What's It Cost? Homeownership Expenses Beyond Your Mortgage
Owning a home is a dream for many, and affordability is often the make-or-break factor when it comes to purchasing your own house. While the focus of the affordability conversation is often on mortgage payments, homeownership comes with additional expenses beyond what you pay toward your home loan each month. Understanding these costs can help you plan and budget effectively and determine whether homeownership is right for you right now.
1. Property Taxes
Property taxes are a significant ongoing expense for homeowners—and as the value of your home rises, so too can the amount of tax you owe. This is because the amount varies depending on the assessed value of your property and local tax rates. Property taxes are often rolled into monthly mortgage payments and paid semi-annually by your lender from an escrow holding account. Check with your lender or take a look at your mortgage bill if you’re not sure if this is the case for you.
2. Home Insurance
Besides being your home, your property is an investment, and protecting it is key. You do that by purchasing home insurance, which covers damages to your property and its contents. If you’re paying for a mortgage, home insurance will be required by your lender. If your home is paid off, carrying home insurance is still a good idea to protect it against unforeseen circumstances. Shop around for the best rates and coverage to ensure you have adequate protection without overpaying. Often homeowners can save a lot of money on other insurance products by bundling their car and home insurance rates.
Owning a home means you'll be responsible for all the utility bills such as water, sewer, electricity, gas, trash removal, and internet. The costs of these services vary based on the size and location of your home as well as your household’s usage patterns. Taking steps to conserve energy and water can help keep these bills in check. Often a home seller can provide their current utility averages to you when you're considering purchasing their home. Although it can be super helpful, everybody uses utilities differently, so take it with a grain of salt.
4. Maintenance and Repairs
Homes require regular upkeep to stay in good condition and maintain their value. This includes tasks like landscaping, gutter cleaning, painting, inspections of major systems, and more. Hiring a professional to do these tasks will often produce better results—but even if you’re an avid DIY’er, you’ll need to factor the cost of tools and supplies and your time into your budget.
Additionally, the need for unexpected repairs can arise, such as a leaky roof, malfunctioning appliance, or a burst pipe. Building a reserve fund for these unforeseen expenses is a wise financial move that will help prevent extreme stress on you and your budget.
If you've ever heard of Murphy's Law - everything that can go wrong will go wrong - once you become a homeowner you'll be introduced to O'Reilly's Law, which states that Murphy was an optimist!
In the first few years of my wife's and my homeownership, we had to replace our roof, furnace, and air conditioning condenser. But, because we knew to expect these things when had our inspection, it wasn't as big of a surprise after we bought our house.
5. Homeowner's Association (HOA) Fees
If your property is part of an HOA, you'll likely have monthly or annual fees. These fees vary widely and can add hundreds of dollars to your monthly cost of homeownership—so make sure you’re fully aware of them before you purchase a property. They should be detailed in your contract before you purchase a home, including the monthly or yearly cost, what the fees cover, and how much they can increase each year.
If your agent uses the standard purchase contract by the Columbus Realtors, there is an HOA and Condo docs contingency period that allows for you to review any and all HOA legal and financial documents, and get out of the deal should any become too much of a concern to you.
The upside is that the funds you pay to an HOA contribute to the maintenance of common areas and community amenities, which can greatly improve your home’s value and quality of life.
6. Appliances and Furniture
You may need to replace or upgrade furniture and appliances at times. Having a fund for these occasional but significant costs ensures you're prepared when the time comes.
You'll also have regular costs associated with maintaining your appliances; such as new filters and maintenance annual maintenance for appliances such as your hot water heater, furnace, and air conditioning system.
7. Home Improvement Projects
Many homeowners undertake improvement projects to enhance their living space or increase property value. Whether it's a kitchen remodel or a new deck, budgeting for these projects can help you achieve your goals without straining your finances.
Given the explosion of development in and around Central Ohio, I see labor being a concern for a very long time. Don't put off home improvement projects if you can help it since the cost will likely increase beyond typical inflation.
8. Home Security
Ensuring the safety of your home and family may involve investing in security systems, cameras, or smart home technology. While these expenses are optional, they contribute to peace of mind and the overall protection of your property.
In conclusion, the cost of homeownership involves more than just mortgage payments. Being aware of these additional expenses and planning accordingly can lead to a more secure and enjoyable homeownership experience. Take the time to assess your budget, plan for the long term, and make informed decisions to safeguard your investment.