How Much Does Owning a Home Really Cost?

Planning ahead for monthly, yearly, and major costs of homeownership.

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When people think of how much it will cost to buy a home, they tend to think of the purchase price. And no wonder: With median home prices in the U.S. at over $200,000 (in 2013), the list price is a number that would grab anyone’s attention.

But buying a home is not like buying a book, where you lay down the money, then enjoy watching it sit on a shelf for years to come.

For one thing, you’ll probably take out a loan to buy your house, which means your immediate upfront cost will be the down payment (traditionally 20%, or $40,000 on a $200,000 purchase) plus closing costs and fees. For another thing, a home is almost like a living thing – it changes over the years, and your needs from it change as well.

So let’s consider how much your ongoing, month-to-month, year-to-year, and one-time homeownership expenses are likely to be.

Mortgage Payments

If you take out a fixed rate mortgage, you’ll know ahead of time the exact amount of your monthly mortgage payment. The amount includes a portion of the principal, along with interest on the amount owed. Although the amount owed goes down over time, the lender “amortizes” the payment to make your monthly obligations come out to the same figure.

You might be shocked to notice how much interest you will owe over the life of the loan. In fact, homeowners who find themselves with a little extra cash once in a while take the wise step of paying extra on their mortgage, to bring down the interest owed and pay off the loan more quickly.

If you choose an adjustable rate mortgage, your payments might start out lower than they would have with a fixed rate mortgage – but will likely eventually rise in tandem with interest rates. Make sure you quiz your mortgage broker on how high, in dollars rather than percentages, the payments could potentially go.

See the “Getting a Mortgage” section of Nolo’s website for more information.

Private Mortgage Insurance

If you can’t come up with a 20% down payment, your lender will likely require you to buy “Private Mortgage Insurance,” or PMI, until your equity in the home rises. This is for the lender’s benefit, not yours; it reimburses the lender if you default (can’t pay your mortgage). Typical PMI premiums are, according to Bankrate.com, between .3% and 1.15% of the original loan amount, annually. They must be paid with your mortgage check each month.

Property Tax Payments

The amount you must pay to your local government in property taxes depends entirely on the state you live in – but it tends to run into the tens of thousands of dollars each year. (See state-by-state data collected by the Tax Foundation.) This can be a shocker if you don’t plan ahead (or if your lender doesn’t’ require you to pay this along with your mortgage payment).

Fortunately, the bulk of these amounts are deductible from your federal income taxes.

Homeowners’ Insurance Premiums

You wouldn’t want to go without insurance in case your home is damaged or destroyed by such things as fire, vandals, or other unpleasant surprises. What’s more, your lender probably won’t allow you to go without homeowners’ insurance. (It wants its collateral fully protected.)

Average annual premiums range between $500 and $1,000, according to the Insurance Information Institute. The exact amount depends on the state you live in and your home’s features and level of risk.

Don’t forget also that your homeowners’ insurance will have a “deductible,” or amount that you must pay before collecting for damage, usually around $1,000. The higher the deductible, the lower your premiums. But you need to make sure to keep this amount on hand, so that you don’t wind up unable to collect on your insurance in the event of major damage.

Utilities

If you’ve gotten used to having a landlord pay for electricity, water, garbage, gas, cable, WiFi, and other services in your area, your monthly utility bills could come as a bit of a shock. Your best bet is to research local averages.

Crime Prevention

Unless you’re lucky enough to live in one of those few American neighborhoods where people don’t lock their door, you might want to add features like floodlights and an alarm system. Many alarm companies charge for monthly monitoring, usually at least $20 per month, and often far more. And no matter where you live: Lock your door!

Cleaning

A house is just plain bigger than an apartment. You’re going to pay more for cleaning supplies, and perhaps decide that it’s time to hire a cleaning person. Rates vary depending on where you live.

Repairs and Maintenance

Even if your home passed all its inspections with flying colors, it’s going to need regular maintenance and repairs. Experts recommend saving at least 1% of the purchase price of your home each year in order to be ready for these (that’s $2,000 a year for a $200,000 home). Add more to the pot if your home is more than ten years old or if the previous owner didn’t maintain it well.

These maintenance costs won’t, unfortunately, be regular or predictable. One day, the dishwasher may simply pour water all over the floor, and you’ll need a new one, plus repairs. So it’s best to be mentally and financially ready for the occasional emergency.

You can minimize all these costs by being attentive to your home’s ongoing needs, for example by regularly examining the roof for missing shingles, getting the gutters cleaned, watching closely for any interior moisture or leakage, changing filters on your heating system per the recommended schedules, and reading the manuals for any other systems or equipment in order to figure out and schedule needed maintenance.

Costs Associated With Living in a Condo or Planned Community

If you’re living in a development that’s overseen by a homeowner’s association (HOA), you’ll be expected to pay monthly dues, and occasional special assessments. See the “Living Under a Homeowners’ Association” section of Nolo’s website for details.

Home Decorating

A new couch, new curtains, new carpets – you’re going to need some of them, and want others. It’s impossible to figure out an average for these, but you know your spending habits and inclinations. And some items might be entirely new to your life experience – for example, this may be the first time you’ve had a chance to put up holiday lights.

Home Landscaping

If you lived in a fifth floor apartment up to now, owning a home may be your first opportunity to create a landscaped garden. But plants, hardscape (rocks and bricks) and landscape design don’t come cheap. And don’t forget that either you or a service provider will need to mow, prune, and rake.

Home Improvements

What if you hate the kitchen, your kids are demanding a third bathroom, and you someday hope to have a parent move into your house? Many homeowners complain that the smallest job tends to cost $20,000 – and there’s really no upper limit. Plus, as your house gets bigger and better, your homeowners’ insurance rates may go up.

See the “Home Improvements” page of Nolo’s website for tips and guidance.

Have we forgotten anything? Probably, but you’re likely intimidated enough as it is. Don’t panic, this all becomes routine for most homeowners. But the thing NOT to do is to, for example, go crazy and spend your entire budget on home decorating the first year and neglect to attend to the basics, such as repairing the leaking roof and setting aside an emergency fund. That could leave you in a fix when the roof pours water onto your new furnishings.

Still feeling uncertain? Take Nolo’s “Homebuying Readiness Quiz.”

by: , J.D.

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