The Hidden Costs of Homeownership

Most homeowners carefully review future mortgage and interest payments when buying a home. But many don’t take into account ongoing costs that come home with homeownership, such as taxes, home improvement and maintenance expenses, insurance premiums, and more. 

Read on to find out more about the unexpected costs of homeownership and how you can best reduce them.

Hidden Homeownership Costs 

As a homeowner, you likely know how much you pay in mortgage and interest each month. While you might be able to refinance into a lower interest rate at some point in the future, those mortgage-related costs tend to stay about the same. But other costs may have been less obvious when you first bought your home, and they can wreak havoc on your budget if you haven’t planned for them. 

Learn about the most common homeownership costs—and how to plan for them—in more detail, below.

Property Tax

Property taxes are among the most expensive aspects of homeownership. The average amount paid by homeowners for property taxes was $330 a month, or nearly $4,000 a year, in 2021, according to Census Bureau data. 

Your tax bill is based on the assessed fair market value of your home and land. Typically, that’s multiplied by the local tax rate. Taxes can go up or down based on your property’s valuation, any special assessments, or property tax rate changes. 

Tips for Reducing Property Taxes

If property taxes are stretching your finances, see if you qualify for a grant, reduction, exemption, or deferral. Depending on the state and area you live in, you might be eligible for some type of relief if you:

• Earn income under a specific amount
• Are 65 or older 
• Are blind, widowed, or have a disability
• Are a qualifying veteran or widow or widower of a veteran

These are just some common examples. Check with the tax authority where you live to see what measures are available to you.

You can also appeal the assessment of your property, if you feel it is overvalued compared to the current market. A reduced assessment could lead to lower property taxes.

Large Home Improvements 

Large-scale home improvements that are considered capital expenditures are also among the biggest hidden homeownership costs, and often surprising to new homeowners. According to a study by government-backed mortgage financing company Fannie Mae, these costs added up to about $3,558 per year on average in 2019. 

Expenses of this kind often include urgent, necessary, or safety-related improvements or replacements, such as replacing a roof, which costs $10,000, on average. Homes sold at under-market prices could have more to fix, too. 

Other expensive home projects include: 

• Replacing or upgrading water heaters and HVAC systems
• Replacing siding or windows 
• Upgrading drains, plumbing, and electrical systems
• Repairing a foundation

Tips for Reducing Large Home Improvement Costs

It’s important to understand the lifespans of your home’s major systems and features, which depend on materials, use, and exposure to elements. Budget for large-scale expenditures, and compare contractor bids to get the best price. Plan for any repairs and upgrades long in advance, so you don’t end up with an emergency that forces you to pay Sunday plumber prices, for example. 

If you have limited funds, you might also qualify for loans or grants offered by your state, county, or city. For example, in Austin, Texas, homeowners with lower incomes can apply for a grant to help repair dangerous structural issues with flooring, roofing, electrical, or plumbing systems. Some grants can even help make a home more accessible. 

HOA Dues

About a quarter of homeowners pay homeowner association (HOA) dues, which go toward shared landscaping, upkeep, maintenance, and repair costs if you live in a condo or another type of community governed by an HOA. Average HOA fees are around $191 per month, according to Census Bureau data from 2021. This adds up to $2,292 per year.

However, costs vary widely depending on where you live and, how big your home is, and what the HOA provides. For instance, the Census data shows the average HOA fee in San Francisco was $324 a month in 2021, while in Richmond, Virginia, it was $94. 

Tips for Reducing HOA Costs

Reducing HOA fees may require a more collaborative approach, such as getting together with other association members and visiting your homeowners association board. Depending on where you live, you can encourage your board to: 

• Renegotiate contracts with existing service providers or look for new providers, if rates have gone beyond the local market’s going rates
• Review association expenses for opportunities, such as adding low-maintenance greenery that doesn’t require as much garden service
• Review insurance premiums and compare rates with other insurers

Utilities

Utilities bills add up to $2,832 per year on average, according to the Census Bureau data. Heating, cooling, water, and trash costs can fluctuate and get out of control very quickly. Utilities include: 

• Gas
• Electricity 
• Fuel oil or other fuel
• Trash and recycling collection
• Water and sewer

Tips for Reducing the Cost of Utilities

Seek out ways to save money and resources at the same time. For example, ending leaks and drafts using weatherization could save you up to 20% on your heating bills. High water bills can spring from a leaky faucet or toilet, an inefficient showerhead, or a forgotten sprinkler. Contact your water utility provider for further money-saving tips for the home and garden. 

Homeowners Insurance

Premiums for homeowners insurance cost $1,224 per year, on average, according to the Census Bureau. Homeowners insurance costs vary greatly depending on your policy, coverage amounts, and any deductibles. 

Tips for Reducing Homeowners Insurance Costs

Shop around to compare premiums, but also ask: 

• If a higher deductible could save you money 
• If you’re eligible for any discounts, including deals for bundling home and car insurance, for instance
• What you could do to make your house eligible for a discount (such as upgrading the home’s security)

You can also review the value of your personal belongings to make sure you’re not over-insured. Perhaps the value of your big-screen TV has declined, for example. 

Routine Maintenance and Repairs

Homeowners spent around $1,010 per year on average on routine maintenance and repairs, according to the Fannie Mae study. Routine home maintenance includes steps you take to prevent damage, such as painting your home’s exterior to protect against the elements. It might also include inspecting for pests, keeping your lawn green, or fixing a running toilet.

When preparing for these maintenance costs, remember that you’ll also likely need to purchase tools for the job, such as a rake for the lawn or power tools for home repairs.

Tips for Reducing Routine Maintenance and Repair Costs

Familiarize yourself with home maintenance tasks and carry out home maintenance over the course of a year. This way, you can spread costs out. Then, try these approaches:

• Instead of hiring someone to do minor repairs, gardening, and maintenance, take a class through your local community college or adult education center on common tasks so you can do them yourself. 
• Instead of buying the tool, visit a tool library. These tool libraries may be available through your city’s library or community-created organizations and may charge membership dues or a per-tool rental fee. You can search for a tool library at localtools.org. 
• Look for coupons and sales at local hardware and big-box stores. Sometimes you can get a discount when you subscribe to a store’s email mailing list.

Private Mortgage Insurance (PMI)

If you put down less than 20% as a down payment, you’ll likely be required to pay PMI until your mortgage balance is at 80% of the original value of your home. On average, PMI—a type of insurance lenders require borrowers to have when they get a mortgage and don’t have enough equity in the home—was estimated at $518 per year by Fannie Mae. According to the Urban Institute’s Housing Finance Policy Center, typical PMI may run from 0.58% to 1.86% of your loan amount. 

Your PMI should be canceled automatically based on a schedule provided to you at home purchase, but not until you’ve got 22% equity in your home (your mortgage balance has reached 78% of the home price). 

Tips for Reducing PMI Costs

While PMI will fall off automatically at a predetermined date, you can also request an earlier cancellation once your mortgage balance falls to 80% of your original home value. You can eliminate PMI payments as long as you’re current on payments and otherwise qualify. 

Alternatively, if you think your home value has risen substantially since you bought it, you may want to consider getting a new appraisal. Your mortgage lender may let you cancel your PMI if you now have 20% equity in the home’s current value, but you’ll need to pay for an appraisal. 

Other Hidden Homeownership Costs

Some homeownership costs are discretionary or optional. You don’t have to spend money on some things, or you could choose less expensive items. As a result, homeowners don’t often consider these factors as contributing to monthly homeownership expenses: 

• Furnishings: Outfitting a home with furniture, window and floor coverings, and other materials can add up.
• Services: You might hire someone for house cleaning or yard work or subscribe to a home security monitoring service. 
• Laundry, cleaning, and paper supplies: With a bigger house, you may run more laundry or require more cleaning supplies than if living in a smaller condo or apartment.

Tips for Reducing Other Hidden Homeownership Costs

To lower these expenses, you might try the following: 

• Shop in bulk for laundry, cleaning, and paper supplies.
• Compare unit pricing and try out less-expensive household items like paper towels.
• Shop for secondhand furnishings at reuse stores or online.  
• Trade services with neighbors—weeding for leaf cleanup, for example.
  

Frequently Asked Questions