Understanding the True Cost of Homeownership

When considering the purchase of a home, it’s essential to look beyond the monthly mortgage payment. Homeownership comes with a variety of additional expenses that can significantly impact your budget. At O1ne Mortgage, we want to ensure you are fully prepared for all aspects of homeownership. Call us at 213-732-3074 for any mortgage service needs. Here, we explore nine non-mortgage expenses that every homeowner should consider in their financial planning.

Property Taxes

Property taxes are a significant expense that covers public services and infrastructure such as schools and street maintenance. The tax rate varies by location, but generally, you will pay a flat rate multiplied by your property’s assessed value. For instance, if you purchase a home for $400,000 and your local property tax rate is 1.5%, your annual property tax bill will be $6,000. This can be paid as a lump sum or in installments, depending on local policies. Some mortgage lenders may collect a portion of your annual property tax bill along with your monthly mortgage payment to pay the bill when it’s due. To learn more about property tax rates in your area, check with your local taxing authority.

Homeowners Insurance

Homeowners insurance rates have been on the rise in recent years. According to Matic, the average homeowners insurance premium increased by 8.6% to $1,700 for new policies in 2023. Comparing policies from multiple insurance companies can help you get the best value. Online search tools can be useful for comparing quotes from various companies at once.

Private Mortgage Insurance (PMI)

If you bought your home with less than a 20% down payment, you might be required to pay for private mortgage insurance (PMI). PMI protects the lender if you stop making loan payments. It can be paid upfront at closing or as part of your monthly mortgage payment. Typical costs range from 0.5% to more than 2% of the total loan amount per year. Your exact mortgage insurance costs will be included in your closing documents when buying a home.

Utilities

Basic utilities such as electricity, gas, water, trash, and internet will add to your monthly home expenses. Additional utilities like cable, streaming services, or home security can also contribute to the cost. When buying a home, ask about utility bills to estimate your monthly costs. You can save on utility costs by installing energy-saving appliances or reducing energy and water usage. Consider signing up for Experian Boost®ø to factor your eligible on-time utility bill payments into your credit scores based on your Experian credit report.

Homeowner Association (HOA) Fees

If your home is part of a condo building, townhome, or managed community, you will likely have to pay HOA fees. These fees cover insurance, utility costs, and maintenance of common areas and amenities. HOA fees can range into the hundreds of dollars monthly but may replace some common expenses like utility costs.

Routine Maintenance

Maintaining a home is an ongoing project. Routine maintenance includes house cleaning, HVAC service, pest control, roof replacement, and plumbing repairs. While you can try to economize on home maintenance, skipping it can lead to higher repair costs later. According to Angi, the average homeowner spent $2,458, or just over $200 per month, on home maintenance in 2023.

Landscape and Pool Maintenance

Even if your outdoor living space is in good shape, you will need to budget for maintenance and repairs. Angi estimates that lawn mowing services range from $50 to $250 per mow, and tree trimming averages $1,800. Pool maintenance adds an average of $230 to your monthly costs, with pool repairs ranging between $85 and $3,200.

Emergency Repairs

Emergency repairs are unpredictable and can be costly. A typical roof replacement costs $9,267, while a water heater replacement averages $1,303. It’s essential to create an emergency repair fund to cover these unexpected expenses. Some emergency repairs may be covered under your homeowners insurance policy, but deductibles and non-covered expenses can add up.

Appliances

Appliances have a limited lifespan, ranging from five to 17 years, according to the National Association of Certified Home Inspectors. HomeAdvisor estimates the average cost of a new appliance at $2,175. Take stock of your home’s appliances and their condition, and start preparing for their eventual replacement.

How to Save for Homeowner Expenses

Make room in your monthly budget for recurring home expenses such as mortgage payments, utilities, and HOA fees. For planned and unplanned repair and maintenance expenses, consider implementing a few different strategies to ensure you’re covered.

Contribute to an emergency fund. Most financial experts recommend keeping three to six months’ worth of expenses in a high-yield savings or money market account to cover unplanned expenses like emergency home repairs. If you need to tap your emergency fund for home repairs, don’t forget to replenish it.

Add sinking funds for taxes, maintenance, or renovations. Create sinking funds to cover planned expenses such as property taxes, appliance replacement, repairs, or renovations. Budgeting 1% to 4% of your home’s value for an all-purpose maintenance fund is another approach. By building a healthy savings balance, you’ll be prepared to tackle various home repair, maintenance, and improvement projects without sinking into debt.

The Bottom Line

The first step in managing the many costs of homeownership is recognizing what those costs will be. Understanding how to account for taxes, insurance, maintenance, and repairs can help you set a realistic budget, create a savings plan, and even find room for extras like fresh paint, updated flooring, or a bathroom remodel. At O1ne Mortgage, we are here to help you navigate the complexities of homeownership. Call us at 213-732-3074 for any mortgage service needs. Once you know, you know.