1. Property taxes
Property taxes fund county, city and state governments, school districts and public infrastructure. Rates vary by state and county, but generally fall in the range of one to two percent of your property’s assessed value. The county assessor ultimately determines the taxable value of your house, townhouse or condominium.
The amount you pay is typically based on the value of your property, but the specifics depend on where you live. For example, the annual property taxes on a $750,000 home in Los Angeles come in at less than $6,000 on average, but the taxes on a similarly priced home in New York City could come to more than $14,000.1 While some of these estimates may seem high, remember that you can deduct a combined total of up to $10,000 in property, income or sales taxes on your federal tax returns.
Pro tip: Depending on where you live, you may see an additional tax bill in the months following your home’s closing. For example, California buyers should be aware of the Supplemental Property Tax Bill. Once a home changes ownership, the property value is reassessed and any increase in value gets taxed. This means new homeowners in California may see this bill sometimes four to seven months after closing. Keep in mind that major renovations could also result in a supplemental property tax bill.
Before you can close on a home, all lenders require that you have enough homeowners insurance to cover the total cost of rebuilding. Given that your home is likely one of your single largest investments, it’s important to have adequate coverage and to factor it into the cost of owning a home.
The national average for insurance on a $750,000 dwelling is about $262 per month, according to the Federal Reserve Bureau2, but prices vary by state. Not surprisingly, states that are more prone to hurricanes, tornadoes and flooding have some of the highest insurance rates: Texas, Alabama, Louisiana and Florida. That said, the top three rates are found in Hawaii, Washington, D.C. and California, according to a 2017 research paper by GOBankingRates.com. The lowest rates are found in West Virginia, Oklahoma and Mississippi.
It’s important to understand what your policy does (and doesn’t) cover — and make sure you get the right amount of insurance. A standard homeowner insurance policy will cover theft of goods, water damage from pipes bursting, damage from fires and certain weather-related incidents, such as lightning, excessive wind and hail. Damage from earthquakes and floods are not covered in most policies.4
Flood insurance will run $700 on average, but could cost more if you live in a flood-prone area.5 Similarly, the cost of earthquake insurance depends on where you live. Those who live in a quake-prone area could pay up to $1.75 per $1,000 of value covered. Those who live in less prone areas could pay closer to $0.50 per $1,000.
Liability coverage is included as part of homeowner insurance policies, but how much coverage one needs will vary. Basic policies generally cover $100,000 in liabilities that arise from injuries or damage connected with your property (for instance, your dog bites a visiting friend, a deliveryman slips on ice on your sidewalk, or one of your trees falls into your neighbor’s garage). Homeowners with higher liability exposure, such as old trees on the border of the property or a perilous walkway, should consider buying more liability insurance.
Likewise, your possessions may require a higher level of coverage than the typical homeowner policy. In that case, you’ll want to get additional coverage for valuable items, such as electronics, jewelry, antiques or art.
More than 21 percent of the U.S. population lives under the authority of a homeowner association (HOA) or other community association, according to the Community Associations Institute.6 Once primarily for condos, townhouses and co-ops, HOAs are increasingly common for single-family homes in newer developments.
HOAs are typically governed by resident volunteers who serve as the rule-making, rule-enforcing and bill-paying arms of property management. They determine what maintenance needs to get done and how to share the cost between resident stakeholders.