk zones, so consider purchasing a flood policy even if it’s not required by your lender. Also depending on your situation, consider policies for hurricanes, landslides, sewer backup, liability and more.

Misunderstanding Home Warranties

Many new owners buy home warranty plans in the name of guaranteeing the home’s systems for the next five years. “While that statement is correct, most buyers do not realize that there are certain exemptions,” says Schuiteboer. “Home warranties cover system malfunctions, but not preexisting defects, improper installation and cosmetic damage.”

Using the warranty also means hiring the company’s contractors instead of those of your choice. And if you’re not in a major metropolitan area, it may take a long time for one of those contractors to show up.

HOA Reserve Fund

If your house or condo falls under an HOA, pay special attention to the documents detailing the HOA’s reserve fund. If it’s underfunded and can’t cover repairs or improvements to communal spaces, HOAs can raise special assessments, requiring homeowners to pay the difference. “I have personally witnessed buyers experience an HOA special assessment of over $10,000 within their first year of living in the condo, because of their failure to check the finances of the HOA,” says Ayala.

Pro-tip: Request the most recent reserve fund report before closing to assess whether the HOA is properly funded, says Rhodes. “Anything below 70% is a red flag,” she says.

About the Experts

• Cody Schuiteboer is president and CEO of Best Interest Financial, which offers home financing and personalized mortgage solutions.
• Sain Rhodes is a real estate professional with Clever Offers, and has worked on hundreds of closings.
• Ben Mizes is a real estate agent, president of Clever Real Estate and an active investor on 22 rental units.
• Jonathan Ayala is a real estate agent and founder of Real Estate Photography, a platform that connects real estate professionals with photographers worldwide.

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