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Costs of owning a home: what to expect the first year

Erik J. Martin
Erik J. MartinThe Mortgage Reports Contributor

Homeowner expenses are more than your mortgage

New buyers can be caught off guard by the costs of owning a home. Here are some top home expenses to consider before buying:

  1. Annual repair and maintenance
  2. Property taxes and homeowners insurance
  3. Yard and home chores (you either spend more time or pay someone)

In addition, there may be HOA dues, and many buyers find they need more furniture or other upgrades. The first year of homeownership can get costly, so make a budget and stick to it.

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The true costs of owning a home

Buying a home can be exciting. Still, coming up with the initial money needed isn’t easy. The first goal is to afford the upfront charges, like the closing costs. But your financial duties won’t stop there. That’s why it’s important to understand the true costs of owning a home before buying.

Owners need to cover an array of continuing expenses. This starts the very first year of ownership. These include property taxes, insurance, repairs and upkeep. And their costs can vary widely, depending on your home and location.

Know what you’re getting into before committing to a purchase. Crunch the numbers and forecast the costs. You want to ensure that your future earnings and savings will cover these outlays.

Don’t get in over your head

Joshua Harris, clinical assistant professor of real estate at NYU’s Schack Institute of Real Estate, says learning the often overlooked costs of ownership is crucial.

“True long-term costs often exceed expectations. This is due to lack of ownership experience,” he says. “The result is that some first-time buyers overbuy. They end up in financial trouble. This is because they actually could not afford the total cost of ownership.”

Bruce Ailion, real estate attorney and Realtor with RE/MAX Town and Country in Atlanta, agrees.

“A buyer should never get in over his or her head,” says Ailion. “Those used to renting take for granted that maintenance, repairs and upgrades are covered by the landlord. But a first-time buyer may not fully understand the cost of these items.”

Worst-case scenario? You learn too late that you lack the funds to handle these bills.

“Then you may find yourself in a situation where you are forced to sell,” says Ralph DiBugnara with Residential Home Funding. “You would possibly also miss out on building equity and long-term profits from the home.”

Expenses to expect

DiBugnara notes that there are two different types of costs owners face.

“The first is one-time costs you’ll face the first year. Among these are the down payment, closing costs, inspection fees and appraisal,” he says. “Then, there are ongoing costs that buyers need to prepare for.”

Ongoing costs you’ll pay for starting your first year can include:

  • Property taxes.
  • Homeowners insurance.
  • Private mortgage insurance. This only applies if your down payment is less than 20 percent of the mortgage value on most conventional loans.
  • Utilities, such as electric, gas, water, sanitation, phone and cable services.
  • Homeowners association (HOA) fees, charged by multifamily living communities. These cover common area maintenance and other shared expenses.
  • Maintenance and repairs for various systems, components and items in need of upkeep, fixing or replacement.
  • Furnishings and décor.
  • Consumer electronics, smart home features and home security equipment.

It’s about more than your mortgage

These expenses can add up quickly. In fact, the average homeowner pays an extra $9,080 every year for unexpected or forgotten costs like those listed above.

The total median monthly housing (TMMH) costs can vary widely by area. Markets that pay the most include San Jose, San Francisco, Anaheim, San Diego, Los Angeles, Northern New Jersey, Washington, D.C., New York City, and Boston. TMMH costs in these metros range from nearly $1,700 to over $2,400.

Use the handy monthly home cost calculator from Angie’s List, below, to determine your possible true ownership costs.

Brought to you by Angie’s List

Future bills to fathom

Some of the most the most pricy costs of owning, on average include a:

“When buyers first purchase, things like the age of appliances and the HVAC system are often overlooked. And landscaping, painting and general upkeep are tasks that can be costly, too,” says DiBugnara.

You may not have to worry about many of these duties your first year. But it’s smart to think ahead when factoring the long-term costs of ownership. For example, consider how long you can expect the appliances, systems and components to last. For help, view the International Association of Certified Home Inspectors’ life expectancy tables.

Keeping things in perspective

These collective costs may sound scary. But don’t let this “true math” deter you from buying if you can afford to own.

“Owning requires more periodic cash expenditures than renting,” Harris says. “But owners enjoy benefits. These include potential appreciation in home value and equity buildup as they pay down their mortgages. These profits can be converted to cash by a future sale or loan refinance. And that makes the overall deal a good investment, so long as you can supply the long-term cash.”

Consider that an average homeowner’s net worth far exceeds an average renter. In fact, per the Federal Reserve, the median net worth of the former is around $231,000 vs. about $5,200 for a renter.

“That marks a 15 percent increase for owners and a 5 percent decrease for renters since 2013,” says Ailion.

Owning vs. renting, continued

Owners enjoy another advantage, too: The ability to lock in a fixed interest rate for up to 30 years.

“This provides long-term stability of your monthly payment. By contrast, rental rates can adjust upward every year,” says Harris.

Yet renting can be a better bargain in the short term.

“A planned tenure of less than five years makes renting a smarter option,” Harris adds. “That’s due to the high costs of buying and selling that can overpower any appreciation you gain. “But owning is better if you plan to stay put at least five years.”