When we first bought our home, the excitement took over, and the reality of owning was an afterthought. Nothing changes that mindset quicker than an unexpected expense, and the realization that owning a home, whether it’s your first or fifth, comes with many costs outside of a mortgage and property taxes.
For most, spending more money when you become a homeowner isn’t so much a fear, but rather, an expectation. Increasing your expenses, and experiencing this type of lifestyle inflation as a new homeowner means creating an entirely new monthly budget that far exceeds your spending habits as a renter.
In the first year, after spending a huge chunk of our savings on a down payment, expensing a cross-province move, and paying insurance deposits, my partner and I still spent over $40,000 of additional money on first-year home expenses. Home maintenance and furnishing the property alone totalled to $9,000. It wasn’t a cheap first-year — but we did our best to prepare for the many expenses that homeowners cannot avoid.
If you’re planning to make an offer on a property shortly, here are some of the costs of homeownership you should consider.
What expenses should you expect in year one of homeownership?
The apparent expenses in the first year of homeownership are your mortgage and property taxes. Every other cost might not be one you’ve experienced before as a renter.
Although you may have paid for utilities as a renter, the difference when you become a homeowner is that the cost of these services can increase, sometimes dramatically, plus there can be some new additions to this list. Yes, you’ll pay for electricity, heat, and water — but you may also have to pay for waste collection and sewer services.
Some other expenses you might incur are renovations, repairs, and new furniture or appliances.
Mach Zreik bought his first home in Dartmouth, Nova Scotia, in 2014. Before Zreik bought his house, he lived in a basement suite that cost him $400 each month all in, meaning he spent no additional money on utilities, internet or cable.
The single-detached home built in 1995 wasn’t a secure purchase. Zreik was in a bidding war with two other potential buyers, and said they all wanted the house for the same reason: it required no significant updates.
But no significant updates doesn’t mean there are no repairs needed at all. In year one, Zreik spent $2,500 on materials to rebuild his deck and replace the back gate to the yard.
When you first put an offer in on a home and go through the bidding process, you should hire an inspector to do a thorough review of the property before you sign the mortgage. Inspectors will do a detailed walkthrough and check everything from the roof to the HVAC system. By taking this preventative measure, you can ensure the property won’t come with an unexpected or costly issue, such as water damage or cracks in the foundation. Keep in mind that the inspection report only uncovers what the inspector can see. So, even if you do an inspection, there may still be surprises or quirks that you won’t find until you move in.
Planning for these surprise expenses is vital, but for the most part, you won’t be able to clarify exactly how much you need to save until it happens to you.
Jessica Moorhouse, money expert and financial counsellor, says the best place to start is to make a budget for what your life and expenses will look like once you become a homeowner.
“A good rule of thumb is to save 1% to 2% of your home’s value every year to pay for maintenance,” says Moorhouse. “I know that may seem like a lot, but as a homeowner myself, I can confirm that it’s a helpful guide.” For example, if you buy a $750,000 home, Moorhouse suggests saving $7,500 to $15,000 every year for unexpected expenses.
How much does one year of homeownership cost?
In the first year, these are the approximate costs of homeownership we faced:
|Furniture, decor and appliances||$8,200|
We spent 9% of our purchase price in our first year of homeownership. Although most of these expenses are recurring costs that we’ll pay each year, some were costs directly related to being new homeowners.
Coming from a rental unit with no backyard, most of our expenses were landscaping and outdoor maintenance materials. Each season began with a new price tag, and each holiday came with unique decor. Often, many of your expenses will depend on what you’re comfortable spending, but sometimes it’s not an option. For example, one appliance repair cost us $500 out of pocket, and that wasn’t something we could prepare for or negotiate.
“When you want to make a home your own, it can be tempting to buy all new furniture and make a tonne of cosmetic upgrades,” says Moorhouse. “The key thing to remember, though, is you don’t need to do everything right away.”
No matter how much time you spend on your home, Moorhouse says it’ll likely never be perfect – or finished. Instead, she recommends homeowners pick a few projects each year and stick to a budget for each project that is realistic for your financial situation.
How can you manage the cost of homeownership?
For Zreik, it took a full year of meticulously tracking his housing expenses to get comfortable with his budget. Another option is to prepare your budget with the estimated cost of homeownership before you make the transition and then track these assumed costs with actual expenses.
Moorhouse says that a budget doesn’t have to be complicated to be effective. Instead, it’s about finding what works for you. One example would be Elizabeth Warren’s 50/30/20 budget, in which 50% of your income goes towards necessary expenses, 30% goes to variable or non-essential expenses, and 20% goes towards savings (which should include your household emergency fund).
Once you’ve nailed down a budget, it’s time to get serious about savings. As a new homeowner, you’ve likely just spent most of your savings on your down payment, making it that much more important to put money aside for unexpected expenses.
Consider the cost of your most expensive household appliances. Attach a number to each of these items and prepare a savings account that could cover the cost of two to three of these appliances breaking down or being replaced within a year.
“The only way to be prepared for a household emergency is to have an idea of what those potential emergencies could be in advance,” says Moorhouse. “Have a game-plan to pay for them, either through a home-equity line of credit or a sizable cash emergency fund.”
No matter how perfect you think the condition of your home seems, there is always room for financial security and preparedness. As a first-time homeowner, the amount of new responsibility you take on can be enough to cause a migraine. Instead of constantly worrying about what to tackle on your to-do list, it’s best to take some time to prepare before you make a move from renting to owning.
If you’ve already made the transition, learn from each experience and allow those expenses to guide your future financial plans. For us, we made sure to enjoy homeownership and the many firsts that come with building memories in a new home you can call your own, and we wouldn’t change a thing.