How Much Will It Cost Me To Own And Maintain A Home?
As you may know, owning a home can be expensive. While paying mortgage payments and taxes on time is important, the cost of ownership includes maintenance to keep the property safe and comfortable. In this article, we will take a look at
Knowing Your Maintenance Costs is Important
Knowledge is power when it comes to homeownership. Anticipating the costs of homeownership helps keep your finances in order and enables you to make better investments for the future. The following are some of the best reasons to understand your monthly and annual home costs:
- You can purchase a home that you can afford and won’t go into foreclosure
- You can use the home as an investment vehicle in the future
- You can time your moves to better housing
- You will be able to gauge what it takes to preserve the quality of the home
- You will have a home that’s an enjoyment rather than a burden.
Now that you understand the reasons for homeownership, what are the actual costs? Some of the most basic expense to own and operate a home include:
- Monthly mortgage payment
- Annual property taxes
- Landscaping (contractors or doing it yourself, including tools, gasoline, and so forth)
- Homeowners insurance
- Utilities (heating, electricity, water, sewer)
- Internet service/WiFi
- Property management fees
- Private mortgage insurance (PMI) (Required until you pay 80% of the mortgage back)
- Replacing appliances
- Exterior paint
- Pressure washing roofs, siding, and pathways
Using the 4% Rule for Maintenance Costs
If you’re daunted by the long list of homeownership costs above, don’t be. While every home is different, you can use a short-hand method to estimate how much a home costs to maintain: Simply budget for 4% of the home’s purchase price for maintenance.
For a home worth $300,000, that’s only $12,000 annually (or $1,000/month). Setting aside this money each month helps avoid the shock of big-ticket items while giving you some breathing room. For months with less maintenance, you can set aside unused funds to keep on hand.
For example, during the mild seasons, you won’t use as much gas/electricity to heat your home, while winter and summer may see costs rise. Keeping a consistent amount of cash saved up each month can smooth out spikes in costs.
Calculating Taxes and Mortgage Costs
For property taxes and mortgage payments, which are generally more fixed expenses, you can create a yearly budget. Considering that the median monthly mortgage payment for homeowners in the United States is homeowners is $1,100 (according to the American Housing Survey from the U.S. Census Bureau), the average homeowner would have to sock away $13,200 per year to cover the mortgage.
The average home value in the United States is $295,000, while the average property tax rate is 1.1%. For a home of this value, homeowners would pay $3,245 per year.
Combining taxes and mortgage, it can be concluded that this home would cost a homeowner $16,445 ($13,200 + 3,245). Factoring in the aforementioned maintenance costs at 4% (4% of $295,000 = $14,160), the average home will cost $30,605 annually to own and operate.
Bear in mind that outside of property taxes and maintenance costs, this money isn’t lost. By making on-time mortgage payments, your home acts as a store of value for the principal of the loan paid off. The other costs are also a way of preserving value of the home so that when it comes time to sell, the home hasn’t lost value and you can recoup your investment.
Tips for Keeping Down the Costs of Home Maintenance and Ownership
Now that you have a sense of how much it costs to own and maintain a home, you may be wondering about ways to keep costs down. The following are ways you can do so:
- Be proactive about fixing the home as soon as possible. Leaks, for example, can be a simple fix requiring only a few hours of your time. Over time, a small leak can work its through your home, potentially costing tens of thousands of dollars.
- Set aside a few days each month to inspect your home for any issues. Even just a casual walk-around may discover problems before they become larger.
- Pay attention to the fine print in your insurance policy’s fine print. If an accident or damage occurs to your home (such as flooding), you may not be covered
- Doing work yourself is always the cheapest option for the home. If you have multiple family members, divide tasks to save on labor. For example, the average cost of landscaping for a home by a professional company ranges on average $130. If this service is performed monthly (lawn mowing, snow removal, etc.), that’s $1,560 per year that can be saved.
- Get quotes on insurance policies before purchasing any property.
- Switch to energy-efficient appliances whenever you have to make a replacement.