The Price Tag Can Be Deceiving: Essential Costs of Home Ownership

Feb 28, 2023

Knowing the total cost of home ownership can give you a true image of affordability.



When it comes to purchasing a home, buyers often overlook the additional costs that come along with homeownership. From insurance cost, appliances expense, utility bills, to homeowner's association fee and repair expenses, these costs can add up quickly and surprise potential owners who haven't accounted for them during the purchasing process.


The best way for you to discover the costs involved in owning real estate is before you begin looking. Though many people know something about mortgage payments and property taxes, less well-known expenses such as insurance premiums, home repairs, and utility bills should also be taken into consideration prior to purchasing real estate. Including these costs in your personal finances helps anticipate and manage unwelcome costs.


Here are a few hidden costs of home ownership that you may encounter, and some methods you could consider tackling them:


1. Home Improvement and Repairs

According to the age and condition of the residence, you are likely to be faced with items you will need to update or have to repair. Research services and survey findings exposed that 65% of active buyers are not searching for a fixer-upper.


However, the research discovered that the average price of work for a home for sale is $28,700 and that new homeowners should expect to spend $26,900 to make their new home move-in ready. That’s substantially more than the $10,000 to $15,000 that the average millennial spends to personalize their first home. The most costly project (evaluating, repairing, or replacing) home heating, cooling, or ventilation systems recorded an annual cost average of $3,615 nationwide.



2. Installation and Buying of New Appliances

Everything in a home has a life cycle, and appliances are no different. If you're buying a new newly built home, the appliances must be new and under warranty. If you're buying an older home, again, the condition of the appliances will determine if you need to repair them or need to replace them.


At a bare minimum, most appliances can cost $400 or less for the most basic versions. To be certain you have all the features you want, you will need to spend thousands more for fancier versions. In addition, you will have to pay for installation and wiring work, which can be quite expensive if it necessitates custom changes to your electrical system or plumbing.



3. Utility bills

If you've been leasing for a while, you may be startled by the cost of utilities as an interim resident. The most common utilities could include:

  • water
  • sewer
  • garbage pickup
  • electricity
  • natural gas
  • cable
  • internet

Bigger homes are likely to be harder to cool or heat, and aged homes may cost more energy due to old windows unless the insulation of the home has been updated.



4. Insurance Premium

Homeowners insurance protects you and your property from the financial risks of unexpected events such as fires, floods, hurricanes, and thieves. It also covers liability for injuries that occur on your property. The cost of homeowners insurance will depend on your location, the type of coverage you are acquiring, and the discounts you might qualify for, as well as what sort of insurance you have. Your average monthly premium will vary from roughly $35 to $105 dollars for every hundred dollars of home value. As an example, let's say your home is worth $300,000. Having basic coverage would cost about $105 a month. The cost will likely be higher in high-risk areas.


Rebuilding or repairs from a disaster usually aren't covered by standard homeowners policies, so you may need to purchase mandatory flood insurance or develop a dedicated policy. If you're refinancing your property, your lender will typically set insurance payments up by including premiums in your monthly mortgage payment, taking care to pay the bills.



5. Homeowner Association Fees

Homeowner associations, or HOAs, are nonprofit organizations, formed for the purpose of maintaining community facilities for residents. They can establish and uphold rules, perform upkeep and maintenance of common spaces, such as streets, pools, landscape and sidewalks, and make repairs.


HOAs are normally found in condominiums, townhouses and single-family home neighborhoods, and they are run by a board of homeowners and typically charge a fee to be due monthly or yearly. Fees vary greatly based on the community's condition. For example, an association that needs maintenance and wishes to develop something such as a new park can raise dues or levy special assessments. 




How to prepare for the "Hidden Costs" of Home Ownership

Owning a home is an exciting and rewarding experience, but it can also be an overwhelming one if you don't understand the full cost associated with it. Many people underestimate the total cost of homeownership and are left unprepared when they find out that the price tag they initially saw isn't the only thing they have to pay. From insurance premiums to HOA fees, there are plenty of essential costs of home ownership that need to be taken into account before making a final decision.


Start by figuring out just how much you intend to put on the purchase of a brand-new home, and then determine how much you are ready to spend on closing costs and improvements. A good rule of thumb is to set aside around 1-4% of the residence sale price for miscellaneous costs. Here are a few ways to prepare for hidden costs of home ownership:


  • Look at your home inspection, which will allow you to get a preview of what's in store. The best way to receive likely costs for badly needed repairs and maintenance is to have the house inspected before you get to buy it. A good inspector can take care of electrical systems and plumbing, the roof and durable structure, and other aspects. Specialists may also provide cost estimates for various repairs. Keep in mind that seemingly minor repairs can significantly add to the cost. Now you have a sense of what repairs are required, you can incorporate that into consideration while pricing the home and comparing it to others that do not require as much work.


  • Research updates or repairs and prepare an action plan for medium-term maintenance, all in view of what you can do. Stay realistic when assigning home projects of this size. Exterior paint, kitchen remodeling, and doing your own work around the house could take a long time to keep up with your family.


  • Make sure you're aware of your appliances. Also, ask for your inspector to inspect the appliances during the home safety and health inspection, and ask your friend to get the age of your appliances from the seller as well as typical utility costs at summer and winter seasons.


  • Explore home warranties. A home warranty is a service agreement that covers the closing costs for repairing or replacing certain mechanical systems and costs the applicant during the first year of ownership. Depending on the level of coverage, home warranties typically cost $300 to $800 and may be negotiated at the time of purchase.


  • Incorporating yearly HOA costs into the budget is an essential task. Because HOA dues are paid for a term, it's always wise to budget for them. In order to get a sense of how the HOA's expenses vary from year to year, get hold of its most recent three or four annual reports to get a sense of its yearly maintenance expenditures.


  • Add up the costs of maintenance. When considering purchasing a home with a yard, determine which tasks you agree to and which you wouldn't mind paying someone else to do. Determine if you do not wish to buy lawn equipment yourself, or if you would rather hire someone to carry out this chore.


Keep in mind that your budget doesn't have to be all-inclusive, but it should keep you close to what you’re prepared to spend. Having a monthly budget in mind can help you determine whether the home you want to buy fits your budget.