Hidden Costs of Homeownership Can Add Up to Almost $10,000 Per Year

The extra expenses beyond mortgage and insurance can add up, costing the average U.S. homeowner more than $9,000 per year.

The extra expenses beyond mortgage and insurance can add up, costing the average U.S. homeowner more than $9,000 per year.

At CandysDirt, we love real estate and we love homeownership! But with a house comes expenses beyond the mortgage and insurance. For the unprepared buyer, these can be a rude surprise. And nobody likes those.

We’ve seen it before: First-time homebuyers focusing solely on the list price of a house when deciding how much they can afford, and then being shocked by all of the other costs associated with homeownership (hello, water heater/new roof/foundation repairs!). These extra or hidden costs are often the most stressful part about owning a home.

“Those in-the-know are wise to set aside an emergency account, because regardless of age, price point, or quality of construction, issues are going to arise, whether it a 100-year-old house, or a 100-day-old house,” said Realtor Brian Davis of Dave Perry-Miller InTown. “When those issues happen, they’re not always inexpensive and you’re wise to have money saved up for that rainy day.”

We happened upon a new study by Zillow and Thumbtack that identifies a variety of common home expenses — both unavoidable and optional — that often get overlooked during initial budgeting. They calculated what homeowners could spend each year to cover these costs in their area. While these extra expenses might seem small individually, they add up quickly, to the tune of $9,477 for the average American homeowner.

“One thing I’ve stated doing this past year for new homebuyers is having them look at properties $10,000 less than what they’ve been approved for so they have some credit or buying power if they have to do repairs later,” said Elaine Copeland, an Ebby Halliday Realtor. “That also gives them some money for fixing it up—a lot of houses are sold ‘as is,’ and if buyers purchase $10,000 to $20,000 below [their max mortgage approval], they can better manage their budget in the long run. The best thing for a Realtor to do is advise them to do everything affordably.”

So just what are those extra or hidden expenses? Let’s take a look.

A new water heater can set you back $4,000, a painful price if you've failed to plan.

A new water heater can set you back $4,000 or more, a painful price if you’ve failed to plan (well, it’s painful no matter what, but you know what we mean). Photo: Clarence Risher via Creative Commons

First, there’s the unavoidable. An online mortgage calculator can estimate your monthly mortgage payment, but if you’re only calculating principal and interest, then you could be underestimating the actual cost of homeownership. That’s because property taxes and homeowners insurance are added to the monthly payment as well (not to mention private mortgage insurance if you didn’t put down 20 percent). In some communities, you also need to to factor in homeowners association fees, which can range from a few hundred bucks a year to thousands of dollars.

Then there’s the cost of utilities. Sure, you pay them as a renter, but if you buy a larger home, your heating, electric, and gas bills will increase.

Home maintenance is another common expense many buyers overlook. Popular projects include housecleaning, pressure washing, yard care, carpet cleaning, and gutter cleaning. It’s helpful to know how much these types of projects typically cost in your area so you can plan accordingly, even if you want to DIY (and if that’s the case, remember to budget for that carpet shampoo machine/lawnmower/step ladder).

As with all things real estate, these extra or hidden costs can vary significantly by region. In Boston, homeowners can pay nearly $14,000 annually for these combined hidden costs and maintenance expenses — the highest in the markets analyzed. Compare that to Phoenix, where homeowners pay almost half ($7,550) for the same costs. Dallas wasn’t in the list (odd, since our region is one of the top real estate markets in the country), but you can get a general idea.

Curious how other areas stack up? Check out the graphic below for a breakdown of the 15 metros analyzed in the report.hidden costs of homeownership

3 Comment

  • mm

    Whether it’s HOA dues or single-family maintenance costs, there is no free ride. Although as a high-riser, I will point out the fewer surprise expenses with a proper reserve fund.

  • I receive a lot of calls in year two of ownership due to buyers escrow accounts going negative. Buyers need to watch out if the tax value is significantly below the purchase price. The lender will escrow taxes based on the current year or on the previous years value if you close before May and the Appraisal District will likely reappraise the following year and increase the taxable value.

    Another area that gets the buyers attention is if they buy a condo unit that has a builders inventory discount on it. Developers are entitled to a builders inventory under the tax code and in Dallas in many cases it has run 40 to 50%. So if you buy a condo from the developer for say $400,000 that’s on the tax rolls for $240,000 and escrow for taxes, the following year you’ll lose the builders inventory value and the new value will likely be closer to the $400k paid, increasing taxes approximately $3,200 a year.

    Buyers also need to make sure they apply for their Homestead Exemption. I had a new client that had lived in his Highland Park home for 7 years and never filed for his Homestead Exemption. We caught it and helped them with the paperwork for 2015, but they had thrown away close to $4,000 a year for 7 years. OUCH!