Must-Know Costs Of Owning A Home, Explained

Homeownership can look like a wise, long-term money move, especially when comparing it to paying rent every month. Homeowners increase their equity each time they make a monthly mortgage payment, slowly growing the wealth they have in their homes over time.

However, there are a lot of costs homeowners are on the hook for that renters never have to worry about. Sometimes, those costs can be high, unexpected and strain your budget.

To avoid sticker shock after buying a house and moving in, prospective homeowners must understand the true cost of homeownership before deciding whether to buy a house or not.

We’ll explore the typical costs of owning a home so you can enter homeownership financially, mentally and emotionally prepared.

Upfront Costs Of Owning A Home

One of the biggest hurdles to homeownership is the amount of cash buyers need to bring to the table to close on a home. These upfront costs include your down payment and closing costs.

Down Payment

• Down payment on a $350,000 home: $10,000 – $70,000

Down payments usually range between 3% and 20% of a home’s price. Some loan types, such as Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans, require no down payment. If you don’t qualify for a 0% down mortgage, you’ll need at least a few thousand dollars saved to buy a home.

Closing Costs

• Closing costs on a $350,000 home: $10,000 – $21,000

Closing costs are all the fees you incur over the loan closing process and purchasing your home. Closing costs include lender fees, taxes, insurance, title search fee, etc. Total expenses can range from 3% – 6% of a home’s purchase price.

Down Payment And Closing Costs On A Home: Example

To get a better idea of how much you might pay upfront, let’s assume you’re buying a new home for $346,800.

If you put down 3%, you’d need $10,404 in cash for your down payment. If you put down 20%, you’d need $69,360, but you would avoid paying mortgage insurance.

Your closing costs could range from $10,404 to $20,808.

Even if your costs were on the lower end of the spectrum, you’d still need to save around $21,000 to buy the home.

Because the amount you spend upfront will depend on the price of the home, you wouldn’t need to save quite as much if you were buying a smaller, more affordable home.

For example, if you were buying a home for $180,000 with a low down payment and minimal closing costs, you would need around $11,000 upfront.

Day-To-Day Costs Of Owning A House

Once you’re in the home, you’re responsible for a variety of regular expenses.

Your monthly mortgage payment is an obvious one. But aside from that, what other recurring costs can you expect to pay regularly?

Utilities

• Average annual utility costs: $4,223

Utilities include all the electricity, fuel and services you need to keep your home humming. Renters typically pay utilities, too. But with smaller units and certain utilities rolled into their monthly rent, renters may have lower utility costs than homeowners.

According to the latest Consumer Expenditure Survey (CES) conducted by the Bureau of Labor Statistics, homeowners spent an average of $4,223 on utilities in 2021. That’s about $350 spent on utilities a month.

However, depending on where you live, the size and features of your house and how much you use a utility, your final bill will vary. For example, the utility costs for the owner of a small condo may be comparable to those of an apartment dweller.

Cleaning And Housekeeping

• Average annual housekeeping supplies costs: $803

Keeping your home clean is about more than making your space feel pleasant. It’s also about safeguarding your home from pests and keeping you and your family healthy.

The CES found that homeowners spent $803 on housekeeping supplies in 2021 – a little less than $70 a month. Housekeeping supplies include items like laundry and cleaning supplies, and lawn and garden supplies. The survey found that homeowners spent $215 on cleaning supplies alone.

Homeowners Association (HOA) Fees

• Typical monthly HOA fees: $200 – $300 per month

If you live in a community that’s part of a homeowners association (HOA) or condo association, you’ll likely pay a monthly fee to the association. HOA fees help pay for services like the upkeep of common areas, the repair of shared buildings, walkways and roads and snow removal or lawn care.

HOA fees typically cost $200 – $300 per month. But what you pay ultimately depends on the services and amenities your community offers. If you live in a neighborhood with few shared spaces and services, your HOA fees may be at the lower end of the price spectrum. If you live in a luxury condo building with luxury amenities, such as access to a staffed gym or a high-end spa, you’ll pay much, much more.

In addition to regular HOA dues, you may need to pay a special assessment fee.

Generally, HOAs set aside funds for unforeseen expenses, like an emergency roof repair. If the association doesn’t have the funds to cover a significant, out-of-the-ordinary expense, they may impose a special assessment, which you’ll pay on top of your regular HOA fees.

If you’re thinking about moving into a neighborhood or condo community with an HOA, be sure to understand all the fees you’ll be required to pay, including regular dues and special assessments.

Property Taxes

• Average annual property tax bill: $3,901

If your property taxes are a part of your monthly mortgage payment, your mortgage servicer will collect this portion of your monthly payment to deposit to an escrow account and pay your real estate taxes when they’re due.

According to the National Association of REALTORS^® (NAR), in 2022, homeowners paid an average of $3,901 in property taxes.

Insurance

•  Typical homeowners insurance annual premium: $1,000 – $2,000
• Private mortgage insurance (PMI): 0.1% – 2% of the total loan amount

Insurance will be another cost added to your monthly mortgage payment, and how much you’ll spend will depend on your insurance needs.

When you get a mortgage, your lender will require homeowners insurance. The cost will vary quite a bit depending on the state you live in. Homeowners can spend anywhere from less than $1,000 to close to $2,000 each year. If you have an escrow account, your servicer will divide your annual insurance premium and spread the cost over each of your monthly mortgage payments for the year.

You’ll need to pay mortgage insurance if you get a conventional loan and put down less than 20%. Private mortgage insurance (PMI) typically costs between 0.1% and 2% of the total loan amount each year. Once you reach 20% equity in your home, you can request to have your PMI canceled.

FHA loans have their own type of mortgage insurance. Its annual costs are similar to PMI. However, no matter how much you put down, you can’t avoid FHA mortgage insurance. Borrowers who put down less than 10% pay mortgage insurance for the life of the loan, while borrowers who put down at least 10% pay the mortgage insurance premium (MIP) for the first 11 years of the loan term. FHA loans also have an upfront mortgage insurance premium. The premium equals 1.75% of the total loan amount and must be paid at closing.

You can even opt for extra coverage and purchase mortgage protection insurance (MPI). This type of insurance policy pays off your mortgage when you or your spouse dies. Of course, the monthly premium will increase your housing costs.

Maintenance And Repairs

• Average annual maintenance and repair costs: $2,467

When you own your home, you’re responsible for every square inch of it. When stuff needs to be fixed, replaced, cleaned, serviced or otherwise requires an expenditure of time and money, that responsibility will fall to you.

Home maintenance and repair costs can be one of the biggest surprises and frustrations for new homeowners. In 2022, homeowners spent an average of $2,467 on maintenance and repairs.

A general guideline for home maintenance is to budget 1% of your home’s value each year for these costs. For a $350,000 home, you should set aside around $3,500 every year for repairs and other home-related costs.

Here are some common home repairs and maintenance issues homeowners frequently encounter:

Roof Issues

Having a good, leak-proof roof is crucial. Smaller roof leak repair jobs may cost a few hundred dollars or even less if you can (safely) handle the repair yourself.

If you notice an issue with your roof, it’s important to get it fixed ASAP because small roof problems can very quickly become costly roof problems.

Replacing a roof can be very expensive, often costing between $5,000 and $10,000.

Water Damage

When water gets inside a house, it can cause serious issues. Whether a burst pipe or a flooded basement is to blame, water damage can be an expensive problem to solve.

If your home floods, you may need to repair drywall, replace flooring and throw out furniture or other personal belongings that can’t be dried out or repaired. You may also end up requiring professional mold removal.

Depending on the source of the water, you may need extensive professional cleaning, too.

Plumbing Problems

Plumbing issues are fairly common. And luckily, the repairs are typically on the lower end of the price spectrum. Handy homeowners may even be able to deal with a leaky faucet or a running toilet themselves.

HVAC Care

HVAC stands for heating, ventilation and air conditioning. The system regulates the environment inside your home, warming it in the cold months and cooling it in the hot months.

HVAC systems must undergo routine professional maintenance and be inspected at least twice a year. According to HomeAdvisor, you can expect to pay between $200 and $450 for a full system inspection.

Chimney Sweeping

If you have a fireplace, you should get your chimney inspected. If necessary, have it cleaned at least once a year to ensure it works safely.

On average, a chimney inspection can cost around $250, according to HomeAdvisor.

Faulty Foundations

Foundation issues can be expensive for homeowners. Though small cracks can be cheaper to fix, larger repairs can cost up to $10,000.

Pest Removal

Having pests in your home is no fun. Whether you’re dealing with mice, termites or bed bugs, when you spot the telltale signs of an infestation, call the pros right away.

Depending on the critter you’re dealing with, pest removal can run between a few hundred dollars to a few thousand.

Renovations And Home Improvement

One of the joys of being a homeowner is the freedom to personalize your space by painting, rearranging, renovating and upgrading as you see fit. However, your ability to customize will be determined by what you can afford – and many home improvement projects have big price tags.

On the flip side, renovating your home can be a great investment. Many home improvement projects can help boost your home’s value.

The price estimates included in the following section are all from HomeAdvisor.

Landscaping

Depending on how extensive your project is, you can spend a lot of money on landscaping.

Planting a few flower beds can be an affordable DIY project. But a complete property overhaul requiring professional work can cost tens of thousands of dollars.

Decks And Patios

Adding a deck or patio is a common project for homeowners looking to upgrade their outdoor space. But these projects can be pricey. On average, homeowners pay $7,900 for a deck and $3,800 for a patio.

Upgrading Furniture And Appliances

As a homeowner, you’ll likely need to make big-ticket purchases to replace some of the items you frequently use in your home, like refrigerators, couches or washer and dryer sets.

Budgeting ahead when you notice an appliance is starting to wear down or glitch can help financially prepare you to buy a replacement when the time comes.

Room Remodels

A full kitchen remodel, one of the most common projects homeowners consider when they want to revamp their space, can cost an average of $26,200.

How much you’ll spend on a remodel will depend on what you’re remodeling. For example, you’ll likely spend more if you’re installing all new cabinetry and new countertops than repainting and updating some hardware (such as installing new drawer pulls). Major renovations may affect your home insurance as well, depending on the scope of the project. Talk to your insurance provider to find out whether you’ll need to increase your coverage.

Average Monthly Costs Of Owning A House

To sum up everything we’ve discussed, here are some of the most important average monthly costs (outside of a mortgage payment) homeowners typically include in their household budgets:

These are the basic expenses homeowners typically need to budget for. If you plan on doing lots of renovating or know major components of your home will need to be replaced soon, you’ll need to account for those expenses as well.

FAQs On The Costs Of Owning A Home

Let’s look at some frequently asked questions about the costs of owning a home and what you can expect.

What’s included in your monthly mortgage payment?

We touched on this earlier, but your mortgage payment includes more than the total amount of your home loan. It typically also includes taxes and homeowners insurance.

An easy way to remember what makes up your mortgage payment is the acronym PITI: principal, interest, taxes and insurance.

• Principal: Your principal is the amount you borrowed from a lender and must repay. This portion of your mortgage payment reduces your loan balance.
• Interest: This is what a lender charges to borrow money.
• Taxes: As we mentioned, your lender will typically add your taxes to your monthly payment and keep the money in an escrow account until your property taxes are due.
• Insurance: Like taxes, home insurance is generally included in your monthly payment and paid to the insurer out of an escrow account on your behalf.

What are the benefits of owning a home?

Aside from a permanent residence and a sense of community, owning a home can be a good investment that yields many financial benefits. Paying a mortgage helps your credit score grow, and making monthly mortgage payments may save you money compared to paying rent. You build equity you can borrow from when necessary. And homeownership can also provide tax benefits that may save you hundreds on your tax returns.

How can you prepare for the costs of homeownership?

Home costs aren’t always predictable, but you can prepare for the expected and unexpected costs of owning a home by creating a realistic budget and knowing how much house you can afford. Your real estate agent can estimate your housing expenses, and your mortgage lender will provide a Loan Estimate outlining your closing costs and loan costs. Create a budget from all your estimates, listing one-time and ongoing costs and adding a cushion for the unexpected.

The Bottom Line: Make Sure You’re Financially Prepared

Homeownership can come with a lot of benefits, but it’s not something you should jump into without considering whether you’re ready.

By planning ahead, taking time to save and ensuring your budget is ready for this big step, you can enter the world of homeownership confident and ready to tackle any challenge that comes your way.