Homeownership Costs You Should Know

 

Homeownership could be a great option, whether you are looking for a beautiful white picket fence or if you are ready to stop renting. Don't rush into choosing paint colors.

Before you enter the market to buy a home, ensure that you are ready to take such a large financial risk. Understanding all costs involved in owning a house is the first step. Although some costs like closing fees and a down payment may be obvious, budgeting for more obscure costs is important. These costs include HOA fees and taxes, as well as insurance.

Let's find out if you are ready to begin your home-buying journey. We will be looking at both the upfront and ongoing costs of purchasing a home.

One-Time, Upfront Costs Of Homeownership 

Deposit Payment

The down payment cost for a median-priced house: $10,000 - $70,000

A homeowner's biggest challenge is usually acquiring enough funds to pay a down payment. You'll likely need to save at least a few thousand dollars for the down payment.

Depending on the type of loan you have, you might be able reduce or even eliminate your down payment. VA loans or USDA loans do not require a down payment.

The conventional loan allows you some flexibility in reducing the amount you put down for a house. Keep in mind that private mortgage insurance (PMI), is required by most lenders for payments less than 20%. However, more information will be provided later.

Let's say you are buying a $392,000 house. This will help you understand how much down payment costs. This is the median listing prices for U.S. homes as of February 2021 according to REALTOR(r).com.

You'd need $11,760 to make a down payment of 3%. You'll need $78,400 to pay 20% down and get rid of PMI.

Closing costs

Closing Costs on a Median-Priced Home: $10,000 - $21,000

All fees and charges that you will incur in the closing process and home purchase are included in the closing costs. These fees include taxes, title search fees, and insurance. The closing cost range is usually between 3% and 6% of the home's purchase.

Let's assume that the median listing price is $392,000. This home's closing costs would be between $11,760 and $23,520. The home buyer will usually be responsible for paying the appraisals and inspections.

Monthly costs of owning a home

Be prepared for other costs beyond your monthly mortgage payments. Your monthly payment does not include the loan repayments, but there are other costs that you should consider when planning your monthly budget. For a quick way to recall everything in your monthly mortgage payment, we recommend the acronym PITI.

• Principal: The total amount of the loan you took out to buy your home is called your principal. Your principal is the amount you pay towards your loan. This reduces your loan balance, and increases your equity.
• Interest: This amount is what the borrower agrees to pay to their lender in order to obtain a loan. The borrower's financial history, other terms such as the down payment amount, loan term, and current market conditions, will determine the interest rate.
• Taxes Lenders usually include property tax in the monthly payment. The borrower then stores the money in an account until the property taxes become due. The average American pays $2471 annually in property taxes, according to Census Bureau data.
• Insurance Homeowners insurance is generally included in the monthly payment of the borrower. The insurer will pay the borrower out of an escrow fund. The average annual insurance premium range varies from one state to another, but is usually between $800 and $2,000.

Ownership of a home involves ongoing, regular expenses

There are many costs involved in maintaining a home. It's not just about paying your mortgage. Even though they may not be on our minds, many costs are essential for daily life and the maintenance of your home. Let's look at some of the ongoing, essential costs of homeownership.

Utilities

Annual utilities costs averaged $4,158

Renters who have been renting for a while are familiar with the price of utilities such as gas, electricity, and water. When they become homeowners, they should expect to pay a higher utility bill. A home may have more amenities or square footage which could lead to higher utility bills.

We recommend that you do your research as utilities costs can vary depending on where you live. You should be familiar with the different utilities that are required to maintain a single-family home in your local area. Also, make sure you have all accounts transferred in your name. You will be penalized if you miss a payment.

Housekeeping and Cleaning

Housekeeping and supplies costs average annual $837

A clean home is essential to your health and that of your family. A budget is necessary to prevent pests, eliminate bacteria, and get rid of dust. Before you decide to move into homeownership, budget for the costs of hiring a cleaner or buying your own supplies.

Homeowners Association (HOA), Fees

Monthly HOA fees are $200-300 per month

You won't be surprised at the monthly fees if you want to establish roots in a community that has a homeowners' association (HOA), or a condominium association. To be part of a community, residents must pay HOA fees. These funds are usually pooled and returned to the community. HOA fees can be used to fund community spaces such as a pool or landscaping, or walkway maintenance.

HOA Fees are like many aspects of homeownership. They vary depending on where you live and how much upkeep is required. A single-family home in suburban neighborhoods will have a lower HOA fee than a condo in a more prestigious area. Many areas don't have any HOAs.

Private Mortgage Insurance (PMI).

Annual Private Mortgage Insuring (PMI): 0.5% to 1% of the loan amount

As stated earlier, borrowers with a down payment of less than 20% on a conventional loan will typically be required to purchase private mortgage insurance. PMI is a monthly fee that ranges from 0.5% to 1% of the loan amount. PMI for a $300,000.00 loan can cost $150-300 a year or $12.50- $25 per month.

PMI can be cancelled with conventional loans once your equity has reached 20%. FHA loans however use a different type of mortgage insurance. What is the difference? The difference? FHA loans usually require that borrowers pay a 1.75% upfront fee for mortgage insurance.

Pest Control Subscription

The average cost of a single visit to control pests is $250 - $600

Monthly pest control costs are $1510 to $300 upfront, $45 to $75 per month

Sometimes life happens and that can mean dealing with bed bugs, mice, or any other unsolicited visitors. It's best for your home to be protected from pest infestations and to have the pests removed.

There are many factors that can affect the cost of an emergency, so it is wise to keep a few hundred to a few thousand dollars in reserve.

Internet, Phone, Cable, and Streaming Service

Monthly cable and internet costs average $116

It's almost impossible to live today without being able to communicate effectively. Consider the cost of internet, streaming services, phone plans, cable, and other costs when you are considering your home purchase budget.

Although you might not require all the above, reliable internet access is essential. You should shop around for deals and bundles in your local area.

Hidden costs: Maintenance and repairs

Annual maintenance and repair costs average: $2,913

If there's one thing many renters-turned-homeowners miss about the rental lifestyle, it's the ability to simply call maintenance or a landlord to solve a problem. You will need to budget home maintenance costs. Also, be ready to either hire someone locally or DIY the solutions.

When deciding how much money to put aside for repairs and replacements, consider the age of your home, its condition, size, and location. These home-related repairs should be budgeted at 1% of the home's annual value.

These are the most frequent repairs and maintenance that homeowners will encounter.

HVAC Maintenance

Average cost of HVAC maintenance and service: $75-200

Your HVAC system is the heating, ventilation, and air conditioning systems in your home. A professional technician should inspect your HVAC system twice per year to ensure that you don't go without AC during the summer heat and warmth in winter.

Plumbing Problems

Average one-time plumbing maintenance/inspection costs: $165

The average cost of a one-time technician visit is $175 to $450

Although plumbing problems are quite common, the cost of repairs is usually lower than the replacement costs. Many of these repairs can be done by homeowners who are handy, including fixing a leaky faucet and running toilet.

Flood and Water Damage

Average water damage repair/repair cost: $1,236 to $5,314

Signs pointing to water damage or water damage are a cause for concern. This is the most expensive problem to repair, regardless of whether it's a burst or foundational issue that causes flooding. Regular check-ups are a good idea to keep your home in top condition. If you have to do any repairs or restorations, it is advisable to hire professional assistance.

Roof Replacements and Repairs

Average Roof Repair Costs: $950

Average Roof Replacement Costs: $5,000 - $10,000

For your safety and comfort, a reliable, leak-proof roof will be essential. Although small jobs like repairing a small leak may only cost a few hundred dollars each, more serious issues can be costly. It's crucial to fix any roof problems that you see immediately. It is possible for small problems to quickly grow and require a roofer to replace or repair a roof entirely. This can be a more expensive solution.

Electrical System Problems

The average cost of a one-time electrician is $300+

The average cost of electrical work is $50-100 per hour

A licensed electrician will ensure your home runs smoothly and prevent you from having to empty the fridge in panic when the electrical system goes down. You shouldn't attempt to fix electrical systems yourself. They are complex and can be dangerous.

Foundation Concerns

Average foundation repair costs: $2,000 - $7,000

The cost to repair your house foundation is the most expensive home expense. Foundational problems can lead to cracks and sinking so it is important to fix them before they become a bigger problem.

Termite Prevention

The average termite prevention treatment cost is $225 - $2,500

Termites are not something to joke about. Preventive action is key. Get the assistance of professionals to apply termiticide or repellent. This will save you time and money on termite-induced repairs.

Mold and Mildew Misery

The average cost of professional mold removal is $1,108 to $3,369

Mold and mildew can cause serious health problems. Mold spores can cause allergic reactions or respiratory problems. Protect yourself and your loved ones by taking action to eliminate mold or mildew growth.

Home Improvement: Renovations and Upgrades

It's not all about fixing problems. You have the chance to make a space your own. This is where home renovations and home improvements come in. Let's take a look at different home improvements to help you decide what you should budget for.

Design Ideas for Your Room

Here are some ways to find out how much a room remodel can add to the value of your home. These upgrades and their return on investment (ROI) percentages are according to Remodeling magazine.

• Minor kitchen remodel:2% ROI
• Window Replacements:5%
• Entrance Replacement:7%
• Midrange bath remodel: 7%

Kitchen, Bathroom And Other Remodels

Cost of a room remodel will depend on the type and method of remodeling. Here are the average room costs according to Business Insider.

• Kitchen: $23,556
• Bathroom: $10,349
• Bedroom: $7,880
• Living room $7.264
• Basement: $15,000
• Attic: $49,438

New Furniture and Appliances

It's not fun to have a home that lacks comfortable furniture. You'll need to spend a lot of money on furniture that is more suitable for a permanent home. HomeAdvisor estimates that the average cost to furnish a whole house is $16,000. Make sure you have savings!

Landscaping and Lawn Care

HomeAdvisor estimates that lawn care costs typically range between $100 and $500. However, this can vary depending on what type of lawn service you choose. While homeowners might prefer to spend all their energy on the interior of their homes, an exterior can increase curb appeal by as much as 5% to 11%.

Decking out a Patio

Homeowners who want to expand their living spaces and enjoy the outdoors will often consider adding a patio or deck. These projects can be expensive: an average cost of a deck is $7,700, and a patio is $3,400.

The good news is: As per Remodeling magazine you might be able to recover about 65% on a wooden deck addition.

What are the Average Monthly Costs and Expenses of Owning a Home?

These are the approximate costs for homeowner essentials. This does not include mortgage payments. These are the basics to consider when deciding whether you're financially ready to purchase a home.

Item	Average Price
Utilities	$4,158 annually
Cleaning and housekeeping	$837 per annum
HOA fees	$200 - $300 per month
Repairs and maintenance	$2,913 per annum

The bottom line

Budget for all costs before you buy a house. It is easy to forget about the many costs involved in buying a house. Although owning and maintaining a house is expensive, having an emergency fund or savings can help you avoid future financial stress. As with most things in life you will be better equipped to handle the unexpected.