More than a Mortgage: The Additional Costs of Homeownership

When shopping for a home, it’s important to understand the full cost of homeownership. That includes costs you can plan for as well as those that can pop up unexpectedly. If you’re preparing to buy a home, be sure to budget for the bills you can predict and leave a cushion in your savings for inevitable surprises.

Home Maintenance & Repairs

Let’s start with the most unpredictable costs of homeownership: maintenance and repairs. Leaky faucets, termite damage, foundation issues — the list goes on and the costs can add up. That’s why it’s wise to keep some extra money in savings dedicated to homeownership curveballs.

While many home repairs can catch you by surprise, there are some regular repairs and upgrades homeowners should expect and budget for accordingly. For example: recaulking around windows and doors (every 3-to-5 years), exterior paint (every 5-to-10 years), replacing major appliances (every 10-15 years), and a big one, replacing the roof (every 20-to-30 years).

If you have your eye set on an older home, you can probably expect these types of repairs (and others) to crop up sooner than with a new home. This is especially true if the previous owner has neglected proper maintenance. A home inspection will help determine which repairs are nearest on the horizon so you can work them into your budget.

How to estimate your budget:
We recommend you set aside at least 1% of your home’s total value per year. In other words, if the value of your home is $500,000, you should aim to set aside at least $5,000 per year — perhaps even more for an older home.

Homeowner’s Insurance

Every homeowner needs insurance, particularly to help cover damage caused by unexpected events. Every insurance plan is different. Before selecting a plan, do some research to make sure you understand what it covers and what it doesn’t.

Most plans will cover your property and possessions in the event of a fire or vandalism, liability for any medical expenses incurred should someone suffer an injury on your property and reimbursement for belongings stolen in a burglary. For additional natural disaster coverage, such as for floods or earthquakes, you’ll likely have to pay extra, particularly if these types of events are common in your area.

Much like car insurance, most plans will include a deductible you’ll be responsible for covering before your insurer kicks in. You can typically reduce your monthly insurance bill by selecting a plan with a higher deductible, though the cost-benefit of such a move might not work out in your favor if/when an accident occurs.

How to estimate your budget:
Insurance rates vary depending on where you live. It’s wise to call several insurance companies that interest you and ask for a quote to determine your estimated monthly insurance premium.

Additional Homeowner Costs: Property Taxes, HOAs, and Utilities

Property Taxes

Luckily, property taxes are an expense you should be able to estimate before you’ve even purchased a home. Oftentimes can even bake these expenses into your monthly mortgage payments.

Typically, property taxes are determined based on the value of your home and the area in which you live. Tax rates, however, vary widely by location, with states like New Jersey, New Hampshire, and Connecticut on the high end of the spectrum and Alabama, West Virginia, and Arkansas on the low end.

Keep in mind that property taxes can fluctuate if the value of your property increases or decreases over time or if tax rates in your area change.

How to estimate your budget:
You can calculate your property taxes by multiplying the value of your property by the tax rate for your state. Your realtor should also be able to provide this information.

Private Mortgage Insurance (PMI)

Do you plan to put less than 20% down when buying a home? For a conventional loan, you may be required to pay for Private Mortgage Insurance (PMI). This will incur a monthly or annual fee in addition to your mortgage until you’ve reached a loan-to-value (LTV) ratio of at least 80%, meaning your loan amount is less than 80% of your home’s total value.

If you’re taking out an FHA loan instead of a conventional loan, you may have to pay a Mortgage Insurance Premium (MIP). The amount of time you’re required to pay a MIP with a FHA loan will depend on your down payment. If your down payment is less than 10%, you’ll pay for a MIP until you’ve fully paid back your loan. If your down payment is more than 10%, you’ll pay for a MIP for 11 years.

How to estimate your budget:
Mortgage insurance will typically add an extra 0.5-2% on top of the cost of your loan. The greater the mortgage, the higher the cost of your PMI. Typically lower credit scores will also require paying higher PMIs.

HOAs

If you buy a home that’s part of a Homeowner’s Association (HOA), then you’ll have to pay a monthly or quarterly fee that goes to cover the costs of building maintenance or community spaces. HOAs are generally a factor for condominium owners, though some standalone homes can also be part of an HOA as well.

How to estimate your budget:
Ask your realtor about any HOA costs so you can work them into your total homeownership budget.

Utilities

Even if you’re a first-time homebuyer, if you were previously renting, you’re likely already familiar with the cost of utilities. Examples of homeowner utilities include water, gas, electricity, or garbage/recycling pick up. According to move.org, the average monthly cost of utilities in the U.S. is $370.16, with electricity listed as the most expensive utility. You can reduce your electricity bill by using energy-efficient light bulbs, turning off the lights when you leave the room, or even installing solar panels on your roof.

How to estimate your budget:
You can either use the average monthly cost listed above as a guide or have your realtor ask about a particular home’s average cost of utilities.

Home Buying Budget Takeaways

Hopefully, this breakdown of some of the ongoing costs of homeownership will give you a better idea of what to expect for your home buying budget. You probably won’t be able to predict all of the exact costs to expect from the get-go. Every home (and homeowner) is different! Keep updating your budget as you learn more about what you actually spend so you can budget smarter year after year.