The 3 Most Unexpected Costs of Owning a Home

The 3 Most Unexpected Costs of Owning a Home
BY John Russo
Aug 20, 2019
Key Takeaways:
  • Many first-time homebuyers are surprised by certain homeownership costs.
  • Property taxes and insurance, home maintenance and necessary upgrades can derail personal finances.
  • Do your research before buying a home and plan for unexpected costs.

As rewarding as homeownership is, it can also be extremely expensive. Not only do you have to pay your mortgage, utilities, and insurance fees every month—you also have to worry about repairs, taxes, and other costs that you never expected when buying your home.

The costs of owning a home can add up quickly, so it’s no wonder why 26 percent of homeowners say they’d rather be renting. In a 2019 homeowner survey by Freedom Debt Relief, we asked over 1,000 people about the most surprising costs of owning a home. Here are their top three answers—as well as tips on how to prepare for these costs if you are a new homeowner.

1. Property taxes

According to over 49 percent of homeowners surveyed, property taxes ended up being higher than what they were prepared for when they were purchasing their home.

Property taxes vary between states and counties and are typically calculated as a percentage of your home value. For instance, if your home is worth $300,000 and your local tax rate is 1 percent, your property taxes would be $3,000 per year.

The average property tax rate in the U.S. is 1.15 percent. According to WalletHub, the average American household spends $2,279 on property taxes each year. That’s a lot of money to pay all at once, so it’s a good idea to start saving money to cover some or all of these expenses when the tax bill comes.

To prepare for property taxes, it’s a good idea to understand how much you’ll have to pay before taking out your mortgage. The easiest way to do this is by performing a little online research or using an online property tax calculator tool. Make sure that you’ll be able to save up and cover this cost on top of your mortgage. Otherwise, you may find yourself in over your head with your monthly payments.

2. Maintenance and repairs

More than 58 percent of homeowners surveyed say that home maintenance and repairs are more expensive than expected. Depending on the initial condition of your home when you buy it, it could be one of the highest costs of owning a home.

As a homebuyer, you may be prepared to spend a couple thousand dollars extra on home maintenance and repairs when first purchasing your home. But many new homeowners don’t realize that these costs are ongoing. To prepare yourself for these costs, it’s important that you factor them into your budget.

As a homeowner, you also have to get ready for unexpected costs that might pop up by starting an emergency fund. Having money set aside for unexpected expenses is a smart move. As a general rule, you should save three to six months of basic living expenses into this fund.

If the monthly cost of your mortgage, utilities, food, and other essentials is $1,000 per month, the ideal emergency fund would have at least $3,000 in it. Use this money only for emergencies, and make sure that you replenish your emergency if you take money out of it.

3. Necessary home upgrades

According to our survey, over 59 percent of homeowners agree that they didn’t expect home upgrades to be so expensive.

More than 58 percent of the homeowners surveyed planned to spend more than $10,000 on renovations and upgrades in the next five years. Here’s how they’re planning to improve their homes:

Many homeowners have multiple renovation projects planned for the next five years—and the cost of these projects can really add up. Most homeowners already know that these renovations are coming up, but they aren’t saving money to prepare for these particular costs of owning a home.

If you’re planning to upgrade your home, think hard about how you’re paying for it. You might be tempted to use a credit card or personal loan to fund these projects, but this could end up costing you thousands of dollars in interest depending on how much you borrow and how quickly you pay it off.

Using a home equity loan, home equity line of credit (HELOC), or cash-out refinance could be a good way to fund a home improvement project, but remember that these options could put your home at risk of foreclosure.

The least expensive—and least risky—way to fund a home upgrade is by saving up enough money to pay for it without a loan. This may delay your home improvement project start date, but it could save you money in the end. Here are some tips on how to save money and reach your home renovation goals faster:

  • Know how much you need to save. Start by getting quotes on your home improvement projects. You can do this by contacting a contractor or getting an estimate online.

  • Set your renovation date. Next, decide when you want to do your renovations. Keep in mind that the sooner you want to start the project, the less time you’ll have to save.

  • Calculate your monthly savings. To figure out how much you need to save each month, divide your cost by how many months you have left to save. For example, if your next home improvement costs $3,000 and you want to start in 24 months, you would have to save $125 each month to hit your target date.

  • Factor your monthly savings into your budget. Once you know how much to save each month, make room in your budget so that you can reach your savings goal.

Prepare for the cost of home ownership and your finances in order

Learning how to manage debt and money, even if you own a home, doesn’t need to be hard. We’ve developed a handy guide to help you find the tools you need to save for big expenses, pay off debt, and move toward a brighter financial future. Get started today by downloading our free guide.