Home ownership is very rewarding, but you should have a solid understanding of all of the monthly costs of owning a home before you jump in. As a potential homeowner, you may be considering if you can afford to buy a home only based on the monthly mortgage payment. It’s easy to make this mistake, especially as mortgage lenders tell you exactly how much home you can afford. However, not taking all of the monthly expenses into account can set you up for challenging financial times.
Costs Included In Mortgage Payments
Your monthly mortgage payment will include money that will be allocated to escrow to pay for your yearly property taxes and home insurance policy. If you purchase a property without a mortgage loan, you will be responsible for paying these on your own. During the mortgage approval process, the lender will take estimated property taxes and insurance into consideration to determine if you can afford the loan. Because these monthly costs are most obvious, most potential homeowners gauge home affordability solely on the mortgage payment. However there are many other monthly costs of owning a home that you should be aware of and budget for before you buy.
We found it helpful to estimate each of the following costs for several properties before moving forward with the mortgage process.
Homeowners Association Fee
Depending on where you are looking to buy a home there may be a monthly or yearly homeowner’s association fee. You may be able to find this amount on the listing, but if not you can ask your realtor or the listing realtor to find out for you. These fees generally cover maintenance of common areas, but the extent varies by development. According to Investopedia, the average HOA fee is about $200 a month but ranges from about $100 to $700. When we were looking at properties we saw several homes with monthly HOA fees in the $200-300 range, but we also saw some with HOA fees around $700-$1,000 a month. Since this can be a significant monthly cost of owning a home, you should consider this while you are looking at different properties.
Maintenance
The next big monthly cost of owning a home is maintenance. There is a rule of thumb for estimating the cost of maintenance that claims it is about 1% of a home’s value each year. For example, you could estimate that a property valued at $300,000 will have about $3,000 worth of maintenance costs over the year. That comes to $250 a month. Obviously, this is a rule of thumb so it could be much more or less depending on the home. This includes regular maintenance of the home, which may be done on a yearly basis, but should be budgeted for each month. HVAC check ups, air filters, plumbing, roof maintenance and cleaning all falls into this category.
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Utilities
If you currently rent and are responsible for paying utilities, then these costs will probably not surprise you. However, it is important to take into consideration the size and location of the home you may purchase to budget for the monthly cost of electricity, water, gas and trash pick up, if applicable. You may want a larger home, but keep in mind these utility costs tend to increase with larger properties and can add up to a substantial amount.
Other Home Services
There are other monthly costs, such as internet, cable and security monitoring that you shouldn’t forget. Although these costs may seem small, they can add up to a large amount if you don’t pay attention. According to NerdWallet, utilities plus these other home services account for about 27% of non mortgage homeowner expenses. There are ways to minimize these expenses, such as shopping around for deals each year, cutting cable and using a DIY security monitoring service rather than one installed by professionals.
Pest Control
The cost of pest control definitely varies depending on where the property is located and the condition of the structure. Some homeowner’s associations provide pest control for the exterior of the building and some don’t cover this at all. There are products you can purchase to spray yourself or you may need to have a professional treat your property on a regular basis.
Landscaping & Lawn Care
This is a cost that you’ll have to find out if you are responsible for or if the HOA covers depending on if you are looking to buy a townhome or a free standing home. However, owners of most free standing homes (no shared walls) are responsible for landscaping and lawn care. It may come as a surprise, but this cost can really add up. This includes cutting the grass, watering it and landscaping exterior areas and is dependent on the size of your lawn. A friend of ours bought a home less than 3 years ago and is responsible for lawn care, including the sprinklers. So far she has spent $850 (and still needs to spend another $150) just to get her sprinkler system to function to keep her grass alive in the South Florida heat.
Unexpected Expenses
There are some costs of owning a home that you can’t prepare for as easily. Even if your home is newer than most, things will still pop up that you have to repair or replace. Unfortunately it’s hard to budget to replace an air conditioning unit or expensive appliances. This is why having an emergency fund is even more important when you own a home.
Within the first few months of owning our home, we had to replace the washer and dryer and the garbage disposal. We had a savings so we were financially prepared, but it’s easy to wipe out your savings on your down payment and closing costs and then forget that unexpected expenses can and will pop up.
Budgeting For Monthly Costs of Owning A Home
This explanation of the hidden costs of home ownership is not meant to scare you away from buying a home, it is aimed at preparing you. Keep these costs in mind when you are making your list of “wants” and “needs” in a property and once you have a couple of properties at the top of your list, create a real budget. By estimating all of the monthly costs of owning a home, you will be able to better understand what you can afford and put you on a more stable path to homeownership.
If you are considering whether you should rent or buy, there are other factors besides cost to consider. To help you learn more, read our article Renting vs Buying: The Comprehensive Guide To Help You Decide.
Financial freedom begins with good habits.
Rebecca & Tiago, theloadedpig.com