New Construction Land Mines

You've been dreaming (and likely drooling) over the new homes for a while now, saving your pennies, and now you're ready to buy. How do you avoid getting sucked into payments that you'll never be able to afford? There are some major land mines inherent in all new construction these days, commonly called Mello Roos taxes and homeowners dues.

First of all, read our Tips on Buying New Construction. It's a great primer to get you started.

The next step is to make sure that you know all of the costs of ownership in the development that you're dreaming of. Can you afford an extra $500 or more per month for Mello Roos taxes, plus an extra $100 or more a month for homeowners association (HOA) dues, plus your mortgage payment, property taxes and property insurance?

Yes, you read that right: ALL new Santa Clarita developments, both current and planned, will have some form of Mello Roos assessment. And these assessments are expected to start at around $460 per month and increase from there, depending on the development and the square footage of the house you buy. They may call it something else, but it's essentially the same thing: Additional property taxes that you'll have to pay with your regular tax bill every single year.

Homeowners dues for single family homes will likely start at $100 per month and go up from there. Expect to double that for condos and townhomes, since you'll have to pay into the master homeowners association (or the development-wide HOA) plus the condo or townhome HOA. Sometimes the HOA dues will start at a higher rate and then decrease as more homes are built to share the costs, and other times they'll just continue to go up as the homeowners association discovers that they don't have enough funding to complete what they originally planned. Like the Tesoro del Valle development, where they raised the dues to cover the cost of furniture and exercise equipment in the clubhouse as well as other budget shortfalls.

So, now you have a mortgage payment, plus at least another $600 per month in other fees and taxes, plus your insurance and plus your regular property taxes. Add these all up, and you'll have your true base cost of ownership. Of course this doesn't include installing landscaping, window coverings and other necessities, so add those in to your initial costs as well. The only positive side to the condos and townhomes is that the HOA dues normally cover insurance and exterior maintenance, so those are costs that you'll not have to cover yourself.

Oh... and don't forget to factor in your REAL mortgage payment, not the intro "teaser" rate in your calculations! You may find that while the teaser rate is workable, the real rate could put you in a black hole where there's no way out other than a 2nd job or a generous relative.

New construction can be great - I've bought new homes myself, and currently live in a development with Mello Roos taxes as well as HOA dues. I don't want to discourage you from buying new construction, but I do want to keep you from being the next foreclosure waiting to happen! Be sure to calculate all of your home ownership costs before committing to buying that new home. It will save you many sleepless nights later on!