Beware of Real Estate Carrying Costs

Many people that are actively looking for a new home focus on the purchase price and monthly payment based on current interest rates in order to determine whether they can afford a new home. However, there are many additional costs that have become more significant that one needs to be more cognizant of these days. These costs include: maintenance costs, real estate taxes, insurance, and electricity/heating/cooling costs.

Maintenance costs usually run about 1% of the price of a new home each year. These costs include general maintenance and upkeep to a home. On a $400,000 house, these costs will average about $4,000 per year.

Real estate taxes have been increasing at a rapid rate across the country over the last 5 years. The average homeowner in the Washington, DC metro area current pays over $4,000 per year in real estate taxes and these taxes are climbing at 10% per year.

Home insurance has tripled in cost over the last 5 years due to storms and high claims. I blame much of the increase on global warming causing more severe storms as well as shoddy construction of new homes. Have you seen a new home built recently by a national builder? These new homes go up in less than a month and have the cheapest structure and siding I have ever seen. I believe that many of these homes were designed to crumble to the grund once their 30 year mortgages have been paid off. One should budget at least $800 per year for home insurance.

Energy costs have also been escalating at a rapid rate with natural gas and heating oil costs soaring and electricity rates set to double in areas such as Washington, DC. One should budget at least $250 per month for all electricity/heating/cooling.

Let's add up the additional carrying costs for a home that we have calculated so far:
$4,000 per year home maintenance
$4,500 per year real estate taxes
$900 per year home insurance
$3000 per year electricity/heating/cooling
Grand total: $12,400 = $1,033 per month.

Over $1,000 per month needs to be budgeted for home carrying costs.
It is important for new home owners to keep this in mind in the purchase process.