As home prices rise in the U.S., prospective buyers face not only steep mortgage payments but also significant "hidden costs" of homeownership, averaging $18,118 per year, according to a recent Bankrate.com report. This figure encompasses property taxes, homeowners insurance, utility bills, and essential home maintenance, adding substantial financial responsibilities beyond the mortgage.
Jeff Ostrowski, an analyst at Bankrate.com, emphasized the importance of understanding these additional costs. “It’s just important to understand that you’re buying a lot more than a mortgage payment,” he said. “You’re also buying all these additional costs that you’re gonna have to figure out how to pay for.”
In April, the national median mortgage payment reached $2,256, marking a 6.8% increase from the previous year, according to the Mortgage Bankers Association. However, maintenance and repair costs, especially for older homes, often catch new homeowners off guard. Jessica Lautz, deputy chief economist at the National Association of Realtors, noted that due to limited new construction, many homes on the market are older and may require significant repairs.
Homebuyers have to make a compromise along the way, and often it’s the age or the condition of the home,” Lautz said. The median age of owner-occupied homes in the U.S. is about 40 years, according to the U.S. Census Bureau. Such homes often need system upgrades, like new HVAC units, windows, or doors, which can be costly.
Ostrowski highlighted that understanding these potential expenses is part of the learning process for first-time homeowners. “Once you’ve been a homeowner for a while, you realize everything that can go wrong,” he said. Spending all your savings on the down payment without leaving a reserve for repairs can lead to financial strain, often resulting in high-interest debt to cover unexpected costs.
In 2023, 46% of homeowners used savings for home improvements, while 20% relied on credit cards, according to Angi.com. Ostrowski advised against waiving home inspections, a trend seen in competitive markets. An inspection can reveal necessary repairs, helping buyers avoid unforeseen expenses after moving in.
“They’re not in the same sort of vulnerable position as a first-time buyer,” Ostrowski said, explaining that seasoned homeowners can better handle such risks. Despite this, competition remains fierce, with an average of three offers per home, Lautz noted. In April, 19% of buyers waived home inspections, a slight decrease from previous months.
Skipping inspections can lead to unexpected costs, as Ostrowski warned, “That definitely raises the risk of somebody moving into a house and not realizing that the [air conditioning] was about to go, or the water heater was on its last legs, or the roof needs to be replaced.”
Understanding these hidden costs and planning accordingly can help potential homeowners get through the financial challenges of homeownership more effectively.