There are costs that are associated with owning a home that families must consider when preparing a monthly budget. The mortgage payment is a significant factor, but not the only cost.

Although there are additional fees with owning a home versus renting, the benefits of wealth through equity can increase personal wealth and family security. Proper budget preparation and forethought of homeownership fees can assist you in choosing a home within budget to increase financial growth. Discovering how to budget costs and what to budget for are the first steps to home management.

What are homeownership expenses?

These are additional costs that must be paid to maintain a home that fall outside the realm of mortgage premiums, insurance, and taxes. These fees are often due monthly and must be considered in the budget as “needs”. These expenses can include:

• Utilities: A home needs running water, electricity, gas, trash, and lawn care. These fees are monthly fees that a homeowner can budget for easily by determining previous month’s fees.
• Wear & Tear: As the home ages, things begin to deteriorate. These items may not be “broken” but often fall under proactive care. To maintain the home’s value, updates must be periodically completed to ensure value. This can include HVAC, flooring, hot water heaters, cabinets, faucets, gutters, roofing, siding and more.
• Repairs: These are the maintenance items that must be fixed quickly due to failure. Broken HVAC, windows and plumbing issues all fall into this category.

How do I determine if a home requires too much maintenance?

When searching for a home, it is essential to be realistic regarding maintenance costs. Consider the age of the home, local area conditions, the existing condition of the home (not what it may be with renovations) and if it is a single-family home versus a townhome/condo. Single family homes have additional fees associated with maintenance like lawn care, while townhome/condos often have higher Homeowners Association (HOAs) fees for common areas. Work with your real estate agent to answer these questions before putting an offer on a home.

How much should I budget?

There are two common ways to budget for maintenance costs.

1% Rule of Thumb: Each year, homeowners should put aside 1% of the home cost for expenses and maintenance.

• For example, if a home cost $308,000, then the homeowners should put aside $3,800 per year for maintenance costs. This does not mean that the homeowner will be spending this amount every year, but maintenance and repairs may pop up that cost more than the allotted total for one year. For example, vinyl siding replacement can cost upwards of $10,000. Some years little will be spent, while some years large repairs may need to be made. A home inspection prior to purchase should assist in preparing you for expected repair and maintenance costs.

Save by Square Foot: Another way to save for maintenance is to put away one dollar for every square foot each year. For example, a 2500 sq ft home would translate into saving $2500/year for possible needs.

Interested in purchasing a home? Already own a home? Make room in your budget for maintenance expenses. When in doubt, ask your loan officer to walk you through the process.