When you buy a home, your lender will factor in several obvious costs of your purchase when approving your loan, but there are other less obvious costs which the lender doesn’t consider, but which you should definitely investigate.
The costs your lender considers are your projected mortgage payments (consisting of Principal, Interest, property Taxes and Insurance, or “PITI”) plus Mortgage Insurance Premium (“MIP”) and HOA fees.
Let’s look at those obvious costs first.
Regarding property taxes, don’t make the mistake of assuming that unincorporated areas have lower property taxes than incorporated cities. The City of Golden, for example, has the lowest mill levy I’ve found anywhere in Jefferson County, and many newer subdivisions, such as Candelas, have mill levies that can be twice that of Golden. (See my Dec. 17, 2015, and July 21, 2016, columns about Metropolitan Tax Districts at www.JimSmithColumns.com.)
Regarding insurance costs, shop around! I have observed substantial variation among insurers. Use an independent insurance broker to get competitive quotes from different carriers, or, if you get quotes from “captive” insurance agents, get quotes from three or more different carriers. If the home is in a flood zone, flood insurance can be another major expense.
Regarding mortgage insurance premiums, don’t assume that you must pay MIP if you have less than 20% down payment. We can refer you to lenders who offer work-arounds regarding MIP with much less than a 20% down payment.
Regarding HOA fees, some HOA’s require “working capital contributions,” “document fees” and “move in fees” that may take you by surprise. Ask about these.
Now let’s look at some other, less obvious costs of home ownership.
What about energy costs? These can vary substantially from one house to another. Find out what the current owner is paying for gas and electricity each month, and factor in whether the number of members in your household will vary from the seller’s when projecting what your energy costs will be.
Once you’re under contract, you’ll be hiring a home inspector to evaluate that home. Make sure it’s an inspector who is qualified to assess the home’s energy efficiency as part of his inspection (at no extra cost). We can recommend such an inspector.
Your inspector can also assess how much deferred maintenance there is on the house you buy. Get his advice on how much you might need to budget in coming years for maintenance and repairs, which can vary greatly from one home to another.
Water consumption is big cost to consider, especially if the home has a lot of Kentucky bluegrass, which requires lots of water.
Here’s a hidden expense you may not have thought of — health expenses due to bad indoor air quality. You recognize the smell of new carpeting, right? It’s not as innocuous as you might think. You might well be smelling VOC’s — volatile organic compounds. Some paint also contains VOC’s, and they’re less expensive than paint labeled “low in VOCs.” Ask your inspector to assess how many VOC’s might be in the air that could literally make you sick. Mold is another sickness-causing consideration. Your inspector will tell you whether a separate mold inspection is called for. He (or we) can recommend mold inspectors. Radon tests, costing $100-150, are also a good idea, since naturally occurring radon gas is a known carcinogen.
Older homes have clay sewer lines that are prone to root intrusion and collapse, which is the homeowner’s responsibility. A $100 sewer scope could identify the need for a 4-figure repair that you might be able to get the seller to absorb, saving you that expense later.
Published June 15, 2017, in the Denver Post’s YourHub section and in four Jefferson County weekly newspapers.