The Real Cost of Homeownership

So, you’ve done all your research before buying a home. You’ve checked with mortgage lenders, you’ve improved your credit score, and you’ve paid off other debts. You’ve saved the required down payment and you know how much your house payment will be. You’re on the right track, but don’t forget to consider the additional costs of owning your home. Being aware of, and preparing for all those extras will make owning your home a rewarding experience.

Taxes
Your house payment might include your real estate taxes; if it does, that is one less thing you have to save for. If your house payment doesn’t include the tax, be sure to regularly put away enough to cover your annual real estate tax bill.

If you are the first owner of a newly built home, you’ll most likely be paying tax on just the empty lot until the property is reassessed with the house on the lot; when that happens, be prepared for your tax payment to go up by up to several hundred dollars a month. If you're buying a preowned home, the real estate agent can tell you how much the annual real estate taxes are.

Homeowner’s Insurance
The mortgage lender will set you up with an insurance company at closing. This is to make sure their investment will be protected immediately in the event of unfortunate circumstances, but it doesn’t mean that it’s the best insurance deal around.

You are free to shop around after closing for a better insurance company with a more attractive premium, then let your lender know who you want to carry your policy with. Or, if you manage to make time for insurance shopping before you close on your home, you can provide your mortgage lender with the insurance company’s information so you can use that company from the get-go.

Private Mortgage Insurance (PMI)
If you’re paying little or no down payment, be prepared for this extra monthly fee. PMI is to protect the lender in case the borrower defaults on the loan. Homebuyers who pay a down payment of less than 20% are required to pay for this insurance, since low down payments are associated with a higher risk of default.

This insurance premium is based on the amount of your loan, but it can range from about fifty to a couple hundred dollars a month, depending on your loan terms and the size of your mortgage. The lender is required to automatically cancel PMI once you’ve built up 22% equity, whether by paying down the mortgage or by the home’s appreciation, or a combination of both. You can make a request to the lender to cancel PMI once you’ve reached 20% equity, but they may require an appraisal that you would have to pay for.

Homeowner’s Association (HOA) fees
Unless you’re buying in the country or in the center of town in an older, more established neighborhood, be prepared for this required membership. Most builder’s new housing developments have HOA’s, if you are going to buy in that neighborhood, it will be required that you pay the fees.

Those fees are used to mow the common grassy areas, take care of ponds and landscaping, and maintain the parks and amenities. They often take care of snowplowing the roads within the neighborhood, since city workers usually don’t plow in HOA-managed neighborhoods. The annual fee for HOA will depend on the amenities and the cost of upkeep. The fees can range from several hundred dollars to several thousand dollars a year, depending on where you live and how standard or ritzy your neighborhood is.

Utilities
Don’t forget to consider all the details that can add up to a higher or lower energy and water bill. A new, energy-efficient home will cost less to heat and cool than an older home with outdated windows and poor insulation. A big backyard and huge gardens might be beautiful, but it will take a lot of weekly watering to keep it beautiful.

Strategically placed evergreen trees on a property can act as sunscreens and windbreaks to conserve energy and save on utilities. Gas heat used to be, by far, the cheaper way to heat a home, but these days it doesn’t really pay off anymore. You could ask the seller for a copy of their previous year’s energy bill to get a rough idea, but keep in mind that they might have kept the thermostat on chilly in the winter or they don’t mind sweating in the summer. It only makes sense that it costs more to run a bigger house than a smaller one, but be prepared for how much of a difference it can amount to.

Appliances
They are considered personal property and are usually not sold with the home, so you’d have to purchase appliances if you don’t already have them.

Some sellers are willing to leave the appliances in the home as an incentive for a quick sell, but be prepared to repair or replace them someday. Many appliances only have a useful lifespan of about eight to twelve years; so don’t let the possibility of a breakdown catch you off guard.

Furnishings
You might be all right with what you already have if you are coming from a similarly sized home. If you’re starting fresh or coming from a small apartment, you’ll probably realize, once you move in, how empty your new home feels without the furniture to fill it.

Just one full room of furniture will be a big investment; furnishing an entire house will take major planning if you don’t want to take on new loans and credit card debt. Get a rough idea of what those furnishings will cost before you buy your home so you can plan for it.

Tools and Equipment
Maintenance and improvements are part of homeownership; you need the tools to do the job. A relatively small landscape project can require a variety of gardening tools; twenty dollars here and thirty dollars there a few times will add up quickly.

A couple of power tools, plus a shop-vac for the garage, plus some painting supplies for touch-ups, and a lawnmower, trimmer, and blower can lead to a shocking credit card bill if you don't plan for it in advance. Be prepared to add to your homeowner’s toolbox.

Improvements and Repairs
You will have to fix something someday. If everything is in good shape, you will find a home project to start. Any proud homeowner has a deep desire to continuously make his or her home nicer, it’s something we can’t control. You might decide to put up a fence or install a deck or patio.

You might realize that the garage would be so much tidier if you had a shed out back. You might want your garden beds to be the envy of all your neighbors. The supplies for these projects aren’t cheap, even if you do all the work yourself. Be prepared for those extras that will add to the cost of homeownership.

Services
Lawn mowing and fertilizing, pool maintenance, housecleaning, painting, and snow removal can be a major total expense if you plan on hiring someone for those jobs.

Find out what those service costs will be for the home you plan to buy if you know you’d rather pay someone else to do it before you did it yourself. You might find that you should get a home with a smaller yard or skip the pool once you find out what it costs for maintenance services.