Learn Me Home Ownership Costs

I have always been a "renter." I like the whole concept of if something breaks, I'm not financially responsible for it. I also like the fact that--theoretically, at least--I can pick up and move pretty dang easily.

However, I don't like the fact that I'm throwing out a pretty good chunk of a paycheck every month for rent that I'm never going to see again. SWMBO has also always had a dream of owning a house. And I really like the fact that maybe I can have a big garage with a lift.

I've got way too many friends who bought a house, only to end up "house-poor." You know what I mean: they overleverage themselves with a mortgage payment, then something breaks on the house and they end up further in debt rebuilding the HVAC or replacing the roof and now they can't do anything fun anymore because they're broke.

I don't want that to be me. SWMBO and I have been saving for a long time, so I'm pretty sure we can put 20% down on a house. That eliminates that PMI insurance or whatever it's called.

BUT other than a mortgage payment (easy to calculate with excel) and property taxes (easy to look up on the gubment's website) what am I missing? I'm asking because I ran the numbers and it looks like home ownership is a little less burdensome than I always assumed it would be, and that makes me think I'm missing something.

So what are some of the hidden costs of home ownership? Also, any advice for first-time buyers?

TL;DR: I'm thinking of buying a house and want to know what it really costs to own a home.

There's no fixed answer to this. It depends utterly upon the individual house in question. But, basically, you need to budget for mortgage (which will include property taxes and homeowners insurance) and utilities - electricity, gas (maybe), and water/sewer (maybe). You also need to keep a reserve (or make one) or at least budget for when it needs a roof or HVAC replacement. Again, these costs can vary widely depending on the house and location. But you should have a backup plan to be able to fund, say, a $5000 repair on short notice.

Well, I currently rent a house, so utility costs are going to be (roughly) the same.

I assume insurance for owning your home is significantly greater than renters' insurance?

Warning - I haven't bought a house, just watched multiple family members.

A smart thing to do with/before closing is to get a survey done, make sure you know where the property lines for your new house really are (~$400).

Many times, insurance will require you to have termite protection, and you'll want pest control done as well ($500 up front cost for termites and $85/quarter for pest control from the family member that just got that done).

You'll also need lawncare equipment, or a mower at the very least.

Like Duke said, though, as with care, most homes will have something that the previous owner has put off, and if not you can try to identify the next round of preventative maintenance/ cost with a home inspection. Or else, just as things break.

Free advise based on my experience coming out of Florida from a homeowners insurance adjuster. I get all types of claims. Some people call when the AC or water heater quits. Your insurance doesn't cover breakdown/wear and tear etc. As always my advice is worth what you are paying...

Figure out what homeowners insurance is going to cost you. This will vary greatly by the area you are in and the home you choose to buy. Newer usually ends up cheaper for insurance purposes.

My old 80s 3/2 1200sq ft concrete block was about $1600 plus $400 flood per year. My current 80s 3/2 2400sq ft frame house is about $2600, not flood insurance as I am not in a flood zone now.

AC systems generally last 10-15 years down here. Figure roughly $3500-$5000 for replacement. A 3 tab shingle roof last 15-20 years, architectural shingles 20-25. Replacement varies greatly on the size of the home. Figure $10k for an average size house. Insurance companies don't pay for a new roof because it's old and leaking. There needs to be damage from a storm (wind, hail, tree strike etc). Speaking of trees. Any large ones near the house that need to be removed can run several thousand dollars.

Water heaters last about 10 years. $750-1500 to replace. Septic or city sewage? Septic systems run about $5k. Termite treatment is several hundred dollars initially then around $100 a year for the bond.

I assume your familiar a with utility bills. You can call the service provider to see what their average bill is on a house your looking at.

Obviously you need to mow and take care of the yard. Depending on he size this can mean a couple hundred dollar mower you replace every once in a while or constantly fiddling with a couple thousand dollar rider.

If you or your wife like projects then you can spend a fortune on them/renovations. If you don't care what the flooring/kitchen or bathrooms look like then it won't cost much.

FWIW I have a 2900-3000 sq ft house in the Midatlantic region built in the early '60s. I've owned it since the early '90s. In my ownership, I've replaced the roof and HVAC system at about $10,000 each.

Monthly utilities average like so:

Electricity - $100 / month winter, $350 summer
Gas - $350-400 / month winter, $35 summer
Water / sewer - $100 / month year round

I also gut renovated the kitchen, put a small addition on, replaced all windows, siding, and gutters, and replaced the concrete drive at a cost of about $150,000 (basically the 1993 purchase price of the house) in 2010. I still need to gut renovate the bathrooms, and replace the garage doors.

Oh, lawn care. I didn't think about that. At my current location, the HOA takes care of that. (HOA, there's another fee!)

I usually budget about $3k-ish per year for repairs and upgrades, not counting the small fry that I don't track like the annual fix-the-darn-sprinklers marathon.

We've owned the current house for about 5 years now and some years, I only had to spend a few hundred bucks on DIY fixes. This year it looks more like $8k-$10k-ish as we'll want a new furnace (old one is almost 25yo and on the way out), some electrical upgrades and some hopefully minor winter damage fixed before next winter.

Our house is about 25yo and was in decent shape when we bought it. If we're going to stay here for another 5 or so years, we'll probably end up throwing more money at it (new floors, for example, as the carpets aren't holding up that well).

Just like with a car, a PPI will tell you a lot, but it's not going to tell you with any level of certainty how much time you've got left on existing major systems in the home. The best you can do is to assume you are on borrowed time with that major system if it's older than a certain point - my experience lines up with Greg's post. Also, unless you are very lucky there's probably at least some minor work you will want to do prior to moving in to make the house yours. For us, that meant pulling up carpet, painting a few rooms inside, installing a tile backsplash behind the stove, repainting the cabinets, and installing ceiling fans. All told, probably another $2k that I hadn't been thinking about as we went through the home buying process.

Re: a survey - I'd be very surprised if the mortgage process didn't require one and the purchase of a title insurance policy (was about $1600 for me, and was part of closing costs).

As far as expenses, this is what has happened to me so far in VA (1970s Cape Cod, owned since 2011):
HVAC replacement - $6,500
I'm about to have to replace my siding - $15k
* Pest control - $300 initial visit, $90 a quarter

In reply to Sky_Render:

As a car person, I don't think you'd want to live anywhere with an HOA.

Oh, and don't buy a thermal camera for your smartphone if you own a house. It'll cost you a bunch of money for more insulation.

BoxheadTim wrote: In reply to Sky_Render: As a car person, I don't think you'd want to live anywhere with an HOA.

Not having an HOA is unpossible around here.

1. Mortgage
2. Taxes
3. Utilities
4. Insurance
5. upkeep/repairs

Number 5 is the one that is hard to predict, and can be a huge expense. All houses are going to have stuff break or need replacement. Older houses will probably need more the longer you stay. My house is small, built in 1963, and I probably spend a couple thousand dollars a year just keeping it habitable. My largest single expense so far was a new roof (old shingles removed, new shingle put on), which was $7500.

One other thing that comes to mind - how long are you planning to stay in the area you're in right now? Transaction costs for a house purchase are high, and unless you were lucky with your timing when you bought a house, it usually doesn't make financial sense to own a house for less than 5-7 years.

Buy less house than they approve you for. I've bought a few houses. Starter home, big luxury fixer-upper, and now cheap fixer upper that I can afford on one income. Never underestimate the power of life to berkeley you over and whether job loss or divorce, having a smaller and less expensive house means everything is a bit less stressful. Smaller house = lower costs for most things.

If we bought a house, I'd stay here pretty long term.

Honestly, I would lean towards buying land a little ways out of town and building a new house (warranty = fewer repair bills for a while), but SWMBO wants to live in a neighborhood for some stupid reason.

KyAllroad wrote: Buy less house than they approve you for. I've bought a few houses. Starter home, big luxury fixer-upper, and now cheap fixer upper that I can afford on one income. Never underestimate the power of life to berkeley you over and whether job loss or divorce, having a smaller and less expensive house means everything is a bit less stressful. Smaller house = lower costs for most things.

Agreed, if you buy a house for the max that you can afford any hiccup will toss you into a tailspin that you may not recover from. Buy less of a house than you can afford put extra on the mortgage in principle get it paid off early save a ton and interest. Get a good home inspection you'll want to know if you're going to need a roof or a furnace in 5 or 10 years. Hopefully you won't need one for 20 years but you never know.

If you can do your best to put down at least 20% to avoid PMI insurance. Not only is it an expense that they going to make you pay if you don't, when you do have 20% Equity it's a pain to get them to stop charging you.

Well it might be slightly more expensive to buy a then it is to rent one, when it is time to leave hopefully you can get some of that money back. Build a spreadsheet see where your break-even would be.

I've lived in my house since 1992. Actual maintenance expenses have been minimal. Roof in 1995. A couple of water heaters. I pay roughly $350/year for the oil forced-air furnace service contract. About $1800 for a new garage door earlier this year. And that's been pretty much it.

However, it also shows. Pretty much everything in/on my house needs attention. The list of needs is about a mile long and it's hard to know where to start. What I really need to do is move out and do a complete gut-remodel. How much that will cost is a big question mark.

But your point about rent is worth mentioning again - my house was paid for in 2013 and I've been mortgage free since, although I have to budget around $300/mo. for taxes (and write the checks for them in April and September).

Not all neighborhoods have HOA's. The guys who live in the house next to me have more cars than I do.

Lawn care is highly variable. Its crazy time consuming and can be crazy expensive. Avoid a lawn. But then good luck getting a garage.

For everything else... I hear numbers from 1-5%/year from people. I don't think its so much a % as prices vary widely for the same square footage.

I'd have to guess around $2-3/square foot/year (not counting basement). That's just

Gutters
Exterior Cleaning
Heating/Cooling
Pest Control
Deck/Porch Maintenance
Etc.

That doesn't include anything like repainting or refreshing anything in the interior. And no carpet to replace every so often.

BoxheadTim wrote: In reply to Sky_Render: As a car person, I don't think you'd want to live anywhere with an HOA.

Car person here. I absolutely want an HOA. Some car people are disrespectful shiny happy people. You don't want to live next to one with nothing to keep them in check.

You guys are totally enabling me right now. I'm looking at my ol' spreadsheet here of monthly mortgage & tax costs vs. house price and feeling pretty damn stupid for paying rent.

BTW, I don't mind minor repairs. Painting can be fun, flooring doesn't look too difficult, I can do electrical stuff (I'm an EE by trade), I've done minor plumbing, and my FIL is a master plumber who would hopefully install a hot water heater in exchange for pizza and beeer.

ProDarwin wrote:

BoxheadTim wrote: In reply to Sky_Render: As a car person, I don't think you'd want to live anywhere with an HOA.

Car person here. I absolutely want an HOA. Some car people are disrespectful shiny happy people. You don't want to live next to one with nothing to keep them in check.

You can certainly be a car person and get along with an HOA - if you can hide all the car stuff inside the garage, which may have to include only doing work inside the garage, you'll be fine (at least in terms of your hobby). Otherwise the HOA can be anything from a minor nuisance to your worst enemy depending on how much car stuff you do/store outside.

As a renter you are already paying for all those repairs. As a renter you are paying for the owner's mortgage, upkeep, PLUS a profit for him and your landlord gets all the tax breaks, so home ownership is cheaper.

Add into the fact that rent has been going up way faster than mortgage payments you'll probably even have a lower monthly payment than where you are renting, unless you're living in a small apartment. Apples to Apples rent is way higher than a mortgage almost every place in America at the moment.

But if you are living in a small apartment then what you'll get for you money is a lot more size, no neighbors on top of you, better parking, the ability

Because mortgage rates are so low you haven't been getting huge tax breaks, except for the fact that for most having the mortgage tax break usually takes you out of the 1040 short form and allows you to do the long form and take all the other tax breaks you've been missing, so either way owning a home usually makes you money on your taxes.

And then there's this from the Realtor's site:

Studies show Home Owners enjoy a greater feeling of being in control over their lives. Home Owners are happier & healthier.

Home Owners are free to redecorate, renovate or otherwise modify their houses to reflect who they are.

They enjoy stable housing costs. Fixed rate mortgage payments don’t change for 15-30 years but rents have been rising at an average of 5-7% a year.

Homeowners can deduct mortgage interest, property taxes and other items on their income tax returns. The landlord gets those deductions if you rent.

People who own homes vote more, volunteer more and contribute more to their communities.

Homeowners don’t move as often which provides neighborhood stability, which reduces crime and promotes neighborhood upkeep & beauty.

I’ve saved the best for the last: Children of homeowners do better in school, stay in school longer, are more likely to go to college, make more money, are more likely to participate in organized activities and spend less time in front of the TV.

Homeownership serves as a stepping stone to Wealth.

A 2013 study by the Joint Center for Housing Studies at Harvard University concluded that “as a means to building wealth, there is no practical substitute for Homeownership.” Home Equity is most people’s #1 way to build wealth.

Homeownership remains a key part of the American dream for many quality-of-life reasons like simply having a place to call your own. But as this research indicates there is also a clear financial benefit as well: Owning a home over time enables growth in household wealth that can never happen as a renter.

I've done both, rented and owned and the bottom line is even if it cost me more I'd own!!!!!!

Something to consider rather than being put off by all these numbers is, when you rent you are paying someone else's mortgage. And repairs, and associated fees and other things. So unless most landlords subsidise their revenue property, you can expect that a monthly outlay similar to what you pay on rent should buy and maintain for you a house similar to what you have now.

GameboyRMH wrote:

ProDarwin wrote:

BoxheadTim wrote: In reply to Sky_Render: As a car person, I don't think you'd want to live anywhere with an HOA.

Car person here. I absolutely want an HOA. Some car people are disrespectful shiny happy people. You don't want to live next to one with nothing to keep them in check.

You can certainly be a car person and get along with an HOA - if you can hide all the car stuff inside the garage, which may have to include only doing work inside the garage, you'll be fine (at least in terms of your hobby). Otherwise the HOA can be anything from a minor nuisance to your worst enemy depending on how much car stuff you do/store outside.

Indeed. I don't have an HOA (see my comment above ), but I do 100% of my car work in my garage. I don't keep junked cars on my property because it looks like E36 M3. I'm happy to pay the "premium" to simply have someone ship me the part I need, pull it from a junkyard, etc. I'm quiet and respectful of those around me. I don't treat the street in front of the house as my personal pro-solo testing grounds, nor do I test the redline/blowoff valve/noise-factor of my vehicles in my driveway at 11:00 PM. I baby the [noisy] rallycross car into/out of the neighborhood because nobody wants to listen to that crap.

My shiny happy person neighbor is the exact opposite of all of this. You do not want to live next to someone like that.

Owing a house is a lot like keeping an ice cube from melting in the tropics; takes a lot of time and energy. I have always marveled at peoples willingness to enslave themselves to a wooden box. (That was not a shop)

Cost-wise in a straight comparison between Rent and Own, I think it will be a wash; the two markets tend to serve as counterbalances to each other and ensure one does not dominate the value proposition.

By your own admission, you are already saving money. That means that your personal equity is growing even as a renter. That is admirable and will pay off as the principal get to the point where the returns are substantial ( you know, like over the same kind of time-frame as paying off a mortgage). If you buy a house, I assure you that you will find it harder to save, and your equity growth, regardless of how great it might seem, will be tied up in a house that you have to live in, so there is no real liquidity.