12 Homeowner Expenses To Budget For Every Year

Owning a home is a huge accomplishment — it takes the average renter almost seven years to save enough money to make a down payment on a house. After cobbling together your funds for the purchase, it’d be easy to assume that the bulk of your budgeting is over at closing.

However, homeownership comes with an array of financial obligations. A recent Consumer Expenditure Survey conducted by the U.S. Bureau of Labor Statistics reveals that homeownership costs an average of $9,552 annually, or just under $800 a month.

So where does all the money go? If you’re a new homeowner or looking to buy a home, read on to learn about the top 12 most common homeowner expenses.

Mortgage payments: You pay more than the principal

While almost all rookie homeowners expect their mortgage payment to be a big chunk of change, many are caught off-guard by the line items of each payment. That’s right, mortgage payments don’t just pay off the money borrowed by the homeowner (aka the principal). The payment is broken down into four parts:  principal, interest, taxes, and mortgage or private mortgage insurance (PITI).

1. Interest

Anyone who has experience taking out loans knows that borrowed money comes with a price: interest. This fee is what the lender charges for loaning money to the borrower. The interest rate of any given loan depends on the borrower’s qualifications and down payment amount, type of mortgage, and mortgage terms.

Currently, the national average for interest rates is 2.98% for 30-year fixed mortgages and 2.51% for 15-year fixed mortgages. And while you may have seen the headlines that interest rates have been at historic lows, that doesn’t mean that your interest won’t still add up to a considerable sum.

For example, a homeowner with a $200,000 30 year-fixed rate mortgage and an annual interest rate of 2.98% would have a monthly interest payment of 0.248% on their outstanding loan balance. This means that during the first month of this mortgage, the homeowner would pay $496.67 in interest alone.

Feeling overwhelmed? Take some consolation in the fact that the interest charges for your earliest mortgage payments will be the highest. Because interest is calculated against the principal amount, as you pay down the principal, the interest proportionally decreases.

2. Taxes

With the benefits of homeownership, so too come the burdens; and property taxes rank among the largest encumbrances for homeowners. Local counties and townships levy property taxes based on homes’ assessed values to fund public services like schools and fire departments.

Because property taxes are in the hands of local governments, rates vary greatly by location. For reference, Hawaii has the lowest average property tax rate at 0.30% while New Jersey has the highest at 2.21%.

To ensure that you don’t get caught off-guard by this homeowner expense, consult your real estate agent to determine your local tax rate.

Top real estate agent Jim McPhail, a licensed realtor in Lancaster County with 30 years of experience, shares his team’s process of preparing buyers for property taxes:

“Before the buyer ever even makes an offer on a home, we have their lender do a cost estimate for them on that particular property, so they’ll know almost to the penny what their payments are going to be and how much cash they’re going to need. So there’s not going to be any unexpected surprises.”

McPhail emphasizes the importance of doing this for every property the homebuyer is seriously considering, “Those numbers will vary house to house. So even if you can have two homes, the same price range, those numbers will vary greatly because of variables such as real estate taxes.”

3. Private mortgage insurance or mortgage insurance

Private mortgage insurance (PMI) is a policy that protects lenders from the risk of a borrower defaulting on their payments. If your down payment was less than 20% of your home’s cost, and you’re using a conventional mortgage, then your lender will likely require you to purchase this policy. The total cost of your PMI policy depends on several factors, but you can generally expect between a rate of 0.5% to 1% of the loan amount per year.

Mortgage insurance offers the same protection to lenders for federally-insured loans like Federal Housing Administration (FHA) loans. All FHA loans where you put less than 20% down will require mortgage insurance. USDA loans don’t require mortgage insurance, but they do charge a guarantee fee upfront and annually.  Fees for government loans depend on the type of loan and how much money you borrow.

For example, as of 2021, the upfront mortgage insurance premium for FHA loans is 1.75% and annual MI fees depend on your loan-to-value ratio, while the USDA guarantee fee is just 1%, plus an annual fee of 0.35% of the loan amount. Note that Department of Veterans’ Affairs backed loans (VA loans) do not require mortgage insurance, regardless of the down payment amount, but they do charge a funding fee.

Home maintenance

The independence of homeownership also means that you’re on your own when it comes to maintaining your abode. Unfortunately, a big part of assuming these responsibilities is footing the bill. Below are the biggest unexpected expenses associated with home maintenance.

4. Major home repairs

“In today’s current market, a lot of buyers are waiving their inspections to make their agreement a competitive offer, and we do share with them to be prepared that there could be some repairs needed to the property,” shares Craig Hartranft, an expert real estate agent who has sold an overwhelming 97% of his listings.

And those home repairs can cost you big time. Even if you didn’t forgo a home inspection when purchasing your home, you may need to shell out for some of these expensive home repairs throughout ownership:

• Foundation repairs: $2,015 – $7,081
• Roof replacement: $5,569 – $11,431
• Water damage repairs: $1,201 – $5,114
• HVAC replacement: $5,000 – $10,000

5. Home warranty

McPhail offers a helpful tip for new homeowners to combat the cost of major repairs: Purchase a home warranty policy. Warranties differ from home insurance policies in that they cover the costs of repairs for internal systems to your home, like plumbing, electrical, and HVAC units. They can cost as little as $50 per month and offer significant savings to policyholders. McPhail details the benefits:

“If [homeowners] obtain a home warranty, there’s a good chance that’s going to reduce the lion share of any large unexpected expenses. And what a lot of buyers don’t realize is that they can actually renew that [policy] on a yearly basis. So it’s not just the once and done thing … That home warranty can assure homeowners that ‘Hey, if my air conditioning goes out, my heating goes out, my hot water heater fails, etcetera, I’m going have a minimal service charge, and the warranty will pick up the remainder.'”

6. Homeowner’s insurance

After making such a big purchase, homeowner’s insurance is a no-brainer (and it’s usually required by your lender); but this coverage comes at a cost of about $1,312 per year. Don’t let sticker shock deter you. This policy provides important protection by insuring your home’s structure and your belongings in case of a destructive event, like a fire.

Some policies even protect homeowners from liability, which is the homeowner’s legal responsibility in the event of injury or property damage caused by the homeowner or their family.

And if you live in a disaster-prone area, insuring your home may cost you extra. Most homeowner’s insurance policies don’t cover “acts of God” — uncontrollable events such as tornadoes, floods, or other natural catastrophes. Instead, a special policy, called catastrophe insurance, can cover damage from these events.

The cost of these policies vary depending on your home’s risk, so speak with a local insurance agent to decide what the best and most cost-effective coverage for your home will be. Local real estate agents can also provide some insight during the home buying process so that you know what to expect when your name goes on the title.

7. Landscaping maintenance

Outdoor spaces have never been more popular. In fact, in HomeLight’s recent Top Agent Insights Report, 31% of agents reported a desire for more outdoor space was a motivating factor for homebuyers.

If you’re one of those homebuyers who moved expressly to gain an outdoor space, you may be surprised by the maintenance costs that come with it. The national average to maintain an outdoor space can range from $100 to $200 per month, covering lawn care, gardening, and other maintenance.

If that range seems high, don’t let your lawn go to seed just yet. To keep monthly maintenance expenses low, prioritize native plants in your landscape design. These florae will thrive in your natural conditions and save you water, fertilizer, and other maintenance fees. Additionally, native plants may attract more local wildlife and add a dose of whimsy to your yard.

8. Pool maintenance

The COVID-19 pandemic was a cannonball for the pool industry, increasing demand for home pools by more than 200% in some places. Even after the initial installation cost, though, these personal oases can cost homeowners $80 to $350 per month for maintenance.

The cost depends on the size of the pool and type of filtration system, with larger pools and saltwater pools generally on the more expensive end of the spectrum. And if you live in a cold climate, closing or winterizing your pool costs an additional $150 to $300 each season, and another $150 to $300 to open it for the summer.

More than cleaning and filtration costs, the hidden expense of pools lie in the added utility cost. The electricity needed to run a pool can add $30 to $150 a month to your utility bills — amounting to $1,800 a year on average.

Don’t underestimate the luxury of a home pool, though. The monthly maintenance fees may feel worth it to enjoy this hub for family gatherings and summer dips.

9. Minor home repairs

While major home repairs take the crown for the biggest homeowner bill, the cost of minor home repairs can add up fast, too. These minor repairs include tasks like replacing cracked tiles and fixing faulty wiring, and cost homeowners $170 a month on average.

Don’t be tempted to think you can overlook these minor repairs to save a buck: taking home maintenance head-on can save you from higher costs down the line. A poorly maintained home could knock off up to 10% of your home’s value. Newbie homeowners can be proactive about these expenses by setting aside 1% to 3% of the home’s value or about $1 per square foot per year.

10. Home renovations

When it comes to decorating, your expenses are as big as your dreams. In 2021, home renovations and remodels cost the average homeowner $46,743; however, that figure includes the cost of mechanical and structural repairs, which accounted for a majority of the average budget. Still, realize that minor renovations can add up fast.

For example, consider the cost of these common home design projects:

• Interior painting: $954 – $2,892
• New flooring: $1,660 – $4,620
• New landscaping: $1,353 – $5,638

10. Interior decorating

After finding your dream home, closing the sale, and moving in, decorating can be a chore. Consider this: the cost to remodel a living room can cost anywhere from $1,500 to $43,200 and averages $22,350. A simple paint job will keep things on the lower end of the spectrum while adding features like built-in cabinets or bookshelves significantly increases the cost of decorating.

Enlisting the help of a designer can be a relief for homeowners who want to settle in without the hassle of DIY home design. While the convenience and expertise of a professional interior designer are unmatched, you’ll pay $2,005 to $12,848 on average for these benefits.

11. Homeowners association fees

Buying a home in a homeowners association (HOA) comes with benefits, especially for first-time homeowners looking for a secure investment. In fact, single-family homes under HOAs sell for an average of 4% more, or roughly an extra $13,500.

HOAs — organizations that govern neighborhood standards — help the community maintain property values by establishing a norm for home aesthetics and upkeep. HOA fees may help cover HVAC maintenance, roof repairs and replacements, trash pickup, snow removal, cleaning, and painting of building exteriors. They can also provide services to residents, like yard care and amenities.

These benefits come at a cost in the form of monthly, quarterly, or annual fees. HOA fees typically cost between $200 to $300 per month; fees vary depending on the size of your community and the amenities offered by the organization.

Is homeownership worth it?

Don’t be daunted by the long list of expenses; homeownership pays in more ways than one.

You may reap tax benefits

Tax breaks for homeowners are a huge help in offsetting the financial burden of owning a home. You can cash in on these benefits by itemizing your deductions and writing off mortgage interest payments, property taxes, and more (where possible).

If you don’t think itemizing your taxes is worth the effort, consider this: A homeowner filing as ‘Single’ or ‘Married Filing Separately’ could deduct $30,000 compared to the $12,400 standard deduction — that’s $17,600 worth of additional savings.

To make the most of your itemized deductions, it’s best to work with a tax professional who can help you round up the deductions you’re eligible for.

Homeownership can help build wealth

A home is a valuable asset. According to a study by the Survey of Consumer Finances, the average homeowner has a household wealth of over $230,000 compared to just $5,200 for the average renter.

Homeownership even outperforms investing in stocks and bonds over time. Unlike stocks and bonds, home appreciation value is not subject to the same tax capital gains taxes as stocks. Your home can appreciate up to $250,000 of value if you’re single, $500,000 if you’re married, before you have to pay any tax on those capital gains.

Buying is often cheaper than renting in the long run

According to The Urban Institute, an organization of social scientists dedicated to studying people and communities, homeownership remains more financially beneficial than renting. In a longitudinal study, the organization conducted on the rate of return of homeownership, owning a home offered a greater return in five of seven markets examined. The benefits were particularly striking in smaller cities and rural arrears where home prices are low.

Homeownership may even increase self-esteem

According to Harvard’s Joint Center for Housing Studies, homeownership provides people with psychological benefits that renters don’t reap.

For one, purchasing a home is a traditional right of passage for those in pursuit of the American Dream, and reaching this milestone can have positive effects on self-esteem.

Furthermore, homeowners experience increased self-efficacy and generally have more control over their environment as compared to renters who may be subject to the whims of their landlord.

Learn more about homeowner expenses from a pro

Instead of being deterred by the costs of owning a home, connect with an expert real estate agent today. The advantages of homeownership far outweigh the costs, and leaning on the advice of experts can help you become the rookie homeowner of the year.

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