Homeownership is the American dream. It was what we are told to strive for from a young age. Guest rooms, multi-car garages, picket fences. You name it and we can get it for you. In the era of mortgage lending, it is easy to get a home that you can “afford”, at least once the bank gives you that loan. What is not well thought out is the true home ownership costs.
Sure there is the typical things we think about. PITI (what a fitting name, as in the bank pities the person who gets an expensive mortgage) which stands for Principal, Interest, Taxes, and Insurance. This is the typical things we factor in when buying a home. Then there are the less definable costs such as utilities and maintenance. Sure you can ask to see a years worth of utilities from the prior owner, but you never know how it will truly pan out.
I bought a home despite my own best judgement
I know all of this. Home ownership is expensive. I even discussed whether or not to buy a home and how buying a home is rough. Despite my better judgement, I got suckered into another home purchase. A combination of the view from the home, needing space for my son and my dog (it is surprisingly hard to find a rental with a dog), and the argument that home prices seem to rise quickly in California all led me to purchase a new home.
I did my due diligence and shopped around for mortgages, finally deciding on a 7 year ARM. I obtained a home inspection and even had my real estate agent buy me a home warranty. Due diligence was met. Despite all of this, I could not account for how much this house was going to cost me. We moved in November 2016 and over the last 6 months have spent well over $35,000 then if we had just continued renting the apartment we were living in.
Home ownership costs
What were the unexpected costs? Well they fell into mainly the utilities and home maintenance. These were higher than initially expected, particularly the gardner who will be being replaced by me in the next month as discussed here.
Maintenance was also a beast. While some of these issues came up during the home inspection, the costs were still real and higher then initially expected.
So where did the money go over that time. Well here is a break down as part of percentages. I did not put actual numbers in because it would make most personal finance bloggers vomit to see how many dollars have gone into this home.
Okay, so what does this tell us.
We spent 27.9% of our money on interest over 6 months and only 20.9% on principal. This is with a super low rate of 2.8%. This sucks. More is going to the bank then to our principal every month. Actually more is going into interest than any other category. Think about that. All of those dollars just being swept away by the bank. Sure I will recoup some of this with income tax deduction but I would rather just have the cash back.
Take away: Consider how much money you are giving the bank each month. We are in essence paying them for the privilege to live in this home. There is a lot of cash going to the bank over 6 months. Well over $10k.
Also, don’t use the mortgage interest tax deduction as an excuse to buy a home you don’t need. Many people rationalize having a mortgage for the income tax break. It is not a good argument. If you could own your home today, would you take out a mortgage just to get the income tax break? I doubt it.
Home maintenance is killing me. I have spent 21.1% of my money in the first 6 months on home maintenance. This is the second largest bracket that money is going to. This has included fixing a sump pump, a leaking roof, a broken garage door spring, a washing machine, a dish washer, electrical wiring outside of our home, and the list goes on and on. I did include some of my desired purchases which included planting trees and setting up my vegetable garden. Still, I did not account for 21% of my home ownership costs to be going to home maintenance.
Of note, in February we did not have any home maintenance costs. It was a very reasonable month for home ownership costs in relation to my income. So that is reassuring and I will be looking at February as my marker for how much my home monthly expense should actually be. Still you can never account for the unexpected maintenance issue to creep up.
Take away: When buying a home, take serious consideration of the age of the home and get a good home inspection before buying. We were able to recoup a few grand for the sump pump an roof based on our inspections. Furthermore, consider a home warranty for the first few years you are living there. It may save you a few dollars in the long run.
We spent 14.5% of our money on utilities. This includes solar (we have a leased system which I would not recommend), gas, electric (for when the solar system does not produce enough juice), water bills, alarm system, and our gardner. I estimate that the solar system saves us about $200 compared to using just the city electric utilities. I will be cutting my utilities by November when both the gardner and alarm system will be discontinued, saving me almost $4,000 a year.
Take away: Don’t underestimate how much it costs to power up and heat a big home (our’s is 3,000 square feet which is about 1,000 more than we need) and water a big lawn.
Taxes also end up being more then I considered. 14.4% of my expenses have been taxes. The tax man always cometh. I also was hit with a supplemental $1,000 tax bill from the county due to the higher purchase price of my home. They were kind enough to adjust my taxes upward for me without me even asking.
Don’t buy too much home
I have lamented on this site and other sites that my home is my biggest hinderance to financial independence and definitely to early retirement. I do not see any possible way to retire in 10 years while owning this home.
Still, I am not sure what I want in 10 years. I do know I want to be more financially secure. Maybe I can get there while still holding onto this house, but I know it is going to take a lot longer.
The process of evaluating my 6 month home ownership costs is an eye opener for me and my wife. We knew we were spending a lot of money, but really had no idea where it was all going. Discussing these costs may also lead to us selling the house in the next few years and downsizing. Only time will tell and I hope you stay with us while we figure it out.
What are your thoughts on buying a home? Ever been surprised by the unexpected costs of maintenance and utilities?
Also published on Medium.