The Costs of Homeownership: Expected and Unexpected Expenses When Buying a Home

Written by: Laurie Allen for LA Wealth Management

I recently sold our first home and bought a new home and it had been over a decade since we’d purchased a new home, so I had forgotten about a few of the costs associated with the purchase.  As a financial advisor, I’ve seen too many clients focus solely on the listing price and overlook the full financial picture. The reality is, buying a home comes with a host of expected and unexpected expenses that can significantly impact your budget if you’re not prepared. We spoke with Yoshiko Oest, Real Estate Expert at Live South Bay Local and here’s what she has to say about the costs of new home ownership, “Buying real estate is an exciting milestone, whether it’s your first home or an investment property. Beyond the purchase price, it’s important to plan for expenses like closing costs, maintenance, supplemental property taxes, potential HOA fees, special assessments, and more.”  Let’s break down what you need to consider to make sure your home purchase aligns with your overall financial plan.

Expected Expenses: What You Can Plan For

I was surprised to hear this but another interesting thought from Yoshiko, “ It’s not unusual for buyers to work with Realtors for 2–3 years before they’re ready to purchase, and that preparation can make all the difference. Starting early gives you the chance to uncover opportunities, save money, and make informed decisions at your own pace. A good Realtor will guide you through the process, answer your questions, and help you feel confident in every decision—without ever pressuring you. 

1. Down Payment

The most obvious expense is the down payment. For a primary residence, this is typically 3% to 20% of the home’s purchase price. For investment properties or second homes, lenders often require a higher down payment, usually around 20% to 25%. It’s important to ensure you have enough saved for the down payment without depleting your emergency fund or long-term investments. 

2. Closing Costs

Closing costs generally range from 2% to 5% of the home’s purchase price and include items like loan origination fees, appraisal fees, title insurance, property taxes and home inspections. Many buyers underestimate these costs or forget to budget for them entirely.  I remember being asked to pay closing costs when we purchased our first home and almost had a heart attack, because I hadn’t budgeted for it. 

3. Buyer Commissions

While sellers typically pay real estate agent commissions, buyers should be aware of potential additional costs depending on the structure of the agreement. For example, in competitive markets, buyers may need to negotiate agreements that could involve sharing or covering certain commission-related expenses. Clarify these details with your real estate agent upfront to avoid surprises.  If you end up being responsible for buyer commissions that could be 2.5% or more of the purchase price. 

3. Property Taxes

Property taxes vary by location, but they are an ongoing expense that needs to be factored into your monthly budget. For investors, it’s crucial to consider the tax implications of owning multiple properties. According to Yoshiko, “When Realtors and lenders estimate property taxes, we use 1.25% of the home's purchase price or assessed value.”  For example, if your home is valued at $1,000,000, then your property tax could be $12,500 per year.  Many homebuyers don't know this, but as your home's value increases, your property taxes will also increase.

4. Homeowners Insurance

Homeowners insurance is mandatory if you’re taking out a mortgage. However, even if you’re buying a property outright, it’s essential to protect your investment. Rates can vary based on location, size of the home, and risk factors such as flood zones.

5. Mortgage Insurance (PMI)

If your down payment is less than 20%, you’ll likely need to pay private mortgage insurance (PMI). For investors or those purchasing second homes, lenders might impose additional insurance requirements. While there are some first time home buyer programs that allow you to skip PMI, being aware of it is important. 

Unexpected Expenses: What Can Catch You Off Guard

1. Maintenance and Repairs

Even a newly built home will require maintenance. For older homes, unexpected repairs can add up quickly. As a rule of thumb, set aside 1% to 2% of the home’s value annually for maintenance and repairs. For investment properties, this is especially critical since tenants expect timely repairs.

2. Homeowners Association (HOA) Fees

If your property is in a community with an HOA, you’ll need to pay monthly or annual fees. These can range from a few hundred to several thousand dollars per year, depending on the amenities and services provided. HOA fees can also increase over time, so make sure you factor in potential hikes.Yoshiko also warns of possible special assessments. “ A special assessment is an additional fee that homeowners within an HOA may be required to pay to cover unexpected costs, such as major repairs or emergencies that the regular HOA dues don’t cover. These assessments can feel overwhelming because they are often large and unplanned. To help avoid surprises, we always recommend reading the HOA meeting minutes and reviewing their financials. This can give you a clear picture of any ongoing issues or deferred maintenance that might lead to special assessments in the future, allowing you to plan ahead.”

3. Utilities and Services

While most buyers account for basic utilities like water, electricity, and gas, many forget about additional services such as garbage collection, landscaping, and security systems. 

4. Movings Cost, Furnishing and Decorating

Make sure to plan for the costs of moving. Depending on how far you’re moving and how big your haul is, costs can add up!  According to pieceofcakemove.com, the average cost of moving a home in Los Angeles can range from $2,200-3,500.  Not taking your tacky apartment furniture with you?  The cost of furnishing a new home can be significant, especially if you’re moving into a larger space or purchasing an investment property that you plan to rent out fully furnished. It’s easy to overlook these expenses in the excitement of a new purchase.

5. Permits and Upgrades

Planning to renovate or make changes to the property? Don’t forget to account for permit fees and the potential for unexpected costs during the upgrade process. Even simple projects can uncover underlying issues that need to be addressed. Like me, when we went to replace our floors, we found that the subfloors needed to be replaced too, adding 5K to our costs. 

6. Supplemental Property Taxes

We already addressed Property taxes above. Why list it again? In some states like California, when you buy a home, the assessor reassesses your property’s value, and if the new assessed value (purchase price) is higher than the previous one, you’ll get a bill for the difference within a few weeks or months of moving. This is separate from your regular annual property tax bill.

Strategies to Manage Home Buying Costs

1. Create a Comprehensive Home Buying Budget

Before making an offer, create a detailed budget that includes both the expected and unexpected costs of homeownership. This will give you a clearer picture of how much house you can truly afford and if you have enough for all the associated costs. 

2. Build an Emergency Fund for Your Home

Consider setting up a separate emergency fund specifically for your home. This can help you cover unexpected repairs or costs without dipping into your personal savings.  This is good advice not just when you’re buying a new home but on an ongoing basis to cover items that will come up over time as your home ages like a new roof or electrical or plumbing upgrades. 

3. Review Insurance Policies Annually

Homeowners insurance and other policies should be reviewed regularly to ensure you have adequate coverage. Make sure your policy covers natural disasters common to your area and that you’re not over- or under-insured.

Final Thoughts: Align Your Home Purchase with Your Financial Goals

Buying a home isn’t just a transaction—it’s a significant financial decision that should align with your broader financial goals. Whether you’re a first-time buyer, upgrading to a new home, or investing in real estate, understanding the full cost of homeownership can help you avoid financial surprises.

At LA Wealth Management, we’re here to guide you through these decisions. Our goal is to help you make informed choices that protect your financial future. If you’re considering purchasing a home, let’s have a conversation about how this fits into your overall wealth strategy.