Are there any other costs of owning a home besides the mortgage payment?

Owning a home is a significant milestone, offering stability, pride, and a place to call your own. However, the financial responsibilities of homeownership extend far beyond the monthly mortgage payment. In this comprehensive guide, we will explore the true costs of owning a home besides the mortgage payment. Helping you to budget effectively and prepare for the full range of expenses involved. From property tax budgeting to home maintenance expenses, understanding these costs will ensure your financial stability as a homeowner.

What expenses do you need to budget for in addition to the mortgage payment itself?

Let’s delve into the various true costs you owning a home budget in addition to the mortgage payment itself.

Property taxes

These are taxes levied by local governments based on the assessed value of your property. They can vary significantly depending on where you live and are typically due annually or semi-annually.

Homeowners insurance

This insurance protects your home and belongings from damage or loss due to events like fire, theft, or natural disasters. Most lenders require it as part of your mortgage agreement.

Private Mortgage Insurance (PMI)

If your down payment is less than 20% of the home’s purchase price, you might be required to pay PMI. This insurance protects the lender if you default on the loan.

Utilities

Monthly costs for essential services such as electricity, gas, water, sewage, and trash collection. These costs can fluctuate based on usage and local rates.

Maintenance and repairs

Regular upkeep and repairs are necessary to keep your home in good condition. This can include tasks like HVAC servicing, roof repairs, plumbing fixes, and general wear and tear.

Homeowners association (HOA) fees

If you live in a community with a homeowner’s association, you’ll likely have monthly or annual fees. These fees cover the maintenance of common areas, amenities, and sometimes even utilities or insurance.

Special assessments

Occasionally, HOAs or local governments may levy special assessments for major repairs or improvements to community infrastructure.

Landscaping and yard maintenance

Costs for maintaining your yard, including lawn care, gardening, tree trimming, and pest control.

Appliances and furnishings

Initial costs for outfitting your home and ongoing expenses for replacing or upgrading appliances and furnishings.

Emergency fund

It’s wise to set aside savings for unexpected expenses like major repairs (e.g., roof replacement, HVAC system failure), medical emergencies, or job loss.

Home renovations and upgrades

Costs associated with remodeling or upgrading parts of your home, such as kitchen renovations, bathroom updates, or adding a deck or patio.

Security and safety

Costs for home security systems, smoke detectors, and other safety measures.

Legal and closing costs

When purchasing or refinancing a home, there are legal fees, title insurance, appraisal fees, and other closing costs that need to be budgeted for.

Taxes and fees

Beyond property taxes, there may be other local taxes or fees related to homeownership, such as transfer taxes or municipal service fees.

These expenses can vary widely based on factors such as the size and location of your home, its age and condition, local regulations and taxes, and your personal lifestyle choices. Properly budgeting for these additional costs alongside your mortgage payment is crucial for managing your finances effectively as a homeowner.

What type of expenses are mortgages?

Mortgages are a specific type of financial expense related to the acquisition and ownership of real estate, specifically involving borrowing funds to purchase a home. Here are the primary types of expenses associated with mortgages.

Principal

The principal is the amount of money you borrow to buy the home. Over time, as you make payments, the principal balance decreases.

Interest

This is the cost of borrowing the principal amount from the lender.

Lenders usually express interest as an annual percentage rate (APR) and make it a significant part of your monthly mortgage payment, especially in the early years of the loan.

Read more: Financial implications of 15 vs 30 years mortgages

Property taxes

These are taxes assessed by local governments based on the value of your property. Some mortgage payments include a portion for property taxes, which the lender holds in an escrow account and pays on your behalf.

Homeowners insurance

Lenders typically require you to have homeowners insurance to protect against risks like fire, theft, and natural disasters. Some mortgage payments include a portion for homeowners insurance, held in escrow by the lender and paid on your behalf.

Private Mortgage Insurance (PMI)

If your down payment is less than 20% of the home’s purchase price, the lender may require PMI. This insurance protects the lender if you default on the loan. PMI is usually included in your monthly mortgage payment until you have enough equity in your home to cancel it.

Escrow payments

The escrow account holds funds for property taxes, homeowners insurance, and sometimes other expenses like flood insurance. Each month, your mortgage payment deposits a portion into the escrow account to ensure that you pay these expenses on time.

Loan origination fees

The lender charges these fees for processing the loan application. The fees are typically a percentage of the loan amount and borrowers can pay them upfront or include them in the loan balance.

Closing costs

These are fees and expenses you pay when finalizing the mortgage, including appraisal fees, title insurance, legal fees, and other charges. While not part of the ongoing mortgage payment, they are an initial cost of obtaining the mortgage.

Points

Also known as discount points, these are optional fees paid upfront to lower the interest rate on the mortgage. One point equals 1% of the loan amount and can result in a lower monthly payment.

Administrative fees

These can include underwriting fees, application fees, and document preparation fees. These fees are typically part of the closing costs but may be included in the loan amount.

In summary, mortgages encompass a range of expenses that fall into several categories, including loan repayment, interest expenses, taxes, insurance, escrow account funding, and various upfront costs. Understanding these expenses is crucial for effective financial planning and budgeting as a homeowner.

Bottom line

The true costs of owning a home involve more than just making your mortgage payment. By understanding and budgeting for additional expenses such as property taxes, homeowners insurance, maintenance, utilities, HOA fees, and emergency repairs, you can ensure your financial stability and enjoy the benefits of homeownership. Proper financial planning for homeowners involves anticipating these hidden costs and preparing accordingly, so you can focus on enjoying your home without financial stress.

Written by Vanessa Gallanti. March 24, 2025

Enthusiast about planning, project management, construction materials and technology, and construction. A civil engineer from Los Andes University and a content writer for Kukun.