Costs of a Home

A couple of weeks ago I spoke with a 23 year old, single young man who has been living with his parents for the past 18 months.  He was talking about saving up money for a down payment on a home.  He already has a pretty good idea about what mortgage payment he can afford.  He is buying a small house, with the hope of moving into a larger one in several years.

I threw him for a loop, though, when I asked him about property taxes and maintenance costs.  He had not thought about those costs.  He figured property taxes would be about $400, but when I told him to expect property taxes to be around $2,000 or more his jaw almost hit the floor.  He had no idea the taxes would be that high. 

There are always added costs to owning a home.  Here are a few I could think of:
Property Taxes - these always seem to be more than you thought, and they tend to increase pretty much every year, sometimes by several percent.  It often means having to put away $150 to $300 away each month to pay for them, a cost that can really add up.

Insurance - there is mortgage insurance, which may cover your mortgage in case of death or accident, and then there is home insurance which covers damages to your home.  Each one has fine print about when and what they cover, so you will want to shop around and do comparison for the benefits.  Costs also vary widely, so again you will want to shop around to get the coverage you want at a cost you can afford.  You are not required to have these insurances, although some lenders and some loans may have the requirement.  To be uninsured means taking the chance that everything will always go the way you plan.

Utilities - there are hook up costs, and then the costs of the monthly utilities themselves.  Heat, electricity, water, sewage, garbage and phones all add up, and again, these are not costs that tend to go down.  When natural gas was past $8 kj, that heat bill that came back really hit a lot of people's wallets in a bad way.  Make sure you leave some room for growing utility bills.

Maintenance and upgrading - most people expect maintenance costs on an older home, but even newer homes will require upkeep that costs money on a regular basis.  Here are some typical rules of thumb:

• Floors:  In high traffic areas like the living room and hallways, a general guideline is the flooring will be replaced at about 10 years.  Some people will change more often if they have pets or simply want a decorative change.
• Paint:  If you do the work yourself, painting can change the whole look of a room/house at a fairly low cost.  Hiring out increases the cost, a lot.  Usually you will paint the main rooms when you move in and then again every 3 years or so.
• Cabinets:  Kitchen cabinets are quite costly and tend to stay up for around 15 years.  They may be changed more often for decorative purposes, but the high costs encourage people to keep the same cabinets longer than they do the flooring.
• Bathrooms:  Fixtures can be changed quite easily, and if tub and shower seals are maintained a bathroom can last for 20 years without a need to change the appliances.  When it is time to change the tub or shower, this can be a major job that requires removing or replacing the toilet and bathroom cabinets as well.  It is not cheap, especially if you want to change the position of the plumbing for the new bathroom appliances.
• House siding and shingles:  Many brands of shingles are sold as 20 year shingles.  The reality is that do to ice and hail, most people replace their shingles at about 15 years.   The same goes for many types of siding.  You should inspect your shingles and siding every couple of years to make sure moisture isn't getting through and that they are still in good shape.  If the siding or shingles are not functioning properly, this can cause a large amount of damage and create costly repairs.
• Appliances:  fridge, stove, washer, dryer, water heater and furnace - these can all be expensive if you buy high end appliances.  It seems like they all have shorter lifetimes than those that our parents bought back in the 70s and 80s.  Because there are several items here that are constantly used, the odds are that once a house is a few years old, you will be repairing or replacing at least one of these every 2 years or so.  Than it becomes a matter of quality vs. cost.

Each of the above can be quite expensive if you choose high end materials and hire people to install or repair the items.  You can save money with lower costs items and by doing the work your self, buy you will always want to make sure the job is done right, as the repairs can easily cost more than if you had hired someone to do the job the first time.

Once I walked through these items with the young man, he started asking if he would be better off renting than buying house.  I'll go through the comparisons for buying versus renting in the next blog post.  Jerry