Investment Read Time: 3 min

The hidden costs of home ownership

Buying your first home should bring joy. For many millennials, it may instead bring stress from financial juggling. Over 64 percent of millennials say they regret buying a house. Their number one reason? The ongoing financial obligations such as repairs, insurance and property taxes — the so-called “hidden” costs of home ownership. 1

More House Means Less Cash

Why are millennials — more so than previous generations — unprepared for these budget realities? One reason is that young adults today are making smaller down payments and taking on heftier mortgages. With a higher percentage of their paychecks going to the lender, there isn’t enough left over to handle a roof repair or a high utility bill.

Your Magic Number

A good rule of thumb is to keep your mortgage payment to 15 percent of your gross monthly income, rather than the typically cited 28 percent. Say your household brings in $200,000 a year, or $16,666 in pre-tax income per month. Aim for a mortgage payment at or below $2,500. That gets you a 30-year mortgage of roughly $450,000, depending on down payment and interest rate. This lower calculation helps to ensure you can comfortably set money aside to cover other financial hurdles ahead.

Curious Closing Costs

Closing costs are like getting a last-minute bill from the caterer at your wedding. You’re not sure what you’re paying for, but there’s no time to argue. Here you pay closing costs at the mortgage signing to cover things like attorney services and title searches, typically at two to five percent of your purchase price. So, if your new mortgage is $450,000, closing costs might be in the range of $9,000 to $22,500.

Painful Property Taxes

Property taxes are something only other people complain about — until you become a homeowner. So, earn your right to complain by doing your homework! Before buying a home, use a property tax calculator online to help you estimate your tax bill. Let’s say it’s $5,500. Divide that by 12 and make a monthly contribution of $458 to a separate tax savings account, so you’re prepared when the tax bill comes due at the end of the year.

The Madness of Maintenance

One of the biggest shocks for first-time homeowners is home maintenance. Not just the time involved, but the expense. Expect to spend one to two percent of your home’s value on annual upkeep. For a $450,000 home, that comes out to $4,500 to $9,000.

The You in Utilities

For the newly propertied, having to pay separate and typically higher costs for electricity, water, gas and other utilities can be another big surprise. (Nope — water isn’t free.) As with property taxes, you can find utility cost estimators online. In this case, you can estimate $5,500 annually.

Totally Tabular

So, what do all those extra costs add up to? In your first year of home ownership you may need $42,500 above your down payment and your mortgage payment for your first year of ownership. And many of those costs will continue, year after year.

If that number is surprising, you may want to talk with a financial professional about how to factor a first home, or any other big, complex purchases, into your long-term financial strategy.  And think about whether renting or buying is the right move for you, for today.  After all, financial and emotional confidence begins with life goals, and where and how you live is a big part of that.



Other Sources:

  • Millennials Now Taking On More Mortgages Than Any Other Generation, PR News Wire, Feb 20, 2019
  • What Are Closing Costs?, USA News, May 30, 2018
  • First-Time Homebuyer’s Guide, Investopedia, Jun 25, 2019
  • 5 Expenses That Shock First-Time Homebuyers, The Balance, March 14, 2019
  • Property Taxes and Your Mortgage: What You Need to Know, Dave Ramsey


Guardian and its subsidiaries do not issue or advise with regard to mortgages. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Brought to you by The Guardian Network © 2024. The Guardian Life Insurance Company of America®, New York, NY.

 2024-177305 Exp. 07/26 *Pre-approved content*

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