By Why the Mortgage Is Just the Beginning
When people compare renting to buying, they usually compare the rent payment to the mortgage payment. Sometimes they add property taxes and insurance to the mortgage side to be thorough. And then they feel like they have an accurate picture.
They don’t.
The mortgage, taxes, and insurance are the predictable costs. Then there are the maintenance costs, the repair costs, the gradual replacement of aging systems, the energy costs, the lawn costs, the HOA fees, the higher utility bills from owning more space, and the transaction costs if you eventually sell. These collectively add 1 to 3 percent of the home’s value per year on top of the mortgage payment.
On a $350,000 home, that’s $3,500 to $10,500 per year in costs beyond the mortgage that renters in the same price range don’t pay. Understanding these before you buy is not a reason not to buy. It’s a reason to buy with accurate expectations and adequate reserves.
Maintenance and Repairs: Budget This From Day One
The 1 percent rule says to budget 1 percent of your home’s value per year for maintenance and repairs. In practice, the number varies wildly by the home’s age and condition.
A brand new home might run 0.5 percent in the first few years when everything is under warranty. A 40-year-old home could run 2 to 3 percent in a year when multiple systems need attention. But on average across the ownership period, 1 to 1.5 percent is a reasonable planning figure.
What this money goes toward: roof repairs (full replacement every 15 to 30 years at $8,000 to $20,000), HVAC replacement (every 15 to 20 years at $5,000 to $12,000), water heater replacement (every 8 to 12 years at $900 to $1,800), plumbing issues, electrical problems, appliances, siding, windows, and the thousand other things that eventually need fixing in any house.
Property Taxes: They Go Up
Whatever your property tax was when you bought, it probably won’t stay there. Local governments reassess property values periodically, and in markets where home values have risen, reassessments drive taxes up.
In some states and municipalities, taxes have risen 20 to 40 percent over five years alongside property value appreciation. A $6,000 annual property tax becoming $7,500 is $1,500 per year you didn’t budget for when you bought.
The time to understand your state’s property tax rules is before you buy. Some states cap annual increases (California’s Prop 13 being the most famous example). Others have no cap and adjust regularly to market values. The tax trajectory matters for long-term affordability.
The Transaction Costs of Buying and Selling
Buying a home costs 2 to 5 percent of the purchase price in closing costs. Selling costs 6 to 10 percent, primarily in agent commissions and seller closing costs.
On a $400,000 home, the round-trip transaction cost of buying and then selling within a few years is $32,000 to $60,000. This is real money that doesn’t go toward equity, doesn’t build wealth, and disappears whether the home appreciates or not.
This doesn’t mean you shouldn’t buy. It means you should be confident you’re staying long enough for appreciation and equity building to overcome the transaction cost. The breakeven point, where buying beats renting financially, is typically 5 to 7 years in most markets. Buying with a two-year horizon is rarely the right financial move.
HOA Fees and Special Assessments
Homeowners associations are common in condos and many planned communities. Monthly HOA fees range from $100 to $1,000 or more depending on the community and what’s included.
The regular fees are visible upfront. What surprises people is special assessments. If the community needs a new roof, repaved roads, or major repairs that the HOA reserve fund doesn’t fully cover, members can be assessed one-time charges of several hundred to several thousand dollars on short notice.
Before buying in an HOA community, request the past three years of meeting minutes and the current reserve fund study. These documents reveal whether the HOA is financially healthy or sitting on deferred maintenance that will eventually become your problem.
