Ah, the American dream—to be able to live with life, liberty, and the pursuit of happiness.
Part of the American Dream has always been owning your own home, but that was set in stone before people were funding their own retirements.
For almost all of us, a house is going to be the biggest purchase we make. Even in lower-cost areas, a decent home can go for around $150,000.
And with the market as hot as it is right now because of the COVID pandemic, it seems like you may pay even more for a home than you normally would.
The nice thing about owning a home—and part of the reason why it’s always been part of the American Dream—is because you’re no longer giving someone else money to live in something they own. Once you pay off your mortgage you’re free and clear.
Well…you know…after you pay all the hidden costs.
Contrary to what seems to be a traditional belief, a home is not this automatic investment that’s going to earn you a ton of money from appreciation.
I’ve been a homeowner (and mortgage owner) for about nine years now.
There are things I didn’t even realize back in 2012 when we bought our first home and wouldn’t have realized with our second home purchase unless I was studying the process closely.
I almost missed these hidden costs.
Please understand that I am not here to tell you that owning a home is not worth it or that you shouldn’t do it. But honestly, you have to figure out if it’s the right move for you.
Renting isn’t this terrible option it’s made out to be. You’re not throwing away money on rent any more than you’re throwing away money by buying food to eat.
I am here to tell you about some hidden costs of purchasing a home should you decide it’s right for you. Some of them don’t even have anything to do with money!
Homeownership has absolutely been worth it for me and my family, but here are seven hidden costs that you may find when you purchase your home based on my most recent home purchase in 2018.
Holy crap, did I lose a bunch of time! Our offer got accepted on July 2nd of 2018, and for about three months after, I had been eating, drinking, sleeping, and breathing homeownership.
Here are some of the things we had to do:
- Got our house ready to sell in two and a half weeks. Since we weren’t planning on moving before we found the new house, our old house was not anywhere close to being showable to sell.
- Shopped around a bit for a good mortgage rate. This was difficult because we bought our first home in 2012 when rates were below rock bottom. No chance we were getting that good of a rate again so we shopped around for the best one.
- Started gathering and signing documents for our mortgage. This is always a long process but has improved since most of it is now digital.
- Took a much-needed vacation when we first listed our home to sell. Our realtor advised it’s always a good idea to get out of the house for a few days to allow home showings to come through. We went to Colorado for a week for this hoping to sell our home within that week.
- Switched mortgage companies to a local bank to get a huge interest rate discount. This is saving us about $100 a month for our payment as well as many thousands of dollars in interest over the life of the loan. The downside is that we had to start the mortgage application process all over.
- Packed up a bunch of stuff and moved into our new home. Captain Obvious over here.
- Lots of other minor things that didn’t take up a ton of time but added up…
To make a long story short, we were busy. And it took more than a year to get our new home unpacked and set up.
Family time took a hit, blog time suffered, the consulting business I wanted to start had to be put on hold, work quality at my job suffered a bit because of how busy we were, and my diet took a hit because I couldn’t plan meals.
Basically, every part of life was affected by how busy we were and how much time it took over the past few months.
So if you’re ever buying a home, plan for it to take up much more of your time than you think it would take.
We think of buying a home as expensive simply from a money standpoint, but this was a huge cost that I had no idea would happen—and it had nothing to do with money.
Part of this is because of time, but one of the hidden costs of buying a home is sleep. You will lose sleep.
Naturally, when you spend a lot of time working on things, there are only so many hours in a day. It’s normal to cut some sleep out by either going to bed later or getting up earlier.
Before we bought our second home, I had a good system down. I would be in bed by 9:30 PM, asleep by 10 PM, and then up at 5 AM to work on the business. I was getting a solid 7 hours of sleep.
After we bought the home, I would be up till 11 PM on the regular. Some nights it would be midnight.
I had to push back my wake-up time to 6 AM so I could still try and get some decent sleep to help out.
Some nights I would be up working on things to get the house ready to sell. Other nights I would be laying in bed awake just thinking about the new home and the old home and all of the stuff I had to do.
It was not a great time and it ended up costing a lot of sleep.
I’m not talking about energy as in your electric and gas bills. I’m talking about your personal energy.
Lack of sleep and a ton to do will lead you to a lack of energy.
The lack of sleep catches up to you and saps your energy from you. You lose motivation, the ability to stay positive, and you just feel like napping. All. The. Time.
On the flip side, even if I was getting enough sleep, there was so much to do with this move that I was getting burnt out anyway.
A lot of the energy costs are associated with having so much to do so I definitely advise planning.
Another thing you can do to help with this is to really take care of your home if you are selling. That’s where about half of all the work came from.
As Benjamin Franklin said, “Failing to plan is planning to fail.” I definitely did not plan as well as I should so it cost me more.
Eating Out Budget
Because of packing and getting ready to move, your eating out budget can start to creep up there—or skyrocket up there, depending on your situation.
For us, since we were selling an old home as well, once we had the house cleaned up really nice and ready to sell we didn’t want to mess anything up.
One of the easiest ways to keep a house clean (sorry, wallet) is to eat out more instead of cooking.
Plan to pay a little more for your meals if you’re buying a home.
This is both annoying as well as just part of the territory for buying a home.
When you purchase a home, people do whatever they can to save money and sell the house. Sadly, that means covering up some, shall we say, mishaps in the home.
To help, you can get a home inspection—something I highly recommend doing. A professional inspector will come in and inspect the home for major issues (and some minor) and give you a report on it.
From there you can make a final decision on the home. Ours was great and allowed us to catch an issue with the furnace that we asked the seller to fix before we finished buying the house. They fixed it!
However, a home inspection doesn’t catch everything.
We’ve had to do a lot of minor things around the house like clean up messy paint, repair some ductwork, and fix up some electrical in the basement.
We’ve also done more obvious things like paint the walls the colors we want, get curtains, and carpet the upstairs for our kids.
It all adds up, and it will likely cost you more than you think it will like it did for us. Something to keep in mind.
Money is Eaten Up by Upgrades
This goes for both those who are buying a house after renting and those who are selling a home and buying a new one.
Money is eaten up by upgrades.
If you’ve owned a home for a while, you have no doubt heard the term equity.
Say you’ve owned a home for five or so years, paid down a decent amount of your mortgage, and are looking forward to the check that comes from selling your home.
The crazy part is that you can’t just leave your home the way it was 5 or 10 years ago and expect people to want to buy it. You have to make upgrades.
These upgrades, even over the long haul, can take a good chunk out of the money you’ll be getting back from equity in your home. I didn’t realize just how much.
According to HomeAdvisor, The average cost of kitchen remodels is $20,474. For bathrooms, it’s between $6,000 and $14,000. To replace a roof it’s $6,838. For finishing a basement, the average is between $10,579 and $27,000.
It is not cheap to upgrade a home. If you can, hire friends to help out to keep costs down.
On the flip side, if you’re buying a home while coming from renting, you don’t have to worry about equity. However, unless you’re buying a brand new home that you’ve had a hand in designing, you will not find everything you want in your new home.
Not only will you need to save up for a downpayment on a house, but you’ll also need to save for anything you want to do with your house to upgrade right away. This is a hidden cost of buying a home.
I recommend taking your time with any upgrades. This is something I’ve struggled with. I feel like I just want everything done right now no matter how much it costs.
But I’m not made of money so I have to take my time getting my home just the way I want it.
And that’s definitely ok! It’s just something to be aware of.
Increase in Homeowners Insurance
The last hidden cost of buying a home is your homeowner’s insurance.
Homeowners insurance is a requirement as part of the home buying process and it will affect you whether you’re coming from renting or selling an old home.
When you’re selling your home, most people upgrade. It’s usually something bigger. Unless it’s comparable in size to your old home, you can expect an increase in Homeowners Insurance.
I recommend shopping around to help with this. You may find a better deal on insurance for your new home at a different insurance company.
Insurance especially hits home (pun!) for renters. Renters insurance is pretty cheap, and rightfully so. I remember paying about $18 a month for renters insurance. Makes sense since you are insuring only your things and not the actual structure of the place you’re renting.
Homeowners insurance, depending on what you buy, can be a total of $75 to $100 a month or more. That’s a pretty steep increase from $18 a month.
As a renter, you may or may not realize that you need homeowners insurance as part of your monthly mortgage payment.
This hidden cost is one to look out for, whether you’re currently renting or wanting to sell your current home.
All of this is not to dissuade you from ever buying a home. I want you to know these seven hidden costs so you can be informed and plan better than I did.
Buying a home is considered part of the American dream for good reason. It feels good to buy a home, but it isn’t for everyone.
And remember, it’s ok to rent. Don’t let anyone tell you differently.
If you do decide it’s for you, keep these seven hidden costs in mind and plan for them.
You’ll be in a much better place when you make one of the biggest purchases of your life. Then, it’s much easier to enjoy your new home!