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Realities of Real Estate: Consider your costs beyond mortgage

When you purchase a home, there’s more to your monthly payment than just the mortgage, as well as costs that can go beyond normal maintenance and repairs. These days, some expenses associated with home ownership have risen so sharply that people are now giving a closer look, things like utility bills and taxes. Although not all of these expenses are applicable to every home sale, we’ll take you through the most common ones, so they don’t come as a surprise at the settlement table.

If your agent is doing his job, there should be an addendum in your purchase contract that discloses these expenses, but sometimes certain financial obligations slip through undetected. Most of these costs are probably not significant enough to deter you from your dream home, but if you’re on a tight budget, a few of them can add up to real money.

Normally, your mortgage payment will be made up of what is called PITI. This stands for principle, interest, taxes and insurance. The old real estate joke is that we “pity” the poor person who has to make all those payments. Principle and interest is what you pay back to the bank for loaning you the money. Taxes are the real estate taxes you pay to the city, county and state, and insurance is your homeowner’s insurance. Both taxes and insurance are traditionally held by your mortgage company in what is called an escrow fund. Every month, along with your principle and interest, you pay approximately 1/12th of what you owe for taxes and insurance into the escrow fund. Then, your mortgage company will pay these bills when they’re due. Add up all the PITI, and you should know what your mortgage payment will be. But, depending on the type of property you purchase, there may be some additional expenses.

Front foot fees: When a house is first constructed, there could be a cost to hook up the property to public water and/or sewer. This cost is usually amortized over 30 years and becomes an expense for the home owner. It’s like a mini-mortgage for the initial cost of establishing public utilities. The amount is normally based on the number of feet along the front of your lot, hence the term front foot fee.

On a typical house, this fee is often about $300 or $400 per year, but it can vary. The bill is paid annually, and when the home is sold, the expense transfers to the new homeowner. The front foot fee can be paid off in one sum, but homeowners seldom do this. If a house has a well and septic system, it shouldn’t have a front foot fee. Some homes may have wells, but public sewer, and vice versa. In this instance, the home could still have a front foot fee.

Condo and homeowners’ association (HOA) fees: Not all communities have condo or homeowners’ association fees, but many do, and some can be significant. The amount of these fees is usually dependant on the services provided by the community (such as a pool and tennis courts) and sometimes they’re also based on the value of individual homes in that community. For example, if you buy a $600,000 house in the Annapolis community of Hunt Meadow, your association fee is about $45 per month. But buy a $600,000 condo at the Park Place high rise in downtown Annapolis, and you could pay more than $1,000 a month in condo fees.

Although $1,000 a month sounds pretty stiff, some condo fees can go much higher. For example, buy a K Street condo in Washington, and your fees could be almost $6,500 a month! Spending $78,000 a year in condo fees is something you’d definitely need to budget for, but maybe not. If you’re the kind of person who can shell out $6 million for one of those penthouses overlooking the Potomac, $78,000 might be a rounding error in your annual household budget.

Regardless of the amount, real estate contracts should contain special addendums that disclose these fees and give the buyers an opportunity to review the condo/homeowners’ association rules and regulations before moving forward with a purchase. It’s important to note that lenders will also consider these fees in qualifying buyers for a loan.

Special taxing districts: This is where homeowners’ association fees are paid in conjunction with your real estate taxes. Essentially, the government collects the fees that are then used to maintain community areas and fund the homeowners’ association.

The Anne Arundel County community of Hillsmere is a good example of this. If you look at the listing for a property being sold in Hillsmere, it will probably say that homeowners’ association fees are only $15 a year. That doesn’t sound like much, given that Hillsmere has extensive community facilities. This is because the majority of those community funds are collected along with your real estate taxes. There’s nothing wrong with this; it’s just a different way of collecting money for the community’s needs.

Utilities: Until recently, utility costs usually weren’t a major component of a homebuyer’s purchase decision. But, with the higher costs for energy, buyers are now asking, “What’s it going to cost to heat and cool this place?” The best way to find out is to call your utility company. You can give it any address, and it will tell you the utility costs on that home for the last year. However, the utility can only tell you about electric and natural gas costs. If the home has oil or propane heat, you’ll need to contact those providers for an estimate of the expense.

Real estate taxes: Just like utilities, real estate taxes, especially in certain municipalities like Annapolis or Takoma Park, have increased to a point where they’re an expense to be reckoned with. In Montgomery County, it’s become such an issue that the county established a law requiring sellers to disclose the cost of property taxes in all real estate advertising. Just asking the homeowner isn’t good enough. What they’re paying, because of the Homestead Property Tax Credit, could be significantly less than what you’ll pay as the new owner.

In Annapolis, there are homes where the real estate taxes are more than $75,000 a year, and even on a moderately priced property, they can exceed $8,000 a year. Similar to utility expenses, real estate taxes have risen so rapidly in some areas that it’s become a significant consideration in the cost of home ownership.

As you can see, it can be easy to get saddled with an expense that you didn’t know you would have or one that’s a lot bigger than you expected. A good agent should be able to give you a heads-up on these, and many are required disclosures in a contract. But, before you sign on the dotted line, make sure you know all the expenses associated with owning your new home.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is