When my husband and I moved across country, we struggled to decide if homeownership in our new location was worthwhile. On the surface, homeownership looked like a great deal. After all, in the city where we now live, paying monthly rent on a house is equivalent if not more expensive than paying a monthly mortgage.
People we asked for advice commonly answered, “Why not go ahead and just buy the house? At least you’ll be putting your money in an investment rather than just throwing it away every month.”
However, the decision isn’t as simple as that.
There are a host of expenses that come with home ownership that many people do not consider when preparing to buy a house.
Closing costs can run several thousands of dollars, if not more, depending on the price of your new home. One way to avoid this expense is to ask the seller to pay the closing costs, but sellers won’t always do that.
When you’ve already put down money on the house, coming up with closing costs in addition can be a financial strain for some.
Depending on where you live, property taxes can be a minor annoyance or they can be a significant budget buster. In our area, property taxes only run about $1,200 a year, so they are not breaking our budget. In other areas like the suburbs of Chicago, property taxes run $12,000 to $20,000 per YEAR on an average size family home. These taxes are so expensive they need their own line item in the budget.
Repairs and Maintenance
If you rent and something breaks or is damaged, you simply call the landlord. If you own a home, that responsibility (and expense) falls squarely on your shoulders. The general rule of thumb is that you should put aside 1 to 3% of your home’s value yearly for repairs and maintenance. So, if you own a home worth $180,000, you should put aside $1,800 to $5,400 a year for those expenses.
You may be tempted not to put that much aside because some years you may not have many repairs. However, when you do need to make repairs, several will likely come at once, so the more you have set aside, the better. Don’t forget, maintenance is also essential to keeping your home in good working order.
If you have a large emergency fund (6 to 12 months), and you can handle expensive repairs out-of-pocket, a home warranty may not be worth your while. In our case, our home warranty policy has already paid for itself.
We pay $600 a year for our home warranty, and within the first week of moving into our new home, the water heater went out, and the leaking flooded our pantry. The warranty didn’t cover everything; we had to pay about $360 out-of-pocket, but the warranty covered another $900 to replace the hot water heater and pay the labor costs.
As a renter you should have renter’s insurance, but in our experience, that cost 3x less than homeowner’s insurance. You can expect a jump in insurance when you move from a rental property to a home.
When you move into a new home, you naturally want to make your stamp on the property. You may want to paint, change floorings, or make any number of other upgrades.
Brent Wilson, a Senior Director of Mortgage Banking at Quicken Loans, states, “It’s amazing how much temptation there is to spend money after the home is officially yours. New furniture, tvs, landscaping, paint, window treatments. It’s also amazing how all of a sudden your dinnerware, pots, pans, dining table, outdoor grill, and audio video equipment that were perfectly fine in your previous home are no longer up to par. Be prepared for those expenses as well; they should definitely be factored into the overall budget.”
Owning a home can be a great experience, but make sure before you begin looking at properties that you’ve also considered all of the hidden expenses.
What other hidden expenses would you add to this list?