The True Cost of Owning a Home

Dreaming of a house with a white picket fence and a front-yard tree perfect for a tire swing? We want you to own a home—not for that home to own you. So consider the true cost of homeownership before you buy.

How Much Does It Cost to Own a Home?

Here’s the short answer: On a median-priced home of nearly $430,000, owning it runs about $3,520 a month—roughly $42,240 a year.¹ That covers a 20%-down, 15-year mortgage plus property taxes, insurance and HOA fees. The true cost climbs higher once you add utilities, lawn care and maintenance.

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Now here’s the long answer: It’s more complicated than one number. What you actually pay depends on your home price, your down payment, where you live, and the shape your house is in. You shouldn’t bank your budget on someone else’s payment—there are all kinds of factors that determine just how much it’ll cost to own your home.

What Are the Up-Front Costs of Buying a Home?

Up-front costs are the cash you need to actually get the keys—your down payment, closing costs, and fees for the home inspection and appraisal. On a $430,000 home, that’s around $113,000 out of pocket if you put 20% down. Your total could change significantly depending on how much you put down.

Put down 20% and you’ll skip private mortgage insurance (PMI) and start with a smaller loan. If you’re a first-time home buyer, don’t buy with less than 5% down—go lower than that and you’re setting yourself up to feel every other cost listed in this article. On a $430,000 home, 20% is $86,000 and 5% is $21,500.

Closing costs are the fees to finalize your loan and transfer the house. That includes loan origination, title work, and prepaid taxes and insurance, among other things. Closing costs typically run about 3% of the home price—that’s around $12,900 on a $430,000 home.²

You’ll also need to pay your real estate agent, if the seller doesn’t offer to cover it. An agent commission could cost an additional 3% of the home value.³

Then there’s the home inspection and the appraisal. An inspection—so you know what you’re actually buying before you sign—runs about $400, and the lender’s appraisal usually costs around $400.^4,5

What Are the Ongoing Costs of Owning a Home?

The main ongoing costs of owning a home are your mortgage, HOA fees, utilities, lawn care and maintenance. Here’s a breakdown of each one.

Mortgage

Most people think of the word mortgage as just a lump of money you give the bank to pay off your house. But when you pay your monthly mortgage, that money actually goes toward five or six separate payments.

• Principal: The principal is the amount you borrowed to buy your house. So when you pay on the principal of your home, the amount you owe on the house goes down. Your goal is to get the principal down to zero—meaning you own your home 100%, mortgage-free. And the grass sure does feel different when it’s all yours!
• Interest: The interest is the money the lender is making. Paying this doesn’t lower the amount you borrowed, but it is the cost of borrowing.
• Property tax: Most mortgages include your property tax in the monthly payment. The lender will set aside a portion of your payment in a separate escrow account and pay those taxes for you when they’re due.
• Insurance: The monthly mortgage payment can also include your homeowners insurance. Just like with the property taxes, the lender handles that payment for you.
• PMI: In the event of a foreclosure, the bank can often get around 80% of the home’s value. So if you don’t give them the other 20% up front as your down payment, they add on PMI to protect themselves.
• HOA fee: Some homes have an HOA, which usually charges a monthly fee, though it may be billed quarterly. For homeowners with a mortgage who pay HOA or condo fees, the median was $120 per month, according to the latest Census data.¹⁰ These fees help maintain shared spaces and may cover amenities like a pool, playground, walking trails or landscaping. HOA fees aren’t part of your mortgage payment, but they’re a required housing expense—so factor them in when deciding how much home you can afford.

If it’s a number you’re looking for, the monthly mortgage payment on a median-priced home—nearly $430,000, bought with 20% down on a 15-year fixed-rate loan—runs about $3,520, or $42,240 a year. We’ll break that down below.

Something to remember: All of those things, HOA included, shouldn’t be more than 25% of your take-home pay. When you start spending more than 25% here, you become house poor—meaning your house might be awesome, but the rest of your life suffers financially. Who wants to live in a three-story house with no furniture or a have a gourmet kitchen with no money to buy groceries? And a lot of first-time buyers slip into that trap without realizing it, so make sure you know the most common home-buying mistakes young buyers make.

Those may seem like extreme examples, but being house poor can put you at extreme risk later on. So as you look at those pieces of the mortgage-payment puzzle, remember this advice:

• Aim for a down payment of 20% to avoid PMI (at least 5% is okay if it’s your first home).
• Get a 15-year fixed-rate conventional mortgage.
• Don’t spend more than 25% of your monthly take-home pay total on the housing costs we listed in the bullets above.

Utilities

Other than the mortgage bill, utilities are a monthly cost you’re responsible for as a homeowner. Natural gas, electricity, water, trash collection, internet, phone and television streaming services are some of the most common utilities.

Of course, not all of those are necessities, but have them in mind as you budget. You might already be paying for these as you’re renting, but sometimes your rent includes some utilities.

Also remember that if you’re upsizing, several of those bills will increase. It costs more to heat and cool a three-bedroom, two-bath house than it does a studio apartment, for example. The average monthly total for home utilities in the U.S. is $595, or $7,140 per year.¹¹

Lawn Care

If you’re moving somewhere with a lawn, you’ll need a maintenance plan. Are you going to mow, clip, prune and bag it yourself or hire a crew? Will your obsession with coral-colored roses be a constant temptation to spend half your paycheck on a garden the Queen of Hearts herself would envy?

While the roses can wait, you don’t want to make enemies of the neighborhood (and/or the HOA) by growing your grass miles high. Plan on a reasonable amount of money going toward lawn care. The average American homeowner who hires help spends about $300 on lawn care a month—but that can go up and down a lot depending on how much lawn you have and if you’re doing something like landscaping, adding flower beds, or planting grass.¹² And that probably doesn’t include purchasing equipment like a lawn mower when you’re first starting out, which can run you from a few hundred to thousands depending on what you get.¹³

Home Maintenance and Repairs

When you own rather than rent, one of the biggest adjustments is home maintenance and repairs. No more ringing up the landlord when a family of skunks moves under your deck or when your HVAC goes kaput on a sweltering summer day.

You get to call pest control or that local AC company who got past copyright issues and named their company Mr. Freeze. And you get to pay the bill. From gutters to garage doors, roofs to refrigerators, toilets to termites, your housing budget will look different when you make the move to homeownership.

As far as average maintenance costs go, there’s an old rule out there in the housing industry that says you should set aside 1% of your home’s purchase price toward home maintenance expenses. For a $430,000 house, that comes to about $4,300 a year.

For a more detailed look, check out this table covering common home maintenance and repair expenses to get an idea of average costs per project:

Case Study: The Real Math of a Median-Priced Home

Here’s what the math looks like on a median home. Take a house at nearly $430,000, bought with 20% down ($86,000) to avoid PMI on a 15-year fixed-rate mortgage at 6%. That leaves a $344,000 loan—and here’s the monthly payment, according to our Mortgage Calculator:

*Homeowners insurance is estimated at about $2,100 per year ($430,000 ÷ $1,000 × $4.90).²⁴

The biggest chunk of the monthly cost is the $3,520 monthly payment. And to keep a payment like that at or under 25% of your take-home pay, you’d need to bring home about $14,100 a month, according to our Home Affordability Calculator. That’s exactly why Ramsey says to buy what you can actually afford: If a house stretches you past 25%, buy less house or save a bigger down payment. The reason for the 25% rule is to keep margin in your budget for other costs—like the utilities, lawn care and maintenance shown here, which add about $15,000 a year and push the true cost of owning a $430,000 home to around $57,000 per year.

How to Budget for Homeownership

We’ve looked at some of the possible expenses you could pay owning a home. And yes, we included some really rough estimates of prices based on national averages. But again, basing your budget on averages isn’t the way to go. It’s just a jumping-off point.

Here’s the real deal: You need a plan to pay for home expenses that exist in reality. That means doing a little homework, creating a custom plan for your life, and taking the necessary steps before you buy the house to make sure your dream home doesn’t become a nightmare.

Let’s look at how you can start an actual plan that suits your personal homeowning journey to a T.

Take a good, honest look at your potential home.

This might seem like a weird place to start, but it’s true. A home’s physical condition will have a big impact on your costs from the moment you’re handed the keys. It will give you an idea of what to expect and how to budget for it. Don’t forget to ask the right questions for your home-buying journey.

• Size: How big is the house? The bigger the house, the more it costs to heat, cool, and keep the lights on and the water running. A bigger home also means more to repair and maintain.
• Location: Is the home in an area that gets humid during the summer or icy in the winter—or both? The environment takes a toll on a house’s physical integrity, which means money for upkeep, weatherproofing and damage repairs. And a home’s location will also bring with it higher or lower property taxes and insurance premiums.
• Age: How old is the house? An older house will need extra TLC sooner than a newer build. This could look like having to replace old appliances, fixtures, roofs, electrical systems and more.
• Wear and tear: How you and your family treat a home can also influence the cost. Do your kids run though the hallways and mark up the walls? Does your grandma prefer a balmy 75 degrees inside the house all winter long? All that use and abuse puts mileage on your home and appliances.

Get or stay out of debt.

If you have any kind of consumer debt, it’s best to take care of that before even thinking about buying a home. The last thing you want is to face all those added expenses with a giant pile of debt on your back. Start your homeownership with a clean slate.

Have budget lines for your monthly home expenses.

For all the steady monthly expenses—like your mortgage payment, water bill, electricity, natural gas and such—you need to set up separate lines in your budget. If you’re doing this for the first time, look back at your bank statements to see the average bill for each (that is, your actual average and not a national average), and put those amounts in as the planned costs.

Budgeting for each of these expenses keeps you from spending your light-bill money on laser tag by accident. Once you’ve got your Four Walls covered—food, utilities, shelter and transportation—then you can spend what’s extra on money goals and fun.

Keep an emergency fund for surprises.

If you don’t already have one, you need an emergency fund. That means enough money to cover 3–6 months of expenses.

The thing with surprises is that you don’t know when they’ll happen. But you do know surprises will happen. This is especially important when it comes to owning a home because broken water heaters and busted HVAC systems need to be addressed ASAP. That’s what your emergency fund is all about: being ready to meet those surprises with cash.

Create a sinking fund for semiannual expenses or repairs.

Here’s the thing: Some of those repairs and home maintenance issues mentioned earlier really aren’t surprises. When you own a home, you need to regularly inspect appliances and major systems so you can know what will need some financial attention soon. And that’s why you should have a sinking fund—a separate account to squirrel away cash for those larger known expenses.

For the repairs and replacements you see coming, as well as the semiannual expenses (like a quarterly bill for pest control), you can easily set up a sinking fund in your household budget in the EveryDollar budgeting app. Calculate how much money you need by when, divide it by the months until that time, and start stashing cash in the fund to prepare.

Get a Pro on Your Side

Now you’ve got the knowledge you need to be financially ready to buy a home. If you think you’re ready to own a home (and take on all the responsibility that involves), you need someone in your corner to help you make the best choices along the way. And that someone is a real estate agent.

But how do you find a trustworthy agent you can count on to keep your best interests at heart? Get a RamseyTrusted^® agent. They’re experts in the field—the best of the best in your area—and we’ve checked them through and through so you don’t have to.

You can focus on the fence, tire swing—oh, and that awesome down payment. Your RamseyTrusted real estate agent will focus on getting you the best deal on your new home!

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