In this article I’m going to review the forgotten costs of home ownership. I review my personal experience so you don’t make the same mistakes I did.
Our lack of education…
Canada’s education system doesn’t discuss the basics of housing. In my opinion this makes ZERO sense. Why would we not review the basics of mortgages, interest rates, credit scores, renting and so forth? It is with absolute certainty I could have utilized this information in the future. Whats entirely less certain is if I’m ever going to need to implement algebraic equations. But I’m getting off track.
However society taught me two things about housing…
- I need to purchase a HOME
- Renting is basically burning money
Buying a home is one of the biggest purchases and most celebrated purchases you’ll have in your life. And if you choose to rent there isn’t much of a celebration from family and friends when you show off your lease agreement. Instead people typically ask “ so are you saving for a home?”. Again, this idea that you cannot rent forever is deeply ingrained because it’s seen as a poor financial decision. And who wants to burn their hard earn money?
Through most of my early adulthood I held that belief. At face value it seemed irrefutable, but then I met Adam. He knew better, as he puts it, there are no absolutes. And many are disillusioned by the real costs of home ownership.
Also Fun fact, just because you own a house doesn’t mean you you’re wealthy and just become you rent doesn’t equate to the inverse. Although you get the freedom to paint your walls any colour you want even lime green (please don’t paint your walls lime green) there are always forgotten/unknown costs.
The beauty of renting.
The beauty of renting is consistency. Your rent is fixed and unexpected costs will never arise. You may receive a rent increase per year, but those can be planned for and expected. In Ontario the rent increase is 1.2% which is hardly a drop in the bucket, and by law the rent increase will never exceed 5%. With that peace of mind, you can easily budget housing expenses.
When I bought my home, I was under the impression that as long as I accounted for basic fixed expenses such as mortgage, insurance, and taxes I was set! I saw those three categories lumped together and view it like rent. Of course, I knew I had basic variable expenses such as water, hydro and gas just like renting. Except I could paint the walls whatever colour I wanted!
Housing budget done!
Well, I was in for a rude awakening. There is a little something called MAINTENANCE. The reality is the costs of home ownership is expensive; things break or you accidentally break them or an animal decides to take over your house and break things for you. And I can’t call my landlord to foot the bill.
So, what is home maintenance? I would classify it as any and all repairs or professional checkups to keep the home in good state that is healthy for everyone to live in. I wouldn’t include renovations, which are purely cosmetic. Although renovations can increase home value, they aren’t essential to living in the home.
This is something MANY new homeowners forget to budget for. The general rule is you should set aside 3-5% per year. For example, if your home costs 500,000 you should set aside between 15,000 – 25,000 per year or 1250 – 2083 per month.
Mortgages brokers, family, and friends seem to always leave out this piece of advice. Although we were embarrassed to say it, maintenance wasn’t at the top of our list when we planned our budget. We were in disbelief that we would have to worry about maintenance right away.
We assumed that’s a longer-term issue we would eventually have to deal with. Initially we found ourselves using a lot of our allocated savings to repair our home in the beginning. Now if you think this number is hogwash, we have lived in our current home for 7 months and here is a list of the maintenance expenses thus far.
Our house maintenance costs in the first 7 months.
For us, the $5,300 does fall short of the 3-5% rule, but the year isn’t over yet. Our house might end up being an overachiever and get us to the 5% mark. Only time will tell. But it is important to have those funds set aside. And as you can see our roof has a looming expiration date. It’s also important to keep in mind a lot of these expenses down by purchasing used appliances and repairing ceilings ourselves.
Our final total would be much higher if we outsourced labour and purchased new. We will be posting about our DIY fixes and the pros and cons of purchasing used appliances.
Unfortunately I know I’m not alone. Data suggests that many people are financially burdened by their house. 31% of owners state they are house poor. Which means they don’t have much left over after paying bills related to their home. Although I cannot be certain, I would take a guess that many did not think about maintenance costs and have been overwhelmed by just the basic home expenses.
So before you buy a home…
So before you buy a home, take this into account. Even if your home is new a build, and you’ve had it inspected you never know what problems may arise. For example, a group of raccoons or bats could take residents in your home. I not here to fear monger, but I hope you prepare better than we did. You’ll save yourself a lot of stress.
So, if you’re house shopping, PLEASE include house maintenance in your budget before you decide to purchase.
If you’d like to read more housing related posts, feel free to check out How much should my down payment be?