Buying a home is one of the most exciting milestones in life. You use a mortgage calculator, figure out your monthly payment, and get the keys to your new place. But many first-time homebuyers are surprised to learn that the monthly mortgage payment (principal and interest) is only one piece of the puzzle. The true cost of homeownership includes a variety of other expenses that are crucial to budget for.
The "Hidden" Costs of Owning a Home
These costs aren't really hidden, but they are often overlooked in the excitement of the home buying process. Here's what you need to be prepared for:
- Property Taxes: Paid to your local government, these taxes fund public services like schools, roads, and emergency services. The amount varies significantly based on your location and your home's assessed value. Lenders often roll this into your monthly mortgage payment by holding the funds in an escrow account.
- Homeowners Insurance: This is mandatory if you have a mortgage. It protects you financially against damage to your property from events like fires, storms, or theft. Like property taxes, this is also typically paid via your escrow account.
- Private Mortgage Insurance (PMI): If your down payment is less than 20% of the home's purchase price, your lender will likely require you to pay PMI. This insurance protects the lender, not you, in case you default on your loan.
- Utilities: This includes electricity, gas, water, sewer, and trash removal. These costs can be much higher than they were in an apartment, especially for a larger home.
- Maintenance and Repairs: This is a big one. Experts recommend budgeting 1% to 3% of your home's value annually for maintenance. This covers everything from a leaky faucet and a new coat of paint to major repairs like a new roof or water heater.
- HOA Fees: If your home is in a community with a Homeowners Association (HOA), you'll have monthly or annual fees. These fees cover the maintenance of common areas like pools, parks, and landscaping.
The 1% Rule for Maintenance
A great rule of thumb is to save at least 1% of your home's purchase price each year for maintenance. For a $350,000 home, that's $3,500 per year, or about $292 per month. This might seem like a lot, but when your air conditioner breaks in the middle of summer, you'll be glad you have that fund set aside.
Take Control of Your Financial Future
You've run the numbers. Now, put them into action. PocketSmith is the ultimate tool to manage your budget, track your net worth, and forecast your finances.
Our Mortgage Calculator helps you estimate your monthly payment, including principal and interest. Use it as a starting point, and then add in your estimated taxes, insurance, and other costs to get a true sense of your housing budget.
Explore the Mortgage CalculatorUnderstanding the full financial commitment of homeownership is the key to enjoying your new home without stress. By planning for these additional costs, you can ensure you're prepared for whatever comes your way, protecting your investment and your peace of mind.