What Other Costs Come With Taking Out a Mortgage?

For many people, buying a home is the largest financial commitment they will ever make. When you think about a mortgage, the first cost that comes to mind is usually the monthly payment. But the real cost of homeownership includes much more than principal and interest. From closing costs and insurance to taxes, maintenance, and mortgage insurance, the full picture contains a variety of expenses that first-time buyers and even repeat buyers should understand well before signing any paperwork.

This article breaks down the major costs—both upfront and ongoing—that accompany a typical mortgage. Understanding them can help you budget realistically, avoid surprises, and make smarter decisions about your home purchase.

1. Closing Costs: The First Big Expense After Your Down Payment

When you close on a home, you pay a series of fees collectively known as closing costs. Buyers typically pay 2% to 5% of the home’s purchase price, depending on location, loan type, market conditions, and lender practices.

Common Closing Costs

• Loan origination fee – Covers the lender’s administrative costs.

• Appraisal fee – Pays for a professional evaluation of the home’s value.

• Credit report fee – Covers the cost of pulling your credit information.

• Underwriting fee – Covers the lender’s risk assessment process.

• Title search and title insurance – Ensures the property’s title is clear of claims.

• Recording fees – Charged by the local government to record the property transaction.

• Attorney fees – Required in some states for closing the transaction.

• Escrow fees – Fees for managing the transfer of funds and documents.

Prepaid Items at Closing

Some homeownership expenses begin on day one, so lenders require you to prepay them:

• Property taxes (first few months)

• Homeowners insurance premium (typically first 12 months)

• Prepaid interest (interest from closing date to the end of the month)

These upfront expenses can significantly increase the cash you need at closing—sometimes even more than the down payment itself if the down payment is small.

2. Homeowners Insurance: Required for All Mortgages

If you use a mortgage to purchase a home, the lender will require homeowners insurance. This policy protects the property—your collateral—and covers damages from fire, storms, vandalism, and other risks.

Typical Cost

• Homeowners insurance often ranges from $1,000 to $3,000 per year, depending on:

  • Location

  • Home type and age

  • Rebuilding cost

  • Coverage amount

  • Claims history

Your insurance premium is commonly paid through your escrow account, meaning your lender collects the cost monthly and pays the insurer on your behalf.

3. Property Taxes: A Major Ongoing Cost

Property taxes are one of the largest recurring costs associated with owning a home. Local governments and school districts rely heavily on these taxes, so rates vary widely across the country.

How Property Taxes Are Assessed

Property taxes depend on:

• The assessed value of your home

• Local tax rates

• Special assessments (school projects, road improvements, etc.)

Annual taxes can range from under 1% of your home’s value in low-tax states to well over 2% in areas with high rates.

Just like homeowners insurance, your lender often includes taxes in your monthly payment and deposits them in an escrow account until they are due.

4. Private Mortgage Insurance (PMI): Required for Some Loans

If your down payment is less than 20%, most conventional lenders will require Private Mortgage Insurance (PMI) to protect them in case you default.

Cost of PMI

PMI usually adds 0.5% to 1.5% of the loan amount per year to your mortgage payment. On a $300,000 loan, that can mean an extra $125 to $375 per month.

The Good News About PMI

PMI is not permanent. You can typically request removal when:

• You reach 20% equity based on your payments, or

• The home’s value appreciates enough to bring your loan-to-value (LTV) ratio down.

Some loans—especially FHA loans—have similar insurance called Mortgage Insurance Premiums (MIP), which operate differently and may last for the life of the loan unless you refinance into a conventional mortgage.

5. HOA and Condo Fees

If you buy a home in a planned community or a condo complex, you will likely have to pay Homeowners Association (HOA) or condominium fees. These fees help maintain shared areas such as:

• Landscaping

• Swimming pools

• Clubhouses

• Exterior building maintenance

• Snow removal

• Security

HOA fees can range from $50 to $1,000+ per month, depending on the property and amenities. Urban condos with extensive amenities tend to have the highest fees.

6. Maintenance and Repairs: Often the Most Underestimated Cost

Unlike renting, where the landlord handles (and pays for) maintenance, owning a home means these costs fall entirely on you.

Typical Annual Maintenance Budget

A common rule of thumb is to set aside:

• 1% to 3% of your home’s value per year
  or

• $1 per square foot per year

For a $350,000 home, that means budgeting $3,500 to $10,500 annually.

Examples of Common Maintenance Costs

• HVAC servicing and replacement

• Roof repairs

• Water heater replacement

• Plumbing and electrical fixes

• Lawn care and landscaping

• Pest control

• Painting and gutter cleaning

Some years will be cheap; others may bring big expenses like a new roof or foundation repairs.

7. Utilities and Services

Once you move into your home, your monthly expenses don’t stop with the mortgage. Utilities and services often end up costing more than people expect.

Typical Homeowner Utilities

• Electricity

• Gas or oil

• Water

• Sewer

• Trash and recycling services

• Internet and cable

If you're upgrading from a smaller apartment or rental, your utility bills may increase due to a larger space and older appliances.

8. Mortgage Points: Optional Upfront Costs

When you take out a mortgage, the lender may offer discount points—a form of prepaid interest that lowers your interest rate in exchange for paying more upfront.

Cost

• One point typically costs 1% of the loan amount.

Benefit

• Paying points can save you thousands of dollars in interest over the life of the loan, but only if you plan to stay in the home long enough to break even.

9. Optional but Common Add-Ons

Some costs aren’t required but are often recommended:

Home Warranty

Covers major appliances and systems for a year. Costs range from $300 to $700 annually.

Flood Insurance

Required if your home is in a high-risk flood zone; otherwise optional. Costs vary but commonly range from $600 to $2,000 per year.

Wind or Earthquake Insurance

Required or recommended in certain regions.

While these add-ons can protect you from massive unexpected costs, homeowners should weigh their price and the likelihood of needing them.

10. Moving Costs

Don’t overlook the cost of actually moving into your new home. Expenses might include:

• Professional movers

• Truck rental

• Boxes and supplies

• Cleaning services for your previous residence

These costs can range from a few hundred dollars to several thousand, depending on distance and how much help you hire.

11. Remodeling and Upgrades

Most homeowners eventually want to improve or customize their new home. These upgrades are not required, but they are something many buyers factor into their long-term costs.

Typical Upgrades Include:

• Kitchen renovations

• Bathroom remodels

• Flooring replacements

• Landscaping improvements

• Adding decks or patios

Even small upgrades can add up quickly, so new homeowners should budget realistically if they plan to renovate.

12. Costs That Change Over Time

Some expenses can rise or fall as market conditions shift.

Adjustable Expenses

• Property taxes may increase yearly.

• Insurance premiums often rise due to inflation or changing risk factors.

• HOA fees can increase to cover repairs or community improvements.

• Utilities fluctuate with energy costs and usage.

Even your mortgage payment can change if you have:

• An adjustable-rate mortgage (ARM)

• Changes in escrow requirements

It’s important to leave some room in your budget for increases.

13. Putting It All Together: What You Really Pay

When you bundle all the costs, the total expense of homeownership can easily be much higher than just the principal and interest portion of your mortgage.

A Typical Monthly Payment Breakdown

• Principal + interest – Your actual mortgage

• Property taxes – Escrowed

• Homeowners insurance – Escrowed

• PMI or MIP – Only if required

• HOA dues – If applicable

Add to that long-term expenses like maintenance and repairs, and you can see why mortgage calculators alone don’t always give the full picture.

Final Thoughts

Taking out a mortgage is about much more than qualifying for a loan or finding a home you love. Understanding the additional costs—both upfront and ongoing—is essential to setting a realistic budget and ensuring long-term financial stability.

When you factor in closing costs, insurance, taxes, maintenance, utilities, and potential mortgage insurance, the true cost of homeownership becomes clearer. By preparing for these expenses ahead of time, you can avoid surprises and enjoy the benefits of owning a home with confidence.