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The Big Picture 

Evaluating the total cost of home ownership

It's an exhilarating experience to embark on the house hunting journey—from browsing online, driving by a few favorites and then seeing a home in person and realizing the true potential of living there. Hopefully by that point in the process, the buyers have taken all of the proper steps. Finances are in place, down payment and closing costs are saved and the pre-approval letter is in hand. It's simple to determine a target home price and comfortable mortgage payment, but a commonly overlooked piece of affordability is the total cost of home ownership.

click image 401(K) 2012, FLICKR
  • 401(K) 2012, Flickr

The total cost of ownership is a larger financial picture factoring all associated costs of owning a home. Buyers often ignore expenses such as monthly utilities, homeowners' association dues and allocating savings for maintenance and repair or replacement projects. A good lender will help paint a realistic picture of what the monthly payment will be after HOA dues, mortgage principal and interest, property taxes and insurance. These specific costs vary depending on the individual home, location and loan type.

Homeowners should anticipate having to repair, maintain or replace household necessities such as appliances, fixtures, the HVAC system, interior or exterior painting, a new roof... and the list goes on. It's very wise to build a savings equal to around 1% of the home's value. The age of the property, materials and appliances installed are a few factors to consider when deciding on the amount to have available. A well-maintained home will prevent the need for expensive repairs due to deferred maintenance and will increase the property's resale value.

Researching a home's previous utility costs will provide a pretty accurate snapshot of what to expect. Utilities will fluctuate seasonally in Central Oregon; typically, the most expensive months to operate a home are in winter due to heating. Utility companies can easily give out at least the average costs and often will provide a more detailed analysis of the year. But remember, these numbers are dependent on the occupants' energy consumption habits as well.

It's extremely worthwhile to look for a home constructed using both energy and resource efficient practices, like an Earth Advantage certified home built with materials that are healthier and more durable and cost less to operate because of reduced water and energy usage. The total cost of ownership will be less in a high-efficiency home when compared to an almost identical home that is conventionally built, due to the significantly reduced monthly utility bills in an energy-efficient home.

It's tempting to dream big—but overextending yourself with monthly payments can put a serious strain on quality of life. Being pre-approved for $500,000 doesn't mean that price point is affordable, so consult with a trusted, seasoned lender and realtor to truly understand all of the costs of home ownership that may have been overlooked. This extra planning will promote financial success as a homeowner.

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