When India Davis, editor at Bankrate, recently bought her first home, she was aware that her escrow payment would change, but the degree of which wasn’t clear.
“My agent and mortgage company framed it as an increase of a couple of hundred dollars per year when the reality is much higher,” says Davis. “While I was able to figure out how to pay the new monthly mortgage, it was unnerving how much the price changed.”
For many homebuyers, surprises about their mortgage and homeownership come after they close the deal — some good, and others, not so good. To get more insight, we polled homeowners on the Bankrate team to find out what they wish they knew before getting a mortgage and owning a home. Here’s what they said and their advice for hopeful homebuyers.
1. Your escrow payment can change
The most common homeownership surprise from our team was about how mortgage escrow can change. Most borrowers set up an escrow account to cover their annual property taxes and insurance, and are contributed to as part of the monthly mortgage payment. As Davis experienced, these portions of your mortgage payment can change annually, especially soon after you buy your home.
“If I had any advice, I would say when house shopping, go way under your budget so you can stay in your actual budget long term,” Davis says.
In addition, depending on how your state assesses property taxes, the tax amount can rise significantly after a property is sold. This is known as property tax uncapping.
Lauren Nowacki, senior writer at Bankrate, and her husband experienced this. Before they bought their house, they looked up the property taxes of the previous owners and expected they would pay a similar amount.
“We had no idea that when the property was sold, they could reassess it. The taxes went from about $1,200 per year to over $3,000,” Nowacki says. “And, since our mortgage company based escrow on the taxes the previous owners were paying, we had a shortage of around $2,000 when the mortgage company performed an escrow analysis. Not only did we have to pay that shortage, but our monthly mortgage payment went up by more than a hundred dollars because the escrow account for the next year was based on the new property tax amount.”
We had no idea that when the property was sold, they could reassess it. The taxes went from about $1,200 per year to over $3,000.
— Lauren Nowacki
Senior writer at Bankrate
While an escrow shortage can happen and tighten your budget, the flipside can happen, too.
“My husband and I actually got a refund from our escrow account a few months ago because we overpaid into it last year,” says Alice Holbrook, editor at Bankrate.
Bankrate insight
Along with changing property taxes, homeowners insurance can adjust every year. In fact, annual homeowners insurance premiums have increased by 74 percent since the Great Recession, according to the Joint Center for Housing Studies of Harvard University. From 2020 to 2023 alone, premiums rose by 20 percent.
2. Homeownership costs are high and can go up
Once you buy a home, you’re on the hook to maintain it. That means putting in the work, as well as covering extra fees and maintenance costs. When wrapping these homeownership costs in with insurance, property taxes and utilities, the annual tab for owning and maintaining a typical single-family home comes in at over $18,000, according to Bankrate’s 2024 Hidden Costs of Homeownership Study.
For many homeowners, especially condo owners, owning a home also includes pricey homeowners association (HOA) fees, which can increase regularly.
“Our first house was a condo, and every year we owned the home, the HOA fees increased,” says Amy Sims, editorial director at Bankrate. “By the time we sold our home five years later, our fees had gone up $75 a month, and were on the verge of increasing again.”
Sims advises prospective homebuyers to factor the potential for rising yearly HOA fees into their budget. That way, if the fees don’t increase, or increase only slightly, homeowners can use that money elsewhere.
3. Home inspections might not catch everything
For most people, home inspections are part of the homebuying process. But not every inspection is perfect. Sometimes, problems are either glossed over or hidden entirely.
For instance, the home I bought in 2017 had a bathtub faucet with a small drip that went unnoticed by us and our inspector. After moving in, however, this drip became a stream. Once a plumber inspected the pipes, he found a faulty rubber washer that had deteriorated over time and had not been replaced by the previous owner. We paid the plumber $100 for a service call to find and fix the problem in under 10 minutes. Still, it was an unexpected issue and expense following a home inspection.
Another surprise? After the purchase, we also found out about an unpaid exorbitant water bill from the previous owner; we had to goad them to pay the bill in order for us to transfer the utility to our name.
4. If your income rises, your mortgage payment might look more affordable
It’s not all doom and gloom when it comes to surprises about having a mortgage and owning a home. While costs can go up, for those with a fixed-rate mortgage, the principal and interest portions of the mortgage payment stay the same. If your income grows over the years of your loan term, your monthly payment could become a smaller piece of your finances.
“With a fixed-rate mortgage, the size of the principal and interest doesn’t go up with inflation, creating the illusion that your housing cost is shrinking,” says Jeff Ostrowski, writer and housing market analyst at Bankrate. “What seemed like a daunting amount when you took the loan turns into a sum you can easily afford after five years or so.”
My wife and I experienced this, as well. After buying our first home together in 2017, I looked at the monthly payment with some reservations. I knew we had the income to cover the bill, but I also knew money was going to be tighter than it was previously. However, by the time we sold the home five years later, that monthly mortgage payment felt just as reasonable as what my old rent used to be.
5. Your mortgage can be sold
Speaking of selling, another common surprise Bankrate’s mortgage-holders experienced was that their mortgage was sold. While mortgages are bought and sold on the secondary mortgage market frequently, when a borrower says their mortgage was sold, typically they mean their lender sold their mortgage servicing rights.
What does this mean? It means a new company oversees your mortgage repayment, as well as disbursements from an escrow account. When this happens, nothing changes for you besides where you send your monthly mortgage payments.
Bankrate insight
According to Federal law, you must receive a notice 15 days before your mortgage is switched to the new servicer. Make sure all the data on the notice is correct, and that you redirect your bank account withdrawal or mail your payment to the new servicer’s address.
Homeownership is full of surprises
Beyond the stressful yet exciting ride of buying a home, having a mortgage and owning a home comes with its own set of unexpected turns. As you venture into homeownership, leave room in your budget to cover potential rising property taxes or an unexpected repair. But remember, many pleasant surprises could come your way as well, such as a potential decrease in your housing costs as a percentage of your income.
