Oh the American dream, home ownership complete with a white picket fence, a dog, a goldfish and cute flower beds. It’s something most people dream about, that day when they can buy their own home. But what is the true cost of home ownership in America? It’s probably a lot more than you would think.
I remember the day I bought my first home, it was so exciting! I felt like I was finally an adult, a responsible one at that haha! For me it was a true milestone, especially after being homeless at one point in my life. I’ve been a homeowner since 2005, currently living in my second home. I love owning my own home, well technically I don’t own it yet, the bank does, but you can read all about how we plan to aggressively pay off our mortgage in the next few years. Nonetheless it’s a great feeling.
But there are a lot of costs associated with owning a home that sometimes get overlooked in the rent vs buy debate. Buying a home is not the right choice for everyone for many different reasons. Renting can be the best option for a lot of people and after all my years of owning a home I can definitely see why.
All the time you hear that buying a home is an investment, and while yes that may be true, it can also not be a good investment.
For starters you need a lot of money to buy a home. I mean a lot. You have to not only pay the agreed upon price for the home but there are realtor fees and closing costs that can add up to tens of thousands of dollars. Just the down payment alone can be a years salary depending on how much you make. A lot of people buy homes with zero money down because that’s the only way they can afford one but this is not advisable. Before you start house hunting you should save up at least 20% of the purchase price to put down on the home, this helps you avoid private mortgage insurance (PMI) and allows for a smaller loan amount and it gives you some equity into the home. A lot of people rush into home buying without being truly prepared.
Owning a home comes with a lot of responsibility as well. Your house gives you roots, a place to stay in long term. You can’t just pick up and leave one day because the consequences of that would follow along, well you could just leave but you’d have a foreclosure on your hands and it would destroy your credit among other things.
It can be a huge undertaking selling a home. You have to get it “buyer” ready and list it and hope that it sells quickly and not lose money on it which isn’t always the case. With renting you can literally leave whenever, you may have a lease but typically you can get out of a lease early with some negotiating and you don’t have to find someone else to live there or you stay for the remainder of your lease and then you peace out. If you like that drifter lifestyle of moving around a lot or you just aren’t sure where you want to live long term then buying a house is probably not the best decision.
When you rent you know exactly how much your housing expenses would be each year, with owning it can be much harder to predict how much it will cost each year due to the unexpected issues that could arise.
When something breaks in your house and you own it well it’s up to you to fix it, or call someone who can fix it, and we all know how expensive those service calls can be. Most people don’t have the skills to repair a broken dishwasher so we call someone and shell out hundreds of dollars as we discreetly peek over their shoulder and watch them fix it in a matter of minutes thinking “well I could have done that!”. When you rent and something breaks you call the landlord. They do the rest. No money out of pocket for you! Need a new fridge? Call the landlord honey! We’ve had our heating element go out in our water tank at least 3 times- the first time I had someone come fix it we spent about $380. The next time I had my hubby YouTube it and it cost more like $40. So some things you learn along the way.
Let’s take my house for example, it is a large home, about 3,000 square feet and sits on about 3 acres. It was built in 1979 and also has an in ground swimming pool. It’s a lovely architecturally interesting home with a lot of unique characteristics. We love our home, but it’s expensive to maintain. I honestly didn’t factor in all the extra costs associated with this home when we purchased it over 8 years ago, I just knew I wanted this house. Being an older home it requires a lot of updating and maintenance. Some of it had already been updated when we moved in but a lot hadn’t. We knew we’d have some projects to tackle but that didn’t matter to me at the time. So throughout the years we have dished out lots of money on updates that we felt like were important at the time like new carpet or replacing existing carpet with wood floors, or building a fence around our pool-this was a no brainer once we had kids.
For the first few years of owning our home my hubby would spend about 6 hours mowing with his push mower. He loves mowing, it’s like his therapy, but even for him the maintenance was beginning to wear on him. We finally decided it was time to upgrade and spent $3,000 on a zero turn mower which yes was expensive but it cut his mowing time down to about 1.5 hours, a great return on investment in our opinion and he has a blast jamming out to his favorite tunes singing his heart out while mowing.
We have a garage full of tools and equipment we need to just maintain our land every year. We’ve also had to update part of our decades old deck- which by the way who knew deck wood was so expensive??!!! Not me!!! I was shocked when my husband totaled up how much it cost to replace a small section, and that was with him doing all the labor! And we still have an area of about 800 square feet that still needs to be replaced along with a long list of other updates and renovations we would like to do one day.
Oh, and the pool well let’s just say the monthly budget for pool supplies is staggering, not just the chemicals but the cleaning equipment, pump equipment, electrical bill for running said pump, the list goes on. We’ve had to replace pipes and parts that I never even knew existed. Now we get to look forward to replacing the liner this Spring, another few thousand dollars to set aside in the budget for. Having a pool is ridiculously expensive and time consuming but we do get a lot of joy from it, especially during those hot Oklahoma summers but I honestly would not purchase another home with a pool.
It’s also important to have sinking funds set aside for home repairs when you own a home. If your HVAC unit goes out (we happen to have two of them both on their last legs, one for the upstairs and one for the downstairs) then you could be looking upwards of $8,000 to replace one unit!!!!! That’s insanity! Oh and your roof, well let’s just say that’s the price of a new car if you ever have to replace your roof, which you will undoubtedly have to do one day. Basically expect the unexpected when you own a home and have money set aside to fix what needs fixing so you don’t go into debt trying to keep up. When you rent you don’t have to worry about any of that.
In just the past two years we have had to repair a couple of water leaks which cost over $3,500 for a couple of guys to come out, find the leaks, and repair it. It just happened to be under a slab of concrete in the front yard and another directly under the water tank so it wasn’t the easiest job but we had to fix it or it would ruin our foundation. We also spent another couple thousand on insulation, ours was bare bones and below the rafters so now it looks like a life size snow globe blizzard up there. Both are repairs that were necessary but it still sucks to spend that much money on things you can’t even really see or appreciate. Just thinking about how if we had been able to invest that money instead of spending it on home repairs is like a punch to the gut. And to think I could have bought over 850 bottles of champagne with that money!!
Insurance is another big expenditure when you own a home. You are required to carry insurance as long as you have a mortgage and it can be very expensive and it doesn’t even cover everything like you think it would! Did you know that homeowners insurance does not cover flooding? If Mother Nature comes a knocking you better be ready! There have been a lot of homes completely destroyed from flooding and if you don’t carry flood insurance (which is even more expensive than homeowners insurance) then you are out of luck. When you rent you can get a decent renters policy for the price of a pizza each month that covers all of your belongings. It’s very important to understand what your insurance policy covers and how much. Call your agent and set up an appointment with them at least once a year to go over all those details and make sure you are covered in the event of a catastrophe.
Property taxes is also a big expense that is due every year (or paid from your escrow and is part of your mortgage payment) that you don’t have to worry about with renting. Typically the property owner will factor taxes into the rent but it’s not something you even have to think about.
If you’ve ever watched an episode of Property Brothers or Flip Or Flop then you will understand my next point. As you’re sitting there watching these amazing home transformations your mind is racing with all the awesome projects you could do to your own home, and how great and “easy” it would be to just update the kitchen or bathrooms. You’re now convinced that something has to be done so you obsess about what to do and next thing you know you’re at Home Depot picking out new shaker cabinets and a claw foot bathtub. I get it. I have to constantly pull myself back to reality and just say no to renovations! These days a home renovation can cost the price of a new home! And what in the world do these people on these shows do for a living to afford such renovations??!!
Now don’t get me wrong owning a home means you are essentially putting that monthly payment in your pocket not in someone else’s. That’s the great thing about owning a home, it’s an asset. Typically homes go up in value (unless it’s 2008 and you are in the middle of an economic crash caused by the housing bubble) so you have that going for you. Some people claim that renting is just throwing your money out the window but I disagree. If you are not financially stable, have lots of debt, or do not have a hefty emergency fund then renting is the way to go. It may also be necessary to rent short term if you are planning on moving within a few years because you typically won’t make any money off the sale of a house in that short of time once you factor in selling costs, you could actually end up losing money.
By no means am I advocating that we should all sell our homes and rent. I’m just saying to be aware of the true costs of home ownership before you decide to dive into purchasing one. I love being a homeowner and will probably always own rather than rent. Now there are some days where my gypsy soul takes hold and I just want to pack up and move to a small Mexican beach village where I live in a palapa and learn to play the mandolin and I make beaded jewelry all day and not have to deal with the high costs and high maintenance but then there are those days where I find myself so in love with our home and what we have created here. We are still diligently working on paying off our mortgage as quickly as possible so that we can lower our expenses and free up that money to invest more. I’m not opposed to downsizing but my husband gets so much joy from doing home projects and taking care of the land that I wouldn’t take that away from him (yet…maybe one day…but not today!).
So while both renting and owning have their advantages and disadvantages it is ultimately up to you which path you decide to take. Whichever route you decide to take a good rule of thumb is to keep your housing expenses to no more than 25% of your monthly take home pay. This ensures that you will be able to actually afford your payments with enough money left over for everything else (like savings!) and you do not become house poor.