Be Aware of Hidden Expenses in Owning a Home

Owning a house ain't exactly cheap, y'all. I've been livin' in mine for more'n a decade, and I can tell ya, there's a whole bunch of expenses that nobody told me 'bout when I signed that mortgage. These extra, hidden costs are what folks call "phantom costs." Phantom costs include stuff like maintenance, repairs, property taxes, and insurance premiums. If you wanna know the real cost of homeownership, you've gotta factor in these phantom costs, along with the more obvious ones.

If you're thinkin' about buyin' a house, phantom costs should definitely be on your radar as you weigh the pros and cons of buyin' or rentin'. And if you already own a house, you need to know about 'em so you can budget accordingly.

In today's post, I'm gonna break down everything you need to know about phantom homeownership costs.

What You'll Pay in Phantom Homeownership Costs

Phantom costs have always been a part of homeownership. But in the last five years, 'em costs have skyrocketed. According to Bankrate.com, the average homeowner pays about $18,118 annually on property taxes, insurance, utilities, and maintenance. That's a 26% jump from 2020, when these costs averaged $14,428 annually.

To put that in perspective, if you're payin' the national median mortgage payment of $2,256, these additional costs will add another 67% to your homeownership-related expenses. In other words, if you want to own a house in America today, you'll likely have to pay expenses that are equivalent to buyin' a used car every year.

While $18,118 is the average annual phantom homeownership cost, it'll vary depending on where you live. According to Bankrate's study, these are the states with the highest yearly phantom homeownership costs:

Hawaii: $29,015
California: $28,790
Massachusetts: $26,313
New Jersey: $25,573
Connecticut: $23,515

And here are the states with the lowest:

Kentucky: $11,559
Arkansas: $11,692
Mississippi: $11,881
Alabama: $12,258
Indiana: $12,259

Older Homes Mean More Phantom Ownership Costs

One reason phantom costs are gettin' steeper is the increasing age of America's housing stock. According to the U.S. Census Bureau, the median age of owner-occupied homes is about 40 years old. That means a whole lotta aging roofs, worn-out HVAC systems, and creaky appliances just waitin' to fail.

My house is close to 40 years old, and though it's in pretty good shape, it's at the point where things are wearin' out and need to be replaced. Most of my phantom costs have come from repairin' and replacin' stuff like roof leaks, rotten windows, a collapsin' back deck, a dead furnace, an icemaker, and a pool that needed a whole lotta love.

Inflation and rising labor costs have pushed home maintenance costs higher. I've seen this firsthand. We had to replace some windows right before the pandemic. After the pandemic, we had to replace another set that were just like the first, but the cost had jumped significantly due to inflation and higher labor costs.

Don't Forget Property Taxes, Insurance Premiums, and HOA Dues

Besides repair and maintenance expenses, there are other phantom homeownership costs to consider, like property taxes, insurance premiums, and HOA dues.

Reports show that property taxes have been on the rise in the U.S. over the past five years, mostly due to the home price boom caused by the pandemic. According to ATTOM, a real estate analytics company, property taxes in America have increased 25% since 2019.

Home insurance costs have risen by 74% in the last five years. This is due to several factors, including an increase in the frequency and severity of natural disasters, rising construction and labor costs, and inflation. One way to manage home insurance costs is to shop around. Last year, I saved thousands of dollars by switchin' home insurance companies.

If you live in a neighborhood with a homeowners association, you'll likely have to pay dues. I didn't even think 'bout that when I bought my house. And those dues have increased in the last five years due to higher maintenance costs.

Budgeting for Phantom Homeownership Costs

When you add up all the extra expenses I've put into my house, the real cost of homeownership has been far more than the original buying price of my house.

Knowin' what I know now, do I regret buyin' my house?

Heck no. It's our home. We love it. It's great to have a place we can call our own.

In our calculation, the costs of homeownership have been worth it. We prefer stayin' home over travelin', we ain't clothes horses or foodies, and we're pretty content livin' a low-key lifestyle.

But I do wish someone had warned me 'bout these hidden costs before I bought the house. It would've helped me budget better and set some money aside for repairs and maintenance so I wouldn't get caught off guard when I had to shell out for this, that, or the other unexpected thing.

How much should you set aside monthly for home maintenance and repair costs?

According to the experts, a good rule of thumb is to budget 1-3% of your home's value per year for phantom costs. This will vary depending on your location, the age of your house, and whether you're in an HOA. Here's a breakdown of what that means monthly:

1% of home value per year: Minimum, for newer houses in good condition.
2% of home value per year: Moderate, for older houses or higher-tax areas.
3% of home value per year: Aggressive, for high-maintenance houses or as insurance against unexpected issues.

Besides setting aside money for home maintenance costs, another way to mitigate phantom costs is by doin' regular home maintenance on your house. An ounce of prevention is worth a pound of cure, after all.

If you're thinkin' about buyin' a new house, make sure you include phantom costs in your decision-makin' process. It'll help you make a clear-eyed decision.

If you already own a house, start that maintenance fund now, not later. Build that 1-3% savings cushion into your budget, and treat it as non-negotiable as your mortgage payment. Your future self will thank you for it.

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[1] Investopedia. (2021). Home Maintenance Costs. Retrieved from https://www.investopedia.com/terms/h/homemaintenancecosts.asp [2] Bankrate. (2020). What's the True Cost of Homeownership? Retrieved from https://www.bankrate.com/finance/mortgages/whats-the-true-cost-of-homeownership-1.aspx [3] NAR. (2020). The Real Cost of Homeownership: Beyond the Mortgage Payment. Retrieved from https://www.nar.realtor/newsroom/the-real-cost-of-homeownership-beyond-the-mortgage-payment [4] Coldwell Banker. (2020). Hidden Costs of Homeownership. Retrieved from https://www.coldwellbanker.com/real-estate-resources/home-buying/hidden-costs-of-homeownership

To factor in the real cost of home ownership, one must consider hidden expenses like maintenance, repairs, property taxes, and insurance premiums, along with more obvious costs.
Property taxes, insurance premiums, and HOA dues are additional phantom homeownership costs that need to be accounted for when budgeting.
As the housing stock in America ages, maintenance costs may increase due to factors such as inflation and rising labor costs.
According to experts, a good rule of thumb for budgeting for phantom homeownership costs is to allocate 1-3% of the home's value annually.
Regular home maintenance can help mitigate phantom costs by preventing small issues from becoming larger and costlier problems.