There’s a lot of talk about what it costs to buy a home. There are the mystery expenses that you might not think about: insurance, closing costs and home inspections. But as you’re looking at potential future homes, there’s another thing that’s important to consider: What’s the cost of owning that home over time?
Just like a car, a house has other costs associated with it well beyond closing day. You also need to budget for these before and throughout your ownership, or it’s going to be a bumpy ride.
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Home Expenses Beyond the Payment
Your mortgage payment will likely include your homeowners insurance and property taxes, and maybe also your HOA fees, if you have one. But there are other costs you should anticipate that are necessary to take care of your home and keep it in tip-top shape.
“Homeowners often encounter a variety of expenses outside of mortgage and escrow, ranging from home decor and minor renovations to maintenance and functional upgrades,” says Matt Dunbar, senior vice president of Southeast Region for Churchill Mortgage in Miami. “While these items can contribute to a home’s character, value and sustainability, they also entail financial implications. Incorporating such expenditures in your initial budget planning is crucial for a balanced financial experience in realizing your home’s potential.”
How much should you budget for these extras?
“Budgeting about 1% of your home’s value for maintenance annually is a good rule of thumb,” says Chris Birk, vice president of mortgage insight at Veterans United Home Loans in Columbia, Missouri. “Even if it’s a brand new home, appliances and systems can fail. You might want or need to make cosmetic or more involved changes to a home once you’ve lived in it for a time.”
[Read: Do You Have Enough Home Insurance?]
Tracking Home Ownership Costs
Even if you buy a home that’s had a lot of work done, you’ll need to continue to do maintenance, upgrades and cosmetic changes to make it your own. What you spend to keep a fixer-upper going will be different from a house that’s been immaculately cared for throughout its lifetime. If you can get maintenance records from the former owner, you’ll have some idea what to expect.
“In my experience, the amount spent on upkeep should reflect the age of the property, construction materials and overall condition of the home,” says Debra Dobbs, broker and owner of The Dobbs Group at Compass in Chicago. “One approach to budgeting for this is to create a home maintenance spreadsheet and assign a dollar value to each item.”
Although Dobbs says upgrades are important to keeping your home up-to-date and easy to resell, they shouldn’t be the priority for your budget. “Upgrading decor, fixtures, flooring, tile, appliances, landscaping and so forth will add value to your home, but these items do not fall in the same category as maintaining your roof, cleaning your gutters or having the HVAC equipment serviced.”
[READ: Guide to Average Home Maintenance Costs.]
Is it Less Expensive to Own a New Home?
If you’re in a position to consider a new home, you might imagine that the costs of owning that house could be a lot less than an older home that has some miles on it. But there are still expenses beyond the purchase with a new build, even if the first few years are relatively smooth sailing.
“There is generally much lower maintenance costs in a new construction home, but there are some things people don’t expect,” says Ellen Pitts, broker and owner of Harmony Realty at Compass in Raleigh, North Carolina. “For example, it takes a lot of work to keep a newly planted lawn alive. It also costs a lot to water a new lawn. New homes usually don’t come with much landscaping either, so most homeowners spend some money on trees, bushes and flowers.”
Personalizing your new home, while not necessary for the health of the structure, can get very costly very quickly. Even basic changes like new paint, light fixtures and installing storage systems can add up. In addition to that, says Pitts, “all new construction homes settle a bit,” so although your builder’s warranty should cover these defects, you’ll still invest time in having these repairs made and in touching up any custom paint jobs that are affected.
What Do Upgrades Cost?
Upgrading your home’s interior is often a necessary evil, especially if you bought a fixer-upper to save money on your mortgage, or because there weren’t many options in your local market. But what is it going to cost to upgrade that home?
Realtor.com has developed a new tool that can help homeowners and buyers develop a good idea of the costs they can expect before even making an offer on a home.
For example, for a 1,600-square-foot home in Springfield, Missouri, you can expect to pay the following amounts for common home improvement projects:
[CHART]
Are You Ready to Own a Home?
You might be ready to buy a home, but are you ready to own one, given all these potential expenses? Adding a trial maintenance budget can help you determine if you can afford to own a house, not just buy one.
It might feel overwhelming, but you can find extra money for regular maintenance by either choosing a smaller mortgage or by carving out some funds from your existing budget.
“If your mortgage is a lot more than your rent, set aside that much extra plus a bit more for what you’ll expect to pay for maintenance costs,” says Pitts. “If you’re able to go six to 12 months setting that aside without touching it, you’re probably in good shape to buy a house.”
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What Does It Cost to Own a Home? originally appeared on usnews.com
