Some costs are unavoidable, but others can be reduced with a little effort.
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A recent analysis reveals that homeowners pay nearly $15,000 a year in hidden costs. We’ve already covered why monthly mortgage payments are higher than anticipated because of such factors as property taxes, insurance, and issues revealed during the underwriting process.
However, a new study by Zillow and Thumbtack reveals that utility payments and essential home maintenance projects are other hidden costs. And homeowners can expect to pay $14,155 a year, or $1,180 a month in hidden costs related to owning a home.
This amount skyrockets to $22,000 a year in San Francisco, New York, and Los Angeles. At the other end of the spectrum, Las Vegas has the lowest hidden cost of homeownership at $9,886, followed by Asheville, NC ($11,318) and St. Louis ($11,824).
Avoidable vs. unavoidable costs
Since property taxes are determined by location, there’s not much you can do about them. “Average annual property tax bills can range from $1,055 in Pittsburgh to $9,145 in New York,” says Amanda Pendleton, Zillow home trends expert. “Homeowners in Chicago and Los Angeles pay similar annual property taxes: $5,617 and $5,840 respectively – even though typical home values in Los Angeles are nearly three times higher than those in Chicago.”
Utility costs are based on the rates set by local utility companies and regulators, as well as the amount of energy and water used. “Areas with very hot summers and/or very cold winters, for example, may see seasonal spikes in energy usage to keep the AC and heat on,” Pendleton says. According to Forbes Home, Americans spend an average of $429.33 a month on utilities, and this amount includes energy, water, internet, natural gas, phone, and streaming. Of course, it varies depending on where you live.
But at a time when housing affordability in the U.S. is at the lowest levels since 1996, these hidden costs might force renters to stay where they are. Not that renting is necessarily affordable, but it takes up less of the average consumer’s income than monthly payments – and that’s without the addition of these hidden expenses.
“These costs can be daunting for a new homeowner who has to stretch their budget just to afford a home in today’s housing market,” Pendleton says. And if they didn’t factor in these expenses, she warns that they might be forced to delay planned renovations or new furniture for the home.
However, essential home maintenance projects are essential for a reason. Maintaining appliances, central heat and air, the roof, fire and chimney, gutters, and lawn are not tasks that homeowners can afford to delay until later.
“The cost of essential home maintenance projects varies by city and takes into account everything from an area’s cost of living to supply and demand, with imbalances driving prices up in certain cities,” explains David Steckel, home expert at Thumbtack. “Climate change is also a contributing factor, with large temperature swings and extreme weather becoming more prevalent and putting stress on the existing professional supply base.”
Cities like Los Angeles and New York consistently have higher prices for projects. However, Steckel has been seeing a price increase in cities that have experienced a recent population boom, like Tampa and St. Petersburg, FL. “And in some areas, the real estate market may also have pushed pros to live outside the urban center, forcing them to commute in,” Steckel says, adding that this can lead to an increase in base fees for jobs.
How to prepare for and handle hidden costs
Even if you live in one of the cities with the lowest hidden cost of homeownership, coughing up the additional money each year could be a challenge. These are three tips to help:
Evaluate your spending
If you don’t already have a budget in place, Erica Wright, financial advisor at Northwestern Mutual, recommends calculating your expenses over the past few months.
“Dividing your expenses into three categories – fixed expenses, discretionary expenses, and savings – helps you to take a closer look at your overall spending habits,” she explains. Once you’ve calculated your expenses, she recommends using the 60-20-20 rule when creating a budget. “This means 60 percent of your budget is allocated toward your fixed expenses, 20 percent is used for discretionary spending, and the last 20 is used for emergency funds and goals.”
The next step is to identify specific areas in which you can cut back to save more money. “A good place to start is by identifying budget leaks like hidden fees, excess subscriptions, and the purchase of unnecessary products,” Wright advises. Also consider cutting the cord on your cable services (or at least trimming it down to just the basic package), and shopping around for the best phone plan.
Get an energy audit
An energy audit can help you determine where your home is wasting money. “A homeowner can see savings almost instantly after an audit, and energy audits performed by qualified contractors can cost as little as $100 to $500,” says Greg Fasullo, CEO and energy expert at Elevation.
So, how does this work? He says a contractor can evaluate your home’s energy usage and identify weak points to simplify the process of making improvements. “Audits are now eligible for a tax credit through the Inflation Reduction Act, and in some states, utility companies will generally have incentives to make home improvements that will conserve energy.”
Some companies provide free energy audits, but even if you pay for one, Fasullo says it’s worth it to gain a better understanding of where you’re wasting heat and air, so you can insulate and seal these areas. “Insulation, duct sealing, well-sealed windows, and energy-efficient appliances can help improve air distribution, reduce energy consumption, and extend heating and cooling equipment lifespan.”
In addition, he recommends installing a home energy monitoring device. “This will help you to better understand your consumption behavior and make permanent changes accordingly to reduce energy usage and overall bills.” For example, Fasullo explains you’ll learn to use appliances like dishwashers or washing machines during off-peak times, when utility prices are typically lower.
Consider another home or location
If you’re a first-time buyer, you don’t have to defer your dream of home ownership just because of these hidden costs. According to debt attorney Leslie H. Tayne, founder and managing director of Tayne Law Group in New York City, one option is to downsize your expectations. “A larger house can cost a lot to maintain, and purchasing a smaller home, or even a townhouse or condo, can reduce many expenses.”
Another idea is to consider moving to another locale – especially now that working from home is an option for many people. “Moving can make a major difference in your overall budget if you live in a high-cost area or a state that levies high taxes,” Tayne tells us. “For example, moving to a state such as Florida, Nevada, or Texas can save you thousands on income taxes each year – and states such as Oregon and New Hampshire have no statewide sales tax, which can significantly reduce your overall cost of living.”
And if an interstate move isn’t something you would seriously consider, she says even moving from a major city to purchase a home in a smaller suburb can often reduce your expenses significantly.