Lenders require homeowners insurance to protect their investment, but the cost of this insurance can be higher than many buyers anticipate.
Buying a home is one of the most significant financial decisions you can ever make. Yet, while many prospective homeowners focus on the price tag of their dream house, some overlook the hidden costs lurking in the process. These extra expenses can easily strain budgets and add unforeseen stress to what should be an exciting time.
To prepare yourself for the journey ahead, it is important to understand the hidden costs of home buying and how they can impact your finances.
Closing costs
Many first-time buyers think once they have saved for a down payment, they are good to go. But as real estate agent Sarah Nabwami explains, “Closing costs can often surprise buyers. These are the fees that come with finalising the sale, and they include everything from attorney fees to title insurance and even property taxes. On average, closing costs can run between two percent and five percent of the home’s purchase price, which adds up fast.”
This means if you are purchasing a Shs500m home, you could be paying an additional Shs10m to Shs25m at closing. Nabwami advises home buyers to set aside a separate budget for these fees so that they do not feel blindsided when the time comes.
Property taxes: A long-term commitment
When buying a home, property taxes are often overlooked or underestimated. These taxes vary depending on location, and they can significantly impact your monthly payments. “I had clients who were shocked when they found out their annual property tax bill was over Shs3m,” recalls Agnes Tumwine, a mortgage consultant. “They had only budgeted for their mortgage payments, but those taxes can quickly add hundreds of thousands of shillings to your monthly expenses.”
It is crucial to research the property tax rates in the area where you want to buy. Some districts and municipalities have much higher tax rates than others, which could make one home more affordable than another even if they have the same sale price.
Homeowners insurance
Lenders require homeowners insurance to protect their investment, but the cost of this insurance can be higher than many buyers anticipate. Factors such as the age of the home, its location, and even proximity to natural disaster zones can drive up premiums. Moses Okello, an insurance officer, notes that “older homes and homes in areas prone to flooding or earthquakes can have premiums that are double what a newer, safer home might cost.”
It is a good idea to shop around for insurance quotes and factor them into your budget early in the process, especially if the home you are buying is older or located in a risk-prone area.
Private Mortgage Insurance (PMI): The cost of a smaller down paymentDM bodytext: If you are unable to put down at least 20 percent on your home, you may be required to pay private mortgage insurance (PMI). PMI can add a substantial monthly cost that lasts until you reach the 20 percent equity mark in your home.
“PMI is one of those costs that really adds up over time,” says Martin Kiggundu, a financial advisor. “For a Shs400m home, PMI could cost between Shs250,000 and Shs500,000 per month. That is money that could be going toward building equity.”
“To avoid PMI, consider saving up for a larger down payment or exploring loans that do not require PMI, though they may come with higher interest rates,” Kiggundu adds.
It is crucial to research the property tax rates in the area where you want to buy. PHOTOS/SHUTTERSTOCK.COM
Maintenance and repairs
Owning a home comes with the responsibility of maintenance, and unexpected repairs can throw a wrench in any budget. First-time homeowners are often surprised by the costs associated with keeping a house in working order.
“You do not realise how much it costs to maintain a home until the bills start coming in,” says Christine Namwanje, a recent homebuyer from Wakiso. “We had to replace our plumbing system just a year after moving in, and that cost nearly Shs8m. We did not budget for it, and it was a real financial strain.”
From plumbing to roofing to electrical systems, repairs can add up quickly, and homeowners need to be prepared for these eventualities. Setting aside a separate emergency fund specifically for home repairs is a smart way to avoid financial stress.
HOA Fees
If you are buying a home in a gated community or a condo be prepared for homeowners association (HOA) fees. These monthly or annual fees can range from Shs200,000 to Shs1m, depending on the amenities offered. Ritah Nsubuga, a real estate lawyer explains, “Many buyers are so focused on the property itself that they forget to ask about HOA fees. These fees cover things like security, garbage collection, and shared amenities, but they are an additional monthly expense that needs to be factored into the budget.”
Utilities and moving costs: The small costs that add upDM bodytext: Moving into a new home involves more than just buying the house. David Mulumba, a moving services manager with Mukwano Movers, notes that “people often forget how much it costs to move, especially if they are moving long distances. Hiring movers, renting trucks, and even just the cost of boxes can really add up.”
When moving into a new home, insurance for your belongings is an often-overlooked expense. Nabwami advises, “Moving insurance helps protect your belongings from damage or loss during the move. Depending on the value of your items, insurance can cost between Shs100,000 and Shs500,000.”
This coverage can provide peace of mind and help protect your investment during the moving process. Additionally, utilities can be higher in a larger home than in a smaller apartment or rental. Be sure to ask the current homeowners about their average utility bills to get a sense of what you will be paying each month.
Furniture and upgrades
After closing on your new home, there is still more to think about. Furnishing the home and making upgrades are often left out of the initial budget, but these costs can quickly pile up.
“Most buyers are focused on the home itself and forget about all the little things that make it livable,” says interior designer Sharon Akello. “Furniture, window treatments, and even itmes such as painting or updating appliances can cost a substantial amount of money.”
Hidden interest payments
Though interest rates are a well-known factor in home buying, many buyers do not realise how much they will pay in interest over the life of their mortgage. A slightly higher interest rate could cost tens of millions of shillings over 30 years. Henry Ssemogerere, a loan officer in Kampala points out, “If you are not careful, those interest payments can eat into your wealth-building potential. It is important to understand the full scope of what you are paying over time.”
Landscaping and exterior maintenance
While the interior of your new home might be perfect, the exterior often requires additional attention. Landscaping costs can range from Shs500,000 to Shs5m, depending on the size of the garden and the extent of work needed.
Nina Nakato, a landscape architect in Gayaza, says, “Maintaining the garden, installing irrigation systems, and even basic upkeep like lawn mowing can add to your ongoing expenses. It is worth considering these costs if you want your home’s exterior to be as attractive and functional as the interior.”
Pest control and prevention
Pests can become a significant issue in homes, particularly in areas prone to termites or rodents. Nabwami warns that “Pest control services can cost anywhere from Shs200,000 to Shs2m, depending on the severity of the infestation and the type of treatment required.”
Regular maintenance and prevention measures are crucial to protect your home from damage and to maintain its value over time.
Legal fees
Legal fees for reviewing contracts, conducting property searches, and other legal services can also add to the cost of buying a home. Nsubuga explains, “Legal fees can range from Shs500,000 to Shs3m, depending on the complexity of the transaction and the services required.”
Having a clear understanding of these costs will help you avoid any last-minute surprises during the closing process.
Buying a home is more than just meeting the purchase price. With closing costs, ongoing expenses, and surprise repairs, it is essential to go into the process with your eyes wide open. “The key to a successful home purchase is preparation,” says Nabwami. “Understand the hidden costs, budget accordingly, and always expect the unexpected.”
By planning ahead for these hidden costs, you can enjoy the excitement of homeownership without the financial shock that catches many new buyers off guard.
