The Hidden Costs of Buying and Owning a Home

The hidden costs of buying and owning a home often reveal themselves as lawn maintenance fees and property taxes. Read this guide before buying and owning a home as we list ways to reduce the hidden costs of owning a home, including how to find tax credits and when to do a home inspection.

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Dianna Taylor writes and researches for sites in the insurance and finance industry. She has a degree in English and a teaching license in secondary English. She has written on and researched topics including real estate, insurance, education, finance, chronic illness, mental health, parenting, teens, and children.  Her work has appeared in Class, Scary Mommy, and Yahoo Life.

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Written by Dianna Taylor
Insurance and Finance Writer Dianna Taylor

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Apr 12, 2022

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A two-story single family home with a driveway and small front lawn

Homeownership is a staple of the American Dream and a life goal for many people. The freedom, stability, and financial savings that come from owning your own home are often considered preferable to renting, both in the short- and long-term.

In fact, according to a 2018 survey, 83 percent of Americans claim to prefer homeownership to renting, and 75 percent say that buying a house is a priority for them.

Of course, purchasing a home is easier said than done. You must spend time-saving up enough money to make a down payment, plan out your monthly mortgage expenses, and spend years paying it off and that’s just accounting for the bare minimum cost of purchase.

Some prospective homeowners may not realize this, but homeownership has many expenses beyond the down payment and mortgage.

Between property taxesfinding the right homeowners insurance policy, and regular maintenance, there are a plethora of hidden costs associated with buying and owning a home that can catch an unsuspecting buyer off guard. Potential and first-time homeowners, here are some less-than-apparent expenses you need to know about:

What are the hidden costs of owning a home?

Buying a house is a big investment, but it’s easy to get blind-sighted by hidden costs if you aren’t prepared. You may not be able to avoid all of these additional expenses, but, by being aware of them, you won’t be surprised when they arise.

What are some add-ons?

Whether right after purchasing it or later on in life, it’s not uncommon for homeowners to remodel or add-on to their houses. People often do this to make their homes more liveable or to accommodate lifestyle changes, such as having a child.

These expansions and updates can cost a lot of money, though, as the average national cost of adding a room onto a house is $43,506.

This is tens of thousands of dollars in addition to what you have already paid to buy your home. If you’re considering an investment in your home, especially if it’s a large investment, you need to make sure that your home improvement project will be worth it.

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If you’re at all interested in updating your home, be sure to factor the general cost of any possible upgrades into the price of the house when you buy it. While you can’t get an exact price until you discuss the project with a contractor, using a construction calculator can give you a helpful approximation.

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Do you need lawn care?

If your home has a lawn, you will have to spend some time and money on its upkeep. If you live in a neighborhood with a Homeowners Association (HOA), however, you should expect to spend even more time and money to keep your lawn presentable.

Not only will you be subject to monthly or annual HOA fees, but you will also have to follow their rules and regulations. You may be required to mow your lawn frequently so the grass doesn’t grow too long.

You may also be required to make your yard look aesthetically pleasing. On the surface, this may seem like a minor cost, but lawn care can get expensive over time, especially if you hire someone to help you out.

How much is maintenance?

Unfortunately, homes don’t last forever, and different parts of your house will need to be maintained in order to keep things functional and to preserve the home’s value.

Some repairs may be minor, but others, like new appliances, can be quite costly. How much you have to spend simply depends on what will need maintenance while you own the home.

If you have to make a lot of repairs, or if you have two or three major issues to fix, your maintenance costs can stack up quickly. You cannot control when different parts of your home will need maintenance, but, as a homeowner, it’s important to be ready for unexpected and potentially expensive repairs.

As a general rule, it’s a good estimate to expect maintenance expenses to be about 1% of your home’s value per year (so, $2,000 on a $200,000 home).

What about mortgage interest?

Naturally, you know the cost of your monthly mortgage payment, but you must also take the interest you will pay on your mortgage loan into account to your mortgage company. After all, the interest you pay is basically the price of taking out a loan, and you have to consider it when calculating the total cost of your mortgage where you can pay hundreds if not thousands of dollars in mortgages.

Depending on the terms of your mortgage, this can greatly increase the cost of purchasing a home, especially since mortgage interest rates are currently high in the mortgage industry. It can also take a while to truly see a difference in your initial balance because of the accruing interest, especially for first-time homeowners.

A shorter-term, 15-year mortgage will typically have higher monthly payments but a lower interest rate (and lower total cost), whereas a longer-term, 30-year mortgage will usually have lower monthly payments but a higher interest rate (and higher total cost). 10.

How much is your property tax?

Renting does have a distinct advantage over homeownership in one arena: property taxes. When you rent a home or apartment, the landlord typically handles the twice-yearly property tax payment. If you’re a first-time homeowner, this can be a surprising new expense that you might not have known about.

Property tax rates vary by state and locale and are also determined by the value of your property itself. Property taxes can be costly, but they are an absolute necessity if you own a home. Depending on where you live, there may be property tax exemptions that you can take advantage of.  Annual property taxes average about 1% of the home value nationwide.

How much time will it take?

One of the biggest costs of owning a home can’t be measured in dollars but in time.

Your time is precious, and, unlike money, you cannot earn more of it once it’s been spent. The time you spend taking care of your home can detract from time spent with loved ones or on your hobbies.

However, not properly caring for your house can decrease its value and affect the quality of your life. Unless you can afford to pay someone to take care of every issue that comes up, you can expect to spend your own time fixing things around your home.

So is buying a home a good investment?

Homes are often spoken of as a good investment, but it might not be the best decision to take a loan out for everyone. For instance, some millennials are opting out of homeownership; this is in part due to lifestyle choices, but also because, for many, it simply doesn’t make financial sense.

If you don’t want the responsibility of a home, or if it would be too large of a financial burden, buying a home probably isn’t the right choice or a good investment for you.

However, if you are able to care for and even improve the property without putting too large of a strain on your finances, buying a house can be a great investment. It all depends on what you want for your life.

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How can you mitigate hidden costs of homeownership?

As a homeowner, you aren’t destined to drain your resources by taking care of your property. While there are additional expenses to consider beyond a down payment and mortgage, there are also a few ways that you might be able to reduce those hidden costs:

  • Conduct a thorough home inspection before purchasing a home that was previously lived in. This will help you verify if there are any major repairs or updates that need to be made. If there are, you may be able to negotiate the price of the home or ask the current owners to fix the issue before you buy it. Be aware that there could be things that an inspector misses, so you may want to ask questions and make sure everything is covered.
  • Look for tax credits available to homeowners in your state or area. This can help provide some relief and reduce your home expenses. There are different kinds available, including ones for purchasing or updating a home. Take advantage of all the credits you can for maximum savings.
  • Shop around for the right home insurance. This will help protect you from costly expenses and keep you covered should anything unexpected happen. There may be additional ways you can lower your monthly premiums to save even more.

Homeownership can be expensive, but it’s much easier to deal with these hidden costs when you’re properly prepared for them. Take them into account when budgeting for your home, and you’ll be well-equipped and ready for whatever comes your way.

Many of the issues with finances can also be mitigated by choosing the right location for buying your home. Urban areas tend to have higher housing prices, while rural areas tend to have lower housing prices.

During the 2020 coronavirus pandemic, many people fled dense, urban areas for rural areas or the suburbs as they were allowed to work remotely. These towns were labeled as “Zoom towns” and experienced some of the hottest growth in real estate markets throughout the year.

In our study of the 10 Cheapest Zoom Towns for Insurance, our researchers found that people who moved to these towns can expect to see hundreds, if not thousands, of dollars in insurance savings, including with homeowners insurance.

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