The True Cost of Homeownership

bigmoneyTake a hard look at your (or a friend’s) rental agreement–what does it say? Of course it says you will pay a specified amount in rent per month. It should also say the length of which you will be under contract to pay said rent. Great, so now you know what you have to pay every month for a year.

Now, if you are lucky, you are only responsible for paying for some utilities. Perhaps it is just electricity and cable and internet. Or maybe you are saddled with water too. What about trash and sewage costs? If you are smart, you also have renters’ insurance. Take a step back…how much more did your monthly payment go up?

For a renter, the costs are easy to enumerate. The renter pays for renter-caused damages and the landlord pays for all of the other repairs. You literally get what you pay for as a renter and those costs are easy to predict. Homeownership costs are completely different.  They’re your problem and you can’t always plan for it. That being said, before you purchase your first home, make sure you are fully aware of what awaits on the other side of the threshold.

Before you get the keys you will have to pay up

Hold off on the champagne. The keys are not yours until you truly complete the home buying process. Closing costs are fees owed to lenders, appraisers, the title company, and all other third parties involved in the purchase of the home.  Amateur home buyers don’t immediately take these extra costs into consideration when creating their budget. A seasoned real estate agent can guide you through the process and sometimes build in closing costs into your deal. Nevertheless, buyers usually carry the burden of closing costs.

The list of closing costs can be varied, but some of the most common include fees for government recordings, appraisals, title services, credit appraisals, and surveys. These costs typically will be somewhere in the range of two to five percent of what your home’s purchase price is. Most of these costs should not necessarily come as a surprise, but your Realtor can share with you what these are ahead of time so you can financially prepare for them.

And once you’re ready to move in…hold on one second

Homeowners insurance is a must, so much so that mortgage lenders will often require proof of it before completing your loan. Insurance is not really a hidden cost, much like closing costs. However, new homeowners can get shell-shocked by what exactly goes into their premium. While it always pays to shop around for the best price, keep in mind what it is you’re paying for. In the event of something big–like an earthquake or fire–or something “small”–small is a relative term but you can consider a leaky roof as an example–you want as much coverage as you can get so while it is a cost, it’s not one that you should skimp on.  Also don’t forget that you’ll be paying property taxes from now on too, either directly billed by the city and county, or as part of your loan payment.

You just might miss the days of being a renter

Think again about house costs as a renter you didn’t have to worry about: clogged drain, broken air conditioning system, a dead pilot light on your water heater or worse, a broken appliance. Probably the most likely shocking cost of homeownership for first time home buyers is anything related to maintenance and repair. Even for those who opt to build their dream home from the bones of a fixer-upper it can be daunting when unplanned repair costs arise before you even move in. It’s important to pay for home inspection fees at the time of purchase to save you as much headache as possible but experience homeowners will tell you: you cannot always bank on the information you get at the time of purchase. Things break from aging and general wear and tear. Home ownership means owning these potential problems.

HVAC (Heating, ventilation, and air conditioning)

Depending on where you live, heating or air conditioning–or even both in some places–is not just a nice to have, it’s essential. Your HVAC system is pretty complicated, at least complicated enough that real fixes are something you save for the professionals. Perhaps at the time of purchase your system is fairly new, but with enough time and usage you just might have to buy new units. You can do your part in minimizing costs over time by replacing air conditioner and furnace filters as recommended on your units and having gas furnaces inspected at least once a year.  You can expect to spend at least $3000-$5000 to replace all or part of your HVAC system per unit.

Gas & Electrical

Much more so than your HVAC, the gas and electrical systems in your new home are not something you should fuss with to save a buck if it’s more than throwing a breaker or lighting a pilot light. Electrical and Gas problems if severe enough could burn your house down, or kill you. It is helpful to have a basic working knowledge of how your those systems work to prevent potentially catastrophic results like an electrical fire or gas leak. All else: plan to shell out some dough for an electrician or plumber.  You can expect to spend at least $100-$300 for an electrician service call plus the cost of repair.


Plumbing problems will likely crop up here and there. Hopefully they’re minor like a clogged drain that you can fix with the right liquid solution or tools. It’s the larger problems associated with pipes that could do you in. Beware when purchasing older homes as pipes can become a costly thing to replace based on what type of pipes you have. Expect to spend at least $100-$300 for a service call plus the cost of repair for a plumber, more so if it’s after-hours.

Preventing water damage and related problems

Water damage can be a huge downfall for your home maintenance budget. Water damage can mean small, cosmetic repairs, or it can spell disaster for your health–think mold–and/or home’s structural integrity. Catching leaks early and making repairs right away can help mitigate costs and repercussions down the line. While learning how your new home operates, be sure to learn where all the shutoff valves are for gas and water, and where all the electrical breakers and GFCI breakers are located for electrical.

Don’t be afraid…be prepared

Home ownership is fraught with costs–planned and unplanned. But it is also a great source of pride, one that new homeowners often describe as unmatched by other types of property ownership. Your Realtor can help you navigate the beginning chapter by sharing these costs with you ahead of time and ensuring that all the boxes on the pre-purchase list are checked off before you move in. Don’t be afraid of home ownership–all you need to do is be prepared!

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