The hidden costs of homeownership

Buying your first home should bring joy, but for many millennials, that joy also comes with financial stress: In a recent survey, 82% said they had significant regrets about their home purchase.¹ One major reason might be the ongoing financial obligations of owning a home, such as repairs, insurance, and property taxes. These are sometimes called the “hidden” costs of home ownership.

When all is said and done, how much does it really cost to own a home?

The bigger the house, the bigger the bills

Why are millennials — more so than previous generations — unprepared for these budget realities? One reason is that young adults today are making smaller down payments and taking on heftier mortgages. Mortgage rates continue to fluctuate, with experts at top institutions estimating they’ll be in the 6% to 7% range in 2024.² Only 17% of consumers surveyed in Fannie Mae’s annual national housing survey thought it was a good time to buy a home, compared to 14% in December 2023, a survey low.³ With a higher percentage of homeowners’ paychecks going to the lender, there likely isn’t a lot or enough left over to handle a roof repair or a high utility bill.

Your mortgage payment

A good rule of thumb is to keep your mortgage payment to 15% of your gross monthly income, rather than the typically cited 28%.⁴ Say your household brings in $200,000 a year, or $16,666 in pre-tax income per month. Aim for a mortgage payment at or below $2,500. That gets you a 30-year mortgage of roughly $450,000, depending on down payment and interest rate. This lower calculation helps to ensure you can comfortably set money aside to cover other financial hurdles ahead.

Closing costs

Closing costs are like getting a last-minute bill from the caterer at your wedding. You’re not sure what you’re paying for, but there’s no time to argue. You pay closing costs at the mortgage signing to cover things like attorney services and title searches, typically at 2 to 5% of your purchase price.⁵ So, if your new mortgage is $450,000, closing costs might be in the range of $9,000 to $22,500.

Preparing for property taxes

Property taxes are something you might have heard other people complain about — and once you’re a homeowner, you might understand why. But doing your homework can help. Before buying a home, consider using an online property tax calculator to help you calculate your tax bill. Let’s say it’s $5,500. Divide that by 12 and make a monthly contribution of $458 to a separate tax savings account, so you’re prepared when the tax bill comes due at the end of the year.

Maintenance adds up

One of the biggest shocks for first-time homeowners is home maintenance. Not just the time involved, but the expense. Expect to spend a minimum of 1% of your home’s value on annual upkeep.⁶ For a $450,000 home, that comes out to $4,500.

Utilities count too

For new homeowners, having to pay separate and typically higher costs for electricity, water, gas, and other utilities can be another big surprise. As with property taxes, you can find utility cost estimators online. If your home is $450,000, you can estimate $5,500 annually.

The grand total

So, what do all those extra costs add up to? Using the example of a $450,00 home, in your first year of home ownership, you may need up to $40,000 above your down payment and your mortgage payment. And many of those costs may continue, year after year. So, it’s no wonder that more than 3 in 4 American workers feel stressed and concerned about their finances.⁷

If that sounds like you, you may want to talk with a financial professional about how to factor a first home, or any other big, complex purchases, into your long-term financial strategy. And think about whether renting or buying is the right move for you right now. After all, financial and emotional confidence begins with life goals, and where and how you live is a big part of that.