The Real Cost of Owning a Home May Surprise You
The widespread economic effects of the COVID-19 pandemic continue to touch every aspect of life, including housing. The share of homeowners spending more than 40% of their household income on housing has nearly doubled from 16% to 29% since the pandemic began. Approximately 52% of homeowners are surprised by how much homeownership actually costs. Clever Real Estate's report on the hidden costs of homeownership reveals how homeowners buy and maintain homes in an increasingly unaffordable environment.
Hidden Costs of Buying a Home
The hidden costs of homeownership begin before the ink is dry on the deed. Forecasts for the 2022 real estate market predict another hot market, and first-time home buyers especially need to ask questions before submitting an offer to avoid sticker shock at closing.
Realtor Fees
Listing agents typically charge 6% commission, split evenly with the buyer's agent. That means as a home buyer, you can typically utilize the services of a real estate agent without paying anything out of pocket. Choosing a Realtor who meets your needs means asking them tough questions about what they do.
Closing Costs
In addition to Realtor fees, other closing costs can add an additional 3–6% of the home’s purchase price. These expenses include:
- Origination fees
- Title search
- Appraisals
- Underwriting
With these additional costs, you may need a side hustle to buy your first house.
Earnest Money
Earnest money isn't an ongoing expense, but it costs you right up front. Earnest money is paid when you make an offer, and it's held in escrow until closing — when it's applied to the purchase. It indicates to the seller that you're serious about purchasing the home because the money is forfeited if you back out without meeting the terms of the contract.
Insurance and Property Taxes
In the long run, paying the first year of property taxes and insurance takes some financial pressure off as you settle into your new home, but it adds to the price at closing.
Hidden Costs of Homeownership
Once you make it out of closing with the keys to your new home in hand, the financial hits keep coming. In addition to a mortgage payment, owning a home costs about an additional $15,405 each year in maintenance and improvement projects. This works out to an extra $1,300 a month in housing expenses — a cost many homeowners can't absorb. Here's where the money goes.
Basic Maintenance
The average homeowner spends 19 hours a month, or almost 10 days a year, on home maintenance tasks alone. In addition to time costs, one-third of homeowners spent more than $5,000 on maintenance and upkeep in 2021, with millennial homebuyers 3x more likely to spend that much on home maintenance than boomers. Basic maintenance costs include:
- Pest control
- Tree trimming and landscaping
- Pool work
- Painting
- Appliance repair
- Plumbing and electrical work
- Roof work
- Septic/sewer problems
These basic repairs are necessary to keep a home in good condition, but they don’t include unexpected repairs.
Unexpected Repairs
Unexpected repairs, such as total roof replacement or a burst pipe, can set homeowners back.
Even homeowners who built their house and don't inherit problems from a previous owner can get knocked off course by an unexpected repair. Only 43% of homeowners can scrape up the cash to pay for an emergency $5,000 repair.
Property Tax
Property tax is tied to the assessed value of your home, and any fluctuations in the market or improvements you make can affect how much you pay. Property taxes also vary widely from state to state, with homeowners in New Jersey paying 14 times more in property taxes than homeowners in Alabama.
Personal Mortgage Insurance
If you make a down payment of less than 20% you’ll need to get private mortgage insurance (PMI) to cover the balance if you end up in foreclosure. The amount varies depending on how much you borrow and how much your home is worth, but it can add an extra $30–$70 to your monthly payment for every $100,000 you borrow.
Utilities
As a homeowner, you’re on the hook for all of your utilities, and that can add up. Homeowners pay an average of $2,000 a year more on utilities than renters.
Homeowners Association Fees
The first year of homeowners association fees are usually rolled into closing costs, so it’s easy to forget this bill is paid annually. Depending on what they include, these fees range from $100–$1,000 a month, with an average around $300 a year.
Home Improvements
Homeowners who install a pool, update a bathroom, or add a deck are in for a big surprise. The average kitchen remodel costs over $35,000, and even simple improvements can cost big dollars.
Is Homeownership Worth It?
After paying unexpected homeownership costs, 60% of homeowners say they feel buyer’s remorse, with 25% of them feeling it often. Homeowners most commonly regret maintenance costs (70%), features of the house (32%), and hidden costs (30%). Additionally, 1 in 8 homeowners say that the benefits of owning a home aren't worth it.
