The residual costs of homeownership aren’t often considered when people look into buying their first home. I think that is changing since the housing bust (because mortgages were handed out willy-nilly), but generally speaking, when considering the buying vs. renting, people often look at what the mortgage payment would be versus rent for a similar home, and they don’t factor in the additional costs of home ownership. (Gee, how do I know this…)
Additional annual costs of home ownership = 2-4% of home value?
I read recently that annual costs of home ownership run between 2% and 4% of the cost of the home. That seemed a bit high to me: we paid $220,000 for our home, for instance, so 2% would be $4,400 in additional costs per year.
Then I started looking at the numbers. Our property taxes for next year are projected to be $4,268.22. Add another $818.36 for hazard insurance (whatever that is). Hmmm… We’re already over 2%…
Routine Maintenance Costs
Then there are the many additional costs of basic home maintenance. We avoid a lot of these by doing work around the house ourselves, but my last post is a great example of the cost of some lawn maintenance that most people can’t do on their own. (And $300 for trimming trees? That was a bargain. Take a look at one of the comments on that post.)
My amazing sister who knows everything A wise woman once told me that a good rule of thumb when you look into buying a house is to factor in at least $100 a month in addition to the mortgage payment when looking at whether you can afford the cost of home ownership. In other words, budget $100 a month for repairs and maintenance.
Keeping in mind that a “mortgage payment” typically includes taxes and insurance, an extra $1200 a year in home maintenance is probably fair — though depending on the age of your home, you made need more.
Home Warranty and Heat Pump Maintenance
We spend over $500 a year just on our home warranty, as I outlined in a previous post. I am not a big fan of home warranties: they are not customer friendly. We keep ours mainly because our heat pump is ancient and we cannot justify the cost of replacing it for the amount of time that we expect to be in this house (another two years…).
After numerous calls to our home warranty last year regarding our heat pump and numerous house calls (at $70 a pop) from their referred heating and cooling contractor, we decided to purchase an annual maintenance program for our heat pump as well. This service was instrumental in convincing the home warranty to choke up some cash and stop nickel and diming us with service calls finally obtaining a new indoor air handler through our home warranty — a value of several thousands dollars. Aww…. That finally made the annual cost of our home warranty worthwhile.
What is an indoor air handler, you might ask? I don’t know, but it’s probably that big contraption that you have some where in your basement, or in your garage, or tucked away in some obscure corner or your house, making spooky noises that scare your toddlers when it turns on and off.
Heating and Cooling Maintenance
Our maintenance program sends a guy out twice a year and costs $160. They check all kinds of exciting things like freon leaks (big problem with old heat pumps) (guess how we know that?), condensation level, and the condition of the coil fins, whatever those are.
Today the guy told us that the “contactor is visibly burnt” on our outdoor heat pump unit. He recommended replacing it, but he readily acknowledged that our home warranty wouldn’t even think of replacing it until it goes out completely. Could be in two months. Could be two years.
Thing is, this heating and cooling company that our home warranty referred to us last year? We found out today that they’ve been franchised, and they’re no longer associated with our home warranty. In other words, our home warranty won’t cover the cost of their service calls.
So should something go wrong with our heat pump, and we have to call our home warranty to place a work order… Instead of calling this maintenance company of ours — which worked great with them last year — we’ll have to call one of the home warranty’s authorized contractors. So they can come out and tell us that our “contactor is visibly burnt”– For a mere $70.
They really should cover stuff like this when you go in to apply for a home loan.
Home Ownership
It’s such a personal, wonderful, amazing opportunity and responsibility. Could we rent the same kind of home we have now for the same cost as our mortgage (taxes and insurance)? Possibly…
But these additional costs that come with home ownership must be factored in when looking to buy. If we had to do it all over again, knowing what we know now, I think we would think long and hard before taking the plunge.
Please share: Do you own or rent? What costs have surprised you about home ownership? Would you buy the same house again?
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Thanks,
Peter- Owning their own home
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Wow– I rent, so I really had no idea about all of this. I'd love to own my own house someday, so I'll keep this to come back to- Thanks!!
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