When new home buyers sign on the dotted line, they often think they know what to expect when it comes to monthly costs for homeownership. After all, the principal and interest payments are clearly laid out in the amortization schedule of a mortgage. But homeowners face a variety of costs beyond just the mortgage payments, and often these costs are above and beyond what they paid when renting.
While renters often pay for at least some utilities, they typically don’t expect the big jump in utility payments that comes when they buy a home, often $100 or more per month. For one, the landlord may have picked up some utility payments, such as water, for renters; homeowners pay those themselves. Second, houses are typically larger than apartments, so the cost to heat and cool a home may be significantly higher than for an apartment.
Renters insurance tends to be cheap — the average monthly cost is typically between $15 and $30 — but the insurance costs that come with owning a home are significantly higher.
Many new homeowners must pay both homeowners insurance and private mortgage insurance (PMI). Homeowners insurance costs an average of $66 per month, or $791 per year, according to the National Association of Insurance Commissioners. A homeowner who puts down less than 20 percent of the home’s value as the down payment is often required to pay PMI for the extra risk the lender takes to loan the majority of purchase price.
PMI typically costs between 0.5 and 1 percent of the total loan amount each year, so someone who borrows $200,000 might pay $2,000 in PMI in a year, or roughly $167 per month. Plus, some homeowners may need to purchase additional policies to cover floods or earthquakes or an umbrella policy. Taken together, the insurance for a home can easily cost thousands of dollars a year.
Most homeowners must pay property taxes, and depending on where the home is located — homes in good public school districts, for example, tend to have higher property taxes — these taxes can be thousands of dollars a year.
Prospective home buyers should talk to their real estate agents before making offers to get estimates on annual property tax costs. Remember that doing significant improvements on a home may raise property taxes, as the taxes are based on the value of the home.
4. Repairs and Maintenance.
Homeowners must repair and/or maintain everything from their appliances to their lawns to the roof. Experts estimate that homeowners spend between 1 and 4 percent of a home’s total value in repairs and maintenance every year. That means a homeowner whose property is worth $200,000 might pay between $2,000 and $8,000 on average each year.
Obviously, this can vary greatly from year to year; those with older homes that haven’t had many recent repairs may want to budget a little more for repairs, while those with newer homes might be able to get by on a little less. Homeowners will also likely purchase tools such as lawnmowers and ladders that they may not have owned as renters. Note that some homeowners may pay for lawn maintenance and other upkeep via their homeowners association (HOA) fees or condo association fees, which can cost hundreds of dollars a month.
5. Furniture and Home Beautification.
New homeowners usually bring furniture from their rental properties to their new homes, but often, this is not enough furniture to fill the new, often larger, space or it doesn’t quite look right in the new place. Plus, renters often leave the wall colors and blinds alone, as they know they’ll just have to return them to their original state.
But new homeowners often want to paint each room and put up window treatments to help make their new houses feel like home. Altogether, furniture and home beautification can easily add thousands of dollars to a home’s cost.