Ongoing Costs of Owning a Home

Whether you’re planning to purchase a home soon or you’ve recently moved into one, it’s natural to wonder: What’s the true cost of ownership? Remember that buying a house involves more than just the purchase price – which is likely higher in today’s real estate market than you anticipated. So what ongoing expenses, including mortgage payments, maintenance, taxes, and insurance, are you responsible for?

Home Price and Market Conditions Impact Your Budget

Many different factors can affect housing and ownership affordability, particularly home prices and mortgage interest rates. These factors and costs can vary from location to location, too.

“Home prices and interest rates go hand-in-hand when it comes to what you can swing financially. When rates go up, your buying power goes down – it’s that simple. Even a small jump in rates can make a big difference in what you can comfortably afford each month,” explains Robert Shepherd, founder of Peak & Home Partners. “That’s why I encourage buyers to look beyond the list price. A $400,000 home in one city can cost you hundreds more per month than the same-priced home somewhere else, depending on taxes, utilities, insurance, and other criteria.”

Steven Glick, director of mortgage sales for HomeAbroad, notes that with every $10,000 jump in home price, you’ll pay an additional $63 per month in principal and interest payments on your mortgage (assuming a 6.3% 30-year fixed rate).

“Taxes and insurance can also have local variability. Effective property tax rates range from 0.3% to 1.8% or higher, depending on your county and state. The national effective rate sits around 0.86% to 0.87%, according to ATTOM, but city-to-city swings are huge,” Glick says. “And homeowners insurance premiums have risen faster than inflation, being much higher in hurricane and wildfire zones. Also, utilities and homeowners association fees, if applicable, can vary with building age, amenities, climate, and the local grid.”

Ongoing Costs of Homeownership

Let’s take a closer look at what you can likely expect to pay monthly and annually after you purchase a home and move in.

Monthly Mortgage Payment

Your monthly mortgage payment consists of two primary components: principal and interest. Principal is the portion of your payment applied toward decreasing the original loan amount you borrowed. Interest is the cost of borrowing those funds, paid to the lender as a percentage of your remaining loan balance.

If you’ve set up an escrow account that your lender pays on your behalf, your monthly mortgage payment may also cover your property taxes, homeowners insurance, and (if applicable) mortgage insurance. We will parse through these separately next.

Let’s assume you purchase a home for $400,000 and borrow $320,000 in mortgage financing over 30 years at a fixed rate of 6.30%. That means your monthly principal and interest payments collectively will be $1,981, or around $23,770 per year. Over the 30 years, that equates to $713,057 in total principal and interest – of which $393,057 is interest on the $320,000 principal borrowed. To run numbers on your scenario, use a mortgage calculator.

Property Taxes

You’ll also need to pay property taxes annually or in other increments over a given year. Property taxes are determined according to your home's assessed value. This is an estimate of your property’s worth as calculated by a local tax assessor, which multiplies the value by the local tax rate set by your city, county, or other taxing authority. Currently, national average property taxes are roughly $4,100 to $4,300, per ATTOM’s latest annual bill run-rate.

“Property taxes are often 1% to 3% of your home’s value per year, depending on where you live,” notes Shepherd.

Homeowners Insurance

A standard homeowners insurance policy typically covers your home’s structure and personal property from events like storms, hail, fire, lightning, and theft. You also get liability protection in case someone is injured on your property, as well as medical payments for minor injuries to your guests. Many policies also give coverage for temporary living costs if you cannot occupy your home due to a covered claim. But typical policies won’t cover certain risks like earthquakes and floods.

The average price tag of homeowners insurance today is between $1,966 and $3,520 annually, per Matic data, although what you pay can differ dramatically based on where you live, the amount of coverage, and other factors.

Private Mortgage Insurance (PMI)

PMI is a monthly insurance payment that lenders charge on conventional loans if you make a down payment of less than 20%. PMI safeguards the lender in case you default on the loan. The annual charge is often 0.5% to 1% of your loan amount.

“On conventional loans, plan to pay between $30 to $70 per month for every $100,000 of loan amount until you hit a certain equity threshold for removal,” says Glick. Usually, that means you’ll need to accrue 20% equity (in other words, your loan balance is 80% or less of your property’s current appraised value).

HOA Fees (If Applicable)

Homeowners association (HOA) fees kick in if you purchase within an HOA community. These often cover things like maintenance and amenities.

Doorloop reports that HOA homeowners currently spend $291 monthly, on average, for HOA fees, with an annual cost of $3,500.

Home Maintenance and Repairs

Every home needs regular upkeep.

“The least predictable source of homeownership costs is maintenance, repairs, and upgrades,” says Martin Orefice, CEO of Rent To Own Labs. “You never know when you are going to need to replace a broken appliance or spring for major repairs. And even when you’re talking about planned upgrades, the expenses add up quickly, especially when you factor in financing.”

Aim to budget 1% of your home’s value per year as a baseline maintenance/repair fund, and up to 4% annually for older and more complex homes.

Here’s a breakdown of some of the most common upkeep and fix-it costs.

Deck, Patio, or Pool

If you own a swimming pool, patio, or deck, plan on setting aside extra funds. That deck will require sealing and/or staining, your patio will need to be cleaned, and the pool must be chemically balanced and repaired when needed.

According to Angi, you can expect to pay $116 to $355 a year to maintain your pool; patio repair can set you back $726 to $2,485; and staining or sealing a deck can run $550 to $1,250.

Home Exterior (Paint)

Your residence will likely need a new coat of paint every 5 to 10 years. Interior painting can cost $966 to $3,088, versus $1,819 to $4,551 for exterior painting, Angi reports.

Leaf/Snow Removal

If you have trees or live in a climate with snow, count on forking over extra dollars for leaf and snow removal. If you perform these services yourself, salt away additional funds for rakes and a leaf blower as well as shovels and a snowblower.

Driveway

Your home’s driveway will eventually need to be sealed, patched, repaved, or replaced, depending on whether you have asphalt, concrete, or another material. Asphalt driveway repair averages $2,465, while concrete driveway repair can run from $3 to $25 per square foot, per Angi.

Pest Control

If you encounter ants, termites, roaches, rodents, or other unwanted house guests, pest control expenses can add up quickly. Angi calculates that you likely pay between $108 and $261, on average, but your tab could exceed $500 depending on what kind of critters you’ve got.

Landscaping

Your grounds – including trees, shrubs, gardens, and landscape features – will also require TLC and careful budgeting. Let’s drill down into each separate possible expense.
Tree Care

Trimming or removing trees can be essential for safety and aesthetics. Tree removal can cost $300 to $2,000, depending on size and complexity.

Curb Appeal

Optional expenses like refreshed landscaping, exterior lighting, planters, and mailbox upgrades that improve resale value and visual appeal can be more expensive than you think.

Lawn

There’s also your grass to consider. Mowing, fertilizing, irrigating, seeding, sodding, aeration, and lawn repair are among the duties involved. The typical American spends $300 annually on lawn care expenses, Angi reports. Anticipate paying anywhere between $50 and $205 for a lawn mowing service.

Utilities

If you are just moving in, you’ll need to pay an initial setup cost for gas, electric, waste/water, Internet, and cable services. Then, you’ll pay regular monthly or quarterly bills for each. Remember that the larger your space, the higher your energy and utility usage.

Keep in mind that trash and recycling pickup could be another separate fee, which could cost between $20 and $50 monthly, based on your municipality or service provider.

Hidden or Unexpected Costs to Plan For

There are also unanticipated expenses to think about – surprises that are often overlooked or underestimated.

Unforeseen Repairs and Emergencies

“Your roof will betray you eventually. Your water heater will flare up. That kitchen backsplash you loved will need replacing,” says Andy Nathan, managing broker for Kale Realty. “Always expect the unexpected when you own a home.”

Then there are items you may not think about right away but which rear their heads sooner or later, “like replacing suddenly broken systems,” Shepherd says. “Additionally, property taxes and homeowners insurance rates can increase quickly, which can raise your monthly costs even if your mortgage stays the same.”

For these reasons, it’s smart to set aside 1% to 4% annually in a rainy day/emergency fund, per Glick.

Furnishing and Upgrades

Consider that new owners typically spend several thousands in the first 24 months on things like upgrading window treatments, replacing outdated appliances, swapping out old furniture for new furnishings, upgrading outdated appliances, and repainting. You want to have extra dollars put away for these projects, as well.

Tips to Reduce Costs and Prepare Financially

Owning a home doesn’t automatically mean being tethered to a money pit that will bleed you dry. You can decrease your out-of-pocket costs and sleep better at night by following best practices. Here’s a roundup of proven tips.

Budget Early and Stick to a Price Range

Set a realistic budget for buying and owning a home early on.

“Work backwards from a monthly number that fits your affordability level and lifestyle – not the lender’s maximum. And try to keep housing near the 28% front-end debt-to-income ratio as a guardrail,” adds Glick.

Strengthen Your Credit and Reduce Debt

Work on improving your credit score, “because a better score means better loan terms and lower interest costs,” says Shepherd.

You can boost your score by paying your bills on time and in full, reducing outstanding debts, not opening too many new accounts or closing old ones, maintaining low credit card balances, using less than 30% of your available credit, and checking your three free credit reports regularly for errors or inaccuracies that should be disputed.

Explore First-Time Buyer Assistance

There are many different assistance programs available on the local, county, state, and national level, often through housing finance agencies, that offer grants, forgivable loans, or low-interest loans that can be used toward your down payment and/or closing costs. Ask your lender and real estate agent for referrals.

Shop Around for Lenders

You want to do careful comparison-shopping among different lenders and loan offers to find the best deal possible.

“Get multiple loan estimates and compare rates, points, lender fees, and cash required to close,” suggests Glick.

Negotiate When You Can

Thankfully, many closing costs (which collectively average 2% to 5% of your loan amount) are negotiable. You can also request seller credits or consider lender credits (in which you can trade a slightly higher rate for lower cash to close).

“If you have the home professionally inspected, those findings can be leveraged for repairs or credits from the seller, with local market conditions dictating how far you can push matters,” Glick continues.

Don’t Drain Your Savings

Keep some cash safely in reserve.

“Don’t spend every dollar you have on the down payment. Having a cushion makes unexpected repairs or emergencies far less stressful,” recommends Shepherd.

Glick advises establishing an emergency fund after closing in which you retain three to six months of total home expenses.

“If you are short on cash when it’s time to purchase, consider structuring lender credits or rolling your closing costs into the loan instead of making yourself house-poor,” says Glick.

Being Prepared for the True Cost of Homeownership

It’s simply good common sense to plan ahead for one-time and ongoing costs related to buying and occupying a home. Expenses can spiral out of control quickly without advance prep and careful budgeting. Work closely with your Realtor/agent on anticipated ownership costs so that you can estimate yearly upkeep and repair bills as well as unforeseen expenses.

Being proactive can help you make a more informed home-buying decision – one that provides valuable peace of mind knowing that you should be able to weather any financial storms after moving in. When in doubt, consult with an experienced financial planner who can help you map out a workable budget plan.