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Beyond the Mortgage: How Much Does Owning a Home Cost?

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With mortgage rates hovering near historic lows, many Americans are considering ditching their monthly rent in favor of a monthly mortgage payment.

The benefits of owning your own home are significant. For many, the idea of holding equity in their home, being able to renovate as they please, and a likely increase in square footage acts as a siren’s call luring them to homeownership.

While all these benefits can make homeownership a long-term win, it is important to understand the total cost of homeownership to avoid getting in over your head. When budgeting for a house, it is easy to focus on the big number ... the mortgage. But the other costs involved in homeownership can add up quickly as well.

Below, Guardian Mortgage(Opens in a new window) breaks down how much owning a home really costs, so you are truly informed about your homebuying decision.

KEY TAKEAWAYS

  • When buying a home, you will have one-time expenses associated with your closing, long-term expenses that arise as your home ages, and recurring expenses such as your mortgage and utility bills. Calculating all these costs can help you gain a better understanding of your true costs over time.

  • While you may be used to paying certain bills including utilities and insurance as a renter, as a homeowner you’ll likely see an increase in these costs.

  • Little things can add up. As you make your house your own and get into day-to-day maintenance, you’ll find yourself making purchases to support your new lifestyle. Paint, furniture, and lawn care equipment all serve as examples of these seemingly “little expenses” that can add up.

  • Rest assured you are not alone. From your realtor to your banker(Opens in a new window) to your mortgage lender(Opens in a new window), your team of experts is here to help you figure out how much house you can afford, and make the leap from renting to homeownership a smooth one.

Initial Costs, One-Time Expenses

Most new home buyers spend years saving for their down payment. The down payment is a one-time expense, and one of the first expenses associated with home ownership.

For homebuyers who don’t want to wait for years to save up, Guardian Mortgage offers a HomeReady Loan(Opens in a new window). This home loan offers low down payment options as a key benefit.

When closing(Opens in a new window) your home loan, you will pay a variety of one-time closing costs, including:

  • Origination fee
  • Underwriting fee
  • Appraisal fee
  • Credit report fee

You will know your final closing costs before you come to the signing table. Be prepared to pay not only your down payment but also these closing costs before your new home officially becomes yours.

Similar Expenses, Different Values

As a renter, you are used to paying utilities, insurance, rent, etc. As a homeowner, you will continue to pay utilities and insurance. However, you can expect that these line items will often cost you more money:

  • Utilities: It is likely that your new home is bigger than your rental. As a result, there is a good chance bills including electricity, gas, and water will increase with your home purchase. Your real estate agent or utility provider can often give you an estimate of your average monthly utility bills.
  • Insurance: Homeowners insurance covers much more than your typical renter’s insurance policy. Your average homeowners insurance is just under 10x higher than renters insurance, due to the fact that it covers the dwelling and the cost of repairs or replacement of the home. Some mortgages will include insurance costs in your payments – a convenience many find helpful in budgeting monthly expenses. You may also need to look at supplemental home insurance to cover emergencies not protected by your main policy, such as some natural disasters.
  • Mortgage: While you may be used to rent increases, did you know your monthly mortgage payments can increase too, sometimes at a higher rate than rent? A fixed-rate mortgage loan carries the same interest rate for the entirety of your loan. However, if you have an (Opens in a new window)Adjustable Rate Mortgage(Opens in a new window) (ARM), your monthly mortgage payment is subject to change after the initial period of time. An ARM loan can carry lower initial payments, making it an attractive option for home buyers. Work with your Guardian Mortgage professional to determine what you can expect long-term with an ARM loan.

If your home insurance and property taxes are included in your mortgage payment, these may also change based on changes in the amounts owed year-over-year. For example, your home may appraise at a higher rate, therefore making your property taxes increase.

The key is keeping these recurring expenses in mind when budgeting.

New Experiences, New Expenses

The benefits you gain with your new home, like a big yard, often come with an additional maintenance price tag. When looking at how much owning a home costs, keep the following points in mind – then budget accordingly.

Saving as a homeowner looks different than saving as a renter. There are many new expenses to prepare for ... some known, some unknown:

  • Repairs: Repairs can set you back thousands, like a roof that needs replacing, or they can cost less, like a clogged pipe. Some of these repairs will take the expertise of a professional, while you can likely manage other repairs on your own. The ability to vet your contractors instead of relying on your landlord is one of the perks of homeownership. This allows you to shop for the best price and the best quality.
     
  • Maintenance: You are solely responsible for regular upkeep on your home. From lawn care to replacing light bulbs, you are responsible for making sure your home does not fall into disrepair. To accomplish these tasks, you may need to purchase equipment you have never owned before, such as a lawnmower, water hose, or ladder.
  • Renovations: Unless you bought your home as new construction, you will likely want to make your new house your own. There are often many improvements new homeowners want to make. Maybe it is new paint or carpet. Or perhaps you want to remodel a kitchen or bathroom. Whatever the improvement, a renovation budget and timeline can help you determine how much money you’ll need at the time of purchase, and what you can budget for the future.

If your renovation will take some serious cash, Guardian Mortgage’s HomeStyle® Renovation loan(Opens in a new window) provides you with funds for a mortgage or refinance, plus additional funds to pay for remodeling, repairs and updates.

  • Property Taxes: Don’t let property taxes take you off guard. This is an often-overlooked cost of homeownership. Property taxes are taxes levied on real estate by governments and are typically based on the value of your home and local services. They are often wrapped into your monthly mortgage payment.
  • HOA: Not every neighborhood has a Homeowners Association (HOA), but many do. Ask your realtor if the neighborhood you are considering has an HOA. You will pay an annual HOA fee to cover maintenance of general spaces, such as entrances, and the pool if your neighborhood has one. The listing agent can tell you how much current HOA fees run.

An emergency fund of at least $3,000(Opens in a new window) is a good place to start to help you stay ahead of these long-term expenses. Consider opening a separate savings account(Opens in a new window) to house your emergency fund.

Many Considerations, Lots of Assistance

There is a lot to consider when making the transition from renter to homeowner. The true cost of a home is much more than the mortgage. When you consider purchasing real estate, don’t focus solely on the list price to determine how much house you can afford. Remember to calculate closing costs, recurring expenses such as increased utilities, and your long-term maintenance and repair expenses. The lists above will help you get a more accurate picture of the true cost of homeownership.

For more help navigating the road to homeownership, contact your Guardian Mortgage professional. We are here to help you every step of the way.

For more information check out these resources:

5 Tips to Saving for Your First Home(Opens in a new window)
Home Rent vs Buy Calculator(Opens in a new window)
What You Should Know About Escrow, Mortgage Insurance & Homeowners Insurance(Opens in a new window)
5 Things Home Buyers Need to Know When Making an Offer(Opens in a new window)
 
 
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