It goes without saying that buying a house is going to cost. However, many first-time homeowners run into trouble because they don’t plan on the hidden costs that come with owning a property. The real cost of home ownership is more than your basic mortgage.
The Hidden Costs of Owning Your Home
You may think that the only thing you’ll need to worry about when you buy a house is your mortgage. This isn’t the case.
There are plenty of hidden fees and unexpected costs you’re going to run into as a homeowner, including taxes, HOA fees, and insurance.
Property taxes vary by state and house size. The state calculates what you pay using your property’s value.
That typically translates as 1.2 percent of a home’s value and could come to between $500 and $1000 per month. Research is important since your tax liability could be substantial in a state like Texas or negligible if you move to Louisiana.
HOA and Condo Fees
You also need to prepare for potential monthly fees on top of your mortgage.
Unfortunately, HOA fees can run anywhere from $100 a month up to $1,000 or more. While HOAs may cover home insurance, lawn care, and overall neighborhood maintenance, the HOA fee is not tax-deductible.
If you purchase a condo, co-ownership fees, are another monthly charge. These fees typically cover maintenance for communal assets (such as the garden or pool) but do not typically help with individual condo maintenance.
On average, homeowners pay roughly $1,211 a year for homeowner’s insurance. That price boils down to about $100 a month on top of your mortgage.
Of course, the specific amount you’ll have to pay will depend on where you live, your property’s value, and the amount of coverage you’ve chosen. However expensive it may seem, homeowner’s insurance will likely save you money in the long run.
Costs of Repairs
- Roofs need a lot of maintenance, and you will need to replace them every 20 to 25 years. If one doesn’t do this, then a deteriorating roof could start to let water in. That can be devastating to a house’s contents and its structural foundations. The cost to replace or repair a roof depends on the type of materials used. A wood-shingle roof will set a homeowner back $3.50 to $5.50 per square feet, while a new asphalt roof is likely to be $5,000+ in total.
- Minor plumbing, like a leaky faucet, is often fixable without bringing in a contractor, but an older home may have more challenging problems. For instance, pipes may be beyond repair and need replacing. Lead components could contaminate your water. A professional plumber is the only one who can resolve these issues, and on average, they charge $45-$200 per hour.
- Wiring is a common issue for homes, especially if they are on the older side. While it can seem minor at first, faulty wiring or an electrical short may lead to a serious fire. The costs for that can be astronomical, so only a professional should fix a major wiring problem. On average, hiring out an electrician will set you back between $40 to $100 per hour. That doesn’t include the call-out fee, which is typically $75 or more.
- HVAC systems are a necessity for many homes, but their maintenance can add up. They are costly to run daily, but they are also complex machines. Most homeowners won’t be able to inspect or repair it, meaning you will have to hire a contractor when there’s an issue. Costs for regular service typically average $100.
- Termite infestations can be costly for homeowners. Their presence alone can cause serious structural damage. Dealing with them means hiring an exterminator. Prices vary by location, but on average, it costs about $5000 for the chemical treatment of a 2500 square foot home.
Repair Fund vs. Emergency Funds
If you’re lucky and well prepared, you have a rainy day fund squirreled away for emergencies. Unfortunately, the real cost of home ownership includes not just an emergency fund but a repair fund as well.
As a renter, when your home has an emergency, such as a burst pipe or fire, the owner covers the cost. When you buy a property, you become the homeowner, and those repairs fall to you.
To make sure you have enough to cover any unexpected emergencies, it’s a good idea to put roughly ten percent of your monthly income into a specific “emergency fund.”
The last thing you want to do is ignore problems around your property. A crack in the floor may seem small, but it can get so much worse over time. As problems get worse, they quickly become more expensive to treat.
That’s why you’ll need to deal with issues as they arise. Rather than relying on your emergency money (which you may still need in case of an emergency), it’s a good idea to set money aside to plan for repairs and maintenance.
When you keep your home well-maintained, you’re less likely to experience catastrophic repairs down the line.
How Often Your House Will Need Maintenance
Every house needs regular maintenance. While that includes things like keeping the paint up to snuff and the lawn mowed, it also requires professional help. The costs of bringing in contractors to do maintenance can escalate, so you need to prepare.
The roof of a house is your first line of defense against natural disasters and weather. It keeps rain out of the attic and prevents pests from burrowing into your walls.
Because a roof is so important, you will need to be sure to keep it maintained. Remember, maintenance is usually cheaper than emergency repairs.
Different types of flooring need different kinds of maintenance. Knowing what you need to do for the kind of flooring your home has will save you needing to replace them more frequently.
For example, hardwood floors need consistent care. You should dust or sweep every day, protect the floor from your furniture with furniture pads, and polish them with wood cleaner monthly.
Usually, you can do floor maintenance yourself, but the cost of the polish, a wood-floor-safe vacuum, and duster will have to come from your pocket.
People often wait until there is a problem that they cannot ignore before calling a plumber. However, if you take good care of your pipes and water system, you can save yourself many stress and money down the line.
Proper plumbing maintenance can still add up, and you need to anticipate these charges before you become a homeowner.
For example, if you notice a small leak, you’ll have to shell out for a plumber to investigate. Ignore the problem, and you run the risk of a tiny drip becoming a burst pipe down the line, and instead of paying a few hundred, you’ll likely have to pay thousands.
Electrical System Maintenance
Even if your electrical system seems perfectly fine, a smart homeowner will schedule a regular household checkup with an electrician.
On average, electricians charge anywhere from $50-$150 an hour for their work. That may seem reasonable, but you need to remember that it may take more than one hour to complete a thorough investigation of your house.
That means you could be out around $300 on top of your mortgage, insurance, HOA, and other monthly expenses.
Every home is going to have some sort of heating system. If you’re in a warmer part of the country, you likely have a cooling system as well.
At least once a year, you need to have your HVAC or furnace inspected by a professional. No one wants to have an emergency in the dead of summer or winter when they need a working HVAC the most.\
With that in mind, a contractor will usually charge between $75-$200 for a tune-up alone.
Investment vs. Equity
Some home buyers think of a house as an investment that will pay out big bucks later on. Others rely on their home’s equity for financial stability, taking out mortgages or second mortgages to stay afloat.
Before you buy a house, you need to consider the opportunity cost. Opportunity cost is simply a fancy way of saying you lose other possibilities when you pick a certain path.
In this case, the opportunity cost is losing the benefits of renting by purchasing a house. You’ll have to determine which possibility makes more sense financially for your household.
After all, there is no guarantee when it comes to buying a home. The excellent neighborhood you planned on may lose value over time, or the area growth you anticipated may never pan out.
Whether buying a home is economically worthwhile is up to you and your financial situation.
All in all, there are fewer outright risks when it comes to renting, and considering how many additional fees come with home ownership (plus how much you need to put aside each month for security), renting may turn out to be cheaper in the long haul.