Real Estate

The Hidden Costs of Homeownership Driving Americans to Rent

July 28, 2023

Homeownership isn’t for everyone. Whether the cost is out of reach, or you prefer to live a more flexible lifestyle without the burden of home repairs and maintenance, there are plenty of reasons to rent instead of own.

One reason many Americans are forgoing homeownership in favor of renting? The various costs associated with owning and caring for a house. And that’s on top of already high home prices and climbing mortgage rates. So it’s not surprising that 22% of U.S. households now view renting as a better financial decision than owning.

The reality is, the costs of homeownership extend far beyond your monthly mortgage payment. Unanticipated expenses could include anything from repairs to pest control to a new lawnmower. And these costs can really make a dent in your budget.

In fact, a recent survey of homeowners found that nearly half said owning a home was more expensive than anticipated. So, what exactly are these “hidden” costs of homeownership, and is renting really better than owning? Here’s what you need to know.

14 Hiddens Costs of Homeownership

1. Closing Costs

Many homebuyers are surprised to learn that closing costs can add up to 3% to 6% of the loan amount. Plus, they need to be paid upfront, in cash. And unlike the down payment, closing costs won’t help build your equity. They’re more of an added cost of buying a home.

2. Mortgage Insurance

If you put less than 20% down on your home purchase, you’ll likely pay monthly mortgage insurance for a period of time. That looks like paying an extra 0.5% to 1.5% of the loan amount annually, on top of your regular mortgage payment.

3. Routine Maintenance

Homeowners are often told to set aside 1% to 4% of the home’s value each year for routine maintenance and upkeep. And if you have maintenance-heavy features like a pool, elaborate gardens, or antique stained glass that needs professional cleaning, those annual costs may be even higher.

4. Repairs

If there’s anything a homeowner can count on, it’s the fact that things will break. And that requires a sizable budget for repairs. Some repairs may be minor, such as fixing a broken door handle. Others are much more expensive, like replacing a roof, which costs an average of $10,000.

5. Utilities

Utilities tend to cost more for homeowners, too. That’s because homeowners typically have more square footage to cover. After all, heating a two-story house generally costs more than heating a 800-square-foot apartment.

Homeowners may also need to pay for additional utilities that renters aren’t usually responsible for, like trash removal and water and sewer fees. Overall, homeowners pay an average of $5,152 yearly for utilities, while renters pay an average of $2,736.

6. Landscaping

Whether you’re building new flower beds, planting native shrubs, or paying a landscaping company for weekly lawn maintenance, curb appeal comes at a cost.

The average professional landscaping project costs$3,422 . Of course, homeowners can save money by doing some of the work themselves, but materials alone can be budget-busters. For example, rocks and gravel can cost anywhere from $40 to $100 per cubic yard. With larger projects, those costs can quickly add up.

7. Snow Removal

If you own a house in an area that gets snow, you might need to pay for snow removal, too. That could run you anywhere from $200 to $600 per season, making it a substantial yearly homeowner cost.

8. Tools

Another expense homeowners need to plan for, yet renters rarely think about? Buying tools. Once you become a homeowner, you’ll need all kinds of tools, from drills to saws to a new wheelbarrow.

Many new homeowners are shocked to learn how expensive these tools can be. A lawnmower alone costs an average of $360 for a walk-behind mower, or $2,500 for a riding mower.

9. Furniture and Decor

Furnishing a house isn’t cheap either, especially if you’re upsizing. The average cost to furnish a home is $16,000, but it can depend on the size of the house and the choice of furnishings. If you need to furnish a deck or a patio, it may cost you even more.

10. Pest control

Most homeowners find themselves doing pest control at one point or another. The costs can vary depending on whether you’re taking routine pest control measures or treating an infestation. But on average, homeowners spend $400 to $950 annually on pest control services.

11. Property taxes

Property taxes vary based on location, but almost every homeowner has to pay something. New Jersey has the highest effective property tax rate at around 2.47%, while Hawaii has the lowest at 0.29%. The average U.S. household spends $2,690 on property taxes, but depending on your state and the value of your home, you could spend substantially more or less.

12. Homeowners insurance

If you’ve got a mortgage, you’ve also most likely got homeowners insurance, which costs the average household $1,428 per year for a policy with $250,000 of dwelling coverage. However, the cost can vary based on a number of factors, including the size, value, and location of your house.

13. Security

Your home is your biggest asset, so you’ll likely want to protect it with security. The average home security system costs between $300 and $840 for equipment, installation, and activation fees. And you’ll pay another $25 to $50 monthly for ongoing security services.

14. HOA fees

Finally, if your home belongs to a homeowner’s association (HOA) community, you’ll need to pay any associated HOA fees. Around 26% of Americans live in HOA communities, paying an average of $200 to $400 per month in fees. This is yet another hidden cost of homeownership that can make a big impact on your budget.

What are the Benefits of Renting Over Owning?

Convinced that owning a home is riddled with surprise expenses just waiting to upend your budget? You’re not alone. Many Americans, including high earners, are purposely choosing renting over owning, whether for financial or lifestyle reasons. So, what are the major benefits of renting over buying? Let’s talk about it.

Save Time and Money

Renters could save time and money by skipping the added work and hidden costs of homeownership. Of course, landlords do bake some of those hidden costs into rental payments. However, renters don’t generally need to worry about major unexpected repair expenses popping up, unless they damage the property.

If the roof starts leaking, usually it’s not the renter’s responsibility to call contractors, collect quotes, hire someone, and oversee their work. That’s the landlord’s problem (and expense!).

Additionally, not everybody is able or willing to spend time on major home maintenance. For those who do a lot of traveling or work long hours, the ease of renting is especially attractive.

Live Flexibly

Speaking of the ease of renting, flexibility is another point in its favor.

Typically, homeownership makes the most financial sense when you’ll be in the house for at least five to seven years. Renting, on the other hand, allows you to move more easily when you need to. You won’t need to sell a house, or move an entire house’s worth of stuff.

Not sure where you’ll be in a year or two, or even six months? Renting might be the better option.

Get More With Less Budget

Not only can you avoid all kinds of hidden homeownership costs when you rent, but you can also get more affordable housing in most U.S. cities. For example, in Austin, Texas, the median monthly homeowner cost is $3,672, while renters pay just $1,659.

With renting, you can also get more amenities for less money since the cost is shared among tenants. Many large rental properties offer state-of-the-art gyms, pools, and movie theaters — all features you’d pay dearly for as a homeowner.

Use Your Wealth On Your Own Terms

Finally, being a renter doesn’t just give you flexibility with your move-out date. It also gives you more flexibility with your wealth.

Allow us to explain: As a renter, you’re likely to invest in more liquid assets that you can tap into as needed. But when you own a home, much of your wealth is often “trapped” in equity, meaning you’re typically unable to use it unless you sell or refinance.

But what if you’re a homeowner looking to convert your equity to cash and live the easy life of a renter? You could of course sell your home. Or, if you’re attached to your home, a residential sale-leaseback (also known as a rent-back agreement) might be an option worth exploring.

With a residential sale-leaseback, you sell your home to a company, convert your equity to cash, and rent the home back from the company for a certain lease period. This allows you to get financial relief while also staying in the home you love — all with many of the perks of renting!