I still remember sitting down with an agent when my parents and I bought our home 15 years ago. The agent was running the numbers and presented the principal, interest, property taxes, and hazard insurance (or PITI), and he said that the PITI is how much it is going to cost us when we buy the house. And since we bought a townhouse, we are also paying home owners association (HOA) fees as well.
What we did not know is that the cost of home ownership goes beyond the PITI that he was talking about. These are the cost that we were not incurring while renting an apartment as all we have to worry about at that time is our monthly rent and electricity bills. The additional cost of homeownership depends on how old your house is or how you use some of its features. So when buying a house, you need to also put into consideration the following monthly expenses and ensure that these costs are part of your monthly house budget along with the PITI:
Cost of maintenance and repairs
When renting, one thing that you do not have to worry about is wear and tear of the apartment and any maintenance cost associated with it. When the plumbing system breaks down or there is something wrong with the heater or air conditioner, we just have to notify our apartment manager and he/she would either call the maintenance person (if there is an in-house one) or hire a contractor to fix the problem and of course, the cost is shouldered by the apartment owner. So when you own a home, you would now be responsible for these kinds of maintenance cost.
Potential Cost: $100 per month.
Cost of maintaining the yard
Whether you have to hire somebody or you have to do it yourself, there is always a cost associated with it. The cost for yourself is the time and purchasing the right tools and equipment. And if you canâ€™t do it yourself then you have to pay somebody to do it. Nowadays, who really has the time to do all of the maintenance stuff.
Potential Cost: $50 per month.
Cost of maintaining a swimming pool (if you have one)
The cost of maintaining a swimming pool could be around $200 per month on average when you hire somebody to do it. Otherwise, your cost would be your own time & effort and the materials associated with the maintenance.
Potential Cost: $200 per month.
Cost of replacement for major breakdown in the house
Maintenance is a day-to-day issue but what happens when something breaks down like when your roof starts to leak or the central air conditioning no longer works, you have to have some kind of coverage. One option is purchasing a home warranty. However, when you buy new homes, chances are that it already has a ten year home manufacturerâ€™s warranty. Your other option would be just having emergency funds for this, which you can do by saving a portion of your salary to fund this replacement costs. It really depends on how much you can save but for starters, you can start with $100 per month and include this in your emergency funds.
Potential Cost: At least $200 per month.
Cost of utilities
Most people who are renting do not have to pay certain utilities such as water and trash. In fact, in our apartment, we did not even have to pay for the gas. The only utilities that we are paying are electricity and telephone bills. The cost of water and trash runs to an average of $60 per month and the cost of gas/heating runs to about $30 per month depending on the usage or the area that you live in (if you live in the snowy area).
Potential Cost: $90 per month
The actual tax deduction benefit:
Iâ€™m not going to argue about the tax deduction benefits of home ownership as I believe it does open up more tax deductions that you may not otherwise be able to do such as being able to deduct the charitable contribution, gambling losses, or miscellaneous expenses. But one thing that you have to understand is that the actual tax deduction benefit is just the difference between your itemized deduction and standard deduction. For example, assuming that total itemized deduction, which comprises of mortgage interest, property taxes and other miscellaneous deductions, is $20,000 and the standard deduction for married people is $11,000. The true tax deduction benefit is just an increase of $9,000 and not the full $20,000 because if you do not have a house, you would be able to deduct the $11,000 anyways. So donâ€™t be fooled if someone tells you that it is an additional $20,000 tax deduction.