If you are on the fence about owning a home, this article is for you. No matter how bad this makes homeownership seem, it’s still a must.
In the following article, I will discuss the VALUE of owning a home. But, before value, I need to talk about the costs.
Let’s make one thing clear—owning a home is freaking expensive. You’ll be ready for the madness if you go into it with this mindset. Let’s begin.
Middle-Class Investing 110: Create a Wealth Generator
My homeownership experience. We bought our first house in 2008. We built it from the ground up on three acres of land in Arizona.
At the time, I thought I could afford the $1,800/month payment on my roughly $70,000/year salary.
Looking back, I should have purchased a home for around $1,000/month or gotten a roommate for $600 to $800/month.
Our house payment was so expensive that we accumulated $77,000+ worth of debt over the next ten years.
Diversify Your Home Equity
Why does it cost so much to own a home? Let’s talk about the visible and hidden expenses of owning a home. First up is P.I.T.I. (mortgage with escrow).
- Principal. When you make a payment, you pay off your loan principal. This gives you home equity, slowly but surely.
- Interest. This is the cost of borrowing money from the bank. Your first payment includes more interest than your last payment. We call this amortization.
- Taxes. The first two elements of PITI are fixed, and the next two can increase annually. Expect your taxes to rise continuously. Look for some kind of homestead act in your county or state.
- Insurance. Your insurance, like your taxes, will continue to rise as your home value increases. In 2023, my insurance went from $2,700 annually to $3,700. Whew.
Even more costs. Those were just the beginning of your journey into homeownership. There is so much more to discuss.
Pay Your Bills with Dividends
I will talk about some unexpected costs we have paid over 15 years and three homes. The best way to prepare for homeownership is to start a home maintenance fund.
- H.O.A. fees. Homeowner association fees can increase from time to time. Luckily, only one of my three homes has an HOA, which has been $180/year since 2017.
- Termites. I have three homes and pay $300/year per house to prevent termites.
- Air conditioner. Expect to pay at least $200 to $500/year to keep your A/C in top working order.
- Roof. Roofs last 10-15 years; ensure you know the status of your roof during the inspection process.
- Trees. If you live in a hurricane, wind, or tornado-prone area, you have to stay on top of your trees. They can cause severe damage during an event.
- Fences. Your fence will need some work at some point.
- Decks and wood. If you have a wooden deck, coat it with the proper sealants.
- Lawns. Landscaping and lawns are expensive. Either you pay in time or with money.
- Pools. Luckily, none of my homes have a pool; they are costly.
- Home maintenance. Expect to have some issues within the kitchen (garbage disposal, microwave, refrigerator), bathroom (toilets, shower), lighting (fusebox), alarm system, smoke/detector, rodents (squirrels, gophers, snakes), flooring, carpet (spills), A/C filters (expensive and going up with inflation), hot water heater, concrete, pavement, driveway, wells, water softeners, septic tanks, and garage down openers.
This is just the beginning. This list seems like a lot, but there is much more. These components are just the “bones” of the house. You actually have to live inside.
Increase Your Savings Rate
Once you move in, you’ll have to get furniture. If you go “all in” on furniture, expect to be house-rich, cash poor. Trust me; do not blow your nest egg on furniture.
You must also get a washer and dryer, which are costly today. We bought brand-new Samsung machines (in 2017) for roughly $500 each. Now, those same machines are over $900.
Upgrading your life away. Heaven forbid you actually want to modernize your home. Shows on HGTV make home renovations seem easy.
However, in practice, renovations are super expensive. Also, don’t forget that you are an outsider in the world of construction.
The Great Family Reset
That means you will get the “tourist” price if you don’t have friends in the industry. You’ll be far better off waiting a few years, meeting new people, getting good references, and building great friendships.
Home equity hero. Most people don’t learn how to invest; they prefer using home equity to fund renovations or pay down debt.
Don’t pull home equity unless you can find a better investment for this money. Some suitable investments include dividend-paying stocks, a down payment on a new place, starting a business, or starting a college fund for your kids.
Pay close attention to interest rates—as they rise, so does the cost of borrowing. Home equity loans and cash-out refinances can get you into a world of trouble, so be careful.
Don’t Gamble with Retirement 9
To reverse the mortgage or not? I haven’t discussed reverse mortgages much on my channel, but it is on my to-do list. Reverse mortgages can work if your family doesn’t need your home after you pass.
They do come with a cost. Not only do you give your property to the bank, but you are responsible for taxes and insurance, plus upkeep.
If the home falls into disrepair (see list above), the bank can swoop in and take the property. This is something to consider if your aging parents perform a reverse mortgage.
The actual costs of owning a home. You WILL pay a lot to maintain, operate, and improve your home.
LBYM: Live Below Your Means
Put aside at least five times your monthly mortgage payment in cash. For example, if your mortgage is $2,000/month, have $10,000 in cash for home expenses.
At the very least, you will pay two extra monthly mortgage payments for upkeep and maintenance. Prepare for those days now, not later.
Conclusion. My advice is to accept your fate. When things break, take it with a grain of salt. If you let them get you down, you’ll never enjoy your home.
I own three homes, and I can get a random phone call at any given point. However, each month, my net worth continues to increase.
You’ll hate the COSTS if you don’t understand the value of owning a home. That’s why we must discuss the VALUE of owning your very own home (next time). Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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