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You may be wondering why I would write an article about the cost to own a home … especially since this site is mostly about creating multiple income streams and building wealth.
Well in order to build true wealth (in my opinion), you need to focus on the major expense categories. For most families like ours … that would be – housing, transportation, and food.
So while our family is fine with spending a bit more on healthy food to fuel our bodies, we like to focus most of our attention on the other two categories – housing and transportation.
For the past several years, I have been tracking our annual housing expenses.
I have found that these summary posts have multiple benefits. For example, I am interested to know how much we may need to set aside for bigger expenses like replacing a roof (2019).
And now this year (2021) … I want to compare what it used to cost us (yes we sold our home) to live in our home vs how much we are paying to rent.
If we are able to control and reduce some of our spending in these bigger categories, then it leaves more of our income on the table to invest.
The end goal for us is to continue investing in income producing assets that will generate future cash flow and grow our net worth.
The Cost of Home Ownership
I can really only speak for my wife and I when it comes to the cost to own a home.
Before selling our house last fall (we are now renting), we have owned two houses since we have been married.
The first home was a starter home (in the Midwest) we purchased just before we got married. We lived in that home for about 5 years before selling and moving out of state for a job.
We lived with family for the next year before building our second home (in the Southeast). This second home was close to 3 times the size of our first … which was way more of a house (even with 3 kids) than we needed.
Despite a much larger home, we noticed that location was a big deal when it comes to the cost.
For example, our property taxes and utilities were much higher in our first home. So we thought we could just afford a much bigger home for our second purchase.
In all honesty … we had no issues affording all of the expenses for our bigger home.
But I always wonder “what if” we would have just bought a 2,500 square foot home instead of a 3,300 square foot home?
We may have been further along with reaching financial independence … which is a goal of ours.
Today I would like to offer up our last annual update on the cost to own a home. Since we have sold our home (and now rent), tracking our housing expenses will look different in 2021.
I’m sure we will be comparing rent vs. buy a home instead next year!
How Much Did Our Home Cost per Year?
Overall, our housing costs don’t look too bad in 2020, compared to what we spent in 2019 on our home. In fact, they look much lower than our 2018 housing expenses and even what we spent in 2017 on our home.
After years and years of discussing the benefits of a smaller home, we finally sold our house in 2020!
That 3,300 square foot home I was always complaining about is no longer ours. We decided to build a smaller, more efficient home … but have not started that process yet. So we decided to rent for 12 to 24 months in the meantime.
So despite our 2020 numbers looking low … once you prorate some of the expenses, it isn’t really any lower than some of the years in the past.
Overall we spent $20,557.20 to live in our home last year (2020) between January and the end of October.
If I were to prorate out some of those housing expenses … we would have potentially spent $23,491.33 for 12 months.
The prorated amount spent is in line (or slightly higher) than our 2017 and 2018 spending. We are considerably lower compared to 2019 … when we had to replace our roof.
For more details, here is a list of housing related expenses we paid between 2017 and 2020 –
[table id=10 /]
To recap, our 2020 cost to own a home came in roughly were we’d have expected to compared to other years –
2020 Total Housing Expenses (10 months) = $20,557.20
2020 Estimated 12-Month Housing Expenses = $23,491.33
Next, let’s look at the breakdown of housing costs for each category.
1. Mortgage (Principal and Interest)
As usual, our mortgage made up the majority of our actual housing expenses for the year … 56.2% based on the prorated expenses!
2020 Mortgage Expense – $11,000
If we were to have lived in our home the entire year … we would have paid approximately $13,200 towards our mortgage.
Since we were on a 30 year fixed rate mortgage, each month part of our payments would go towards principal and interest. Based on the amortization of that loan … each month that went by, we’d pay more of our monthly payment towards the principal and less towards interest.
We also paid an extra $217.90 towards our principal balance in 2020 … in addition to our normal payments. For the past couple of years, we had been rounding up our monthly mortgage payments to the nearest $100. It was a quick and easy way to pay down some of our debt faster without really knowing it.
Most people I suspect know about having to pay a mortgage when buying a home … but it is the other costs that can bite you!
Our mortgage payment made up roughly half of the cost to own a home last year … so where did the other half come from? I will itemize those expense below –
2. Property Taxes
There is little you can do to avoid paying property taxes.
Even if you were to pay off 100% of your mortgage, you’d still get stuck with paying taxes. That just comes with the fun of owning your home.
Property taxes are certainly variable depending on what part of the country you live in … so that is one way to lower this expense if you were to move to a cheaper cost of living area.
The good news in 2020 was that our property taxes remained the same as in 2019. This was after several years of modest increases.
2020 Property Taxes – $4,429
Property taxes made up 18.9% of our overall prorated cost to own a home in 2020!
One bright spot is that when we sold our home in the fall, we got back a prorated amount for the year … since we actually only owned the home for 10 months. The new homeowners got to pick up those other 2 months!
When you own a home, you also need to pay for utilities … specifically water/sewer, electricity, and heating.
Some homeowners may need to pay for trash pickup too. Our waste management was covered by paying our property taxes.
Anyone who has a house with a well, wouldn’t have to pay for water … but rather keeping the well and possible septic system in good working condition.
In the 13 years that we owned our home, the biggest frustration when it came to the bills were the utilities.
Overall, water/sewer wasn’t too bad based on where we lived. Plus we managed to do a good job on keeping our water consumption low.
Our issue was more on how inefficient a 3,300+ square foot home was to keep warm in the winter and cool in the summer. We had 29 windows in our house … which mostly did a horrible job of keeping us insulated.
If we would have stayed in our home the entire year, chances are the utility expenses would have been higher than they had been since we started tracking. Based on a prorated expenses, we would have spent 14.4% of our housing costs on utilities.
2020 Utilities – $2,823.68
You can bet our next home will be – (1) smaller, (2) fewer windows, and (3) built with energy efficiency in mind!
After about 12 years, we had to replace our roof in 2019 … which was a huge disappointment. I had originally thought most roofs should last 20-25 years.
It wasn’t just our roof either. Probably 75% of the homes built around the time of our home had to get their original roofs replaced.
The good news is last year, we escaped any major capital expenditures for big ticket items on the home. But it wouldn’t have surprised us as our water heater, two furnaces, and two central air units were all as old as the home.
Fortunately, the maintenance expenses to own our home last year were similar to years past … making up 4.3% of our prorated expenses.
2020 General Maintenance – $846.94
It’s just common sense … but the bigger and the older a home is … the more expensive they will be when it comes to maintenance expenses.
5. Homeowners Insurance
For the last several years, our homeowners insurance has been on a slow and steady climb.
In 2020 … insurance made up 5.5% of our overall prorated housing expenses.
2020 Homeowners Insurance – $1,284
The good news is that we received a rebate back from our insurance company once we sold our home. And now that we are renting, the cost for insurance has dropped by over $1,000!
I have listed this as one of the top advantages of renting vs owning a home.
6. HOA Due’s
We were fortunate to have a small HOA in our neighborhood and fairly low expenses. These expenses counted for less than 1% of our overall cost to own a home in 2020.
There were a few common areas where landscaping crews would take care of, along with some street lights.
In the time we lived in our home, the HOA due’s remained fairly static.
2020 HOA Due’s – $173.16
For some neighborhoods, this could be a huge expense … so be aware before buying a home to check the HOA due’s.
Monthly Cost to Own a Home
Overall, we paid $20,557.20 to live in our home in 2020 for 10 months.
That averages out to $2,055.72 per month.
2020 Monthly Average = $2,055.72
This is down by over $400 per month compared to 2019 ($2,482.10) … when we had to replace our roof.
We like to keep our monthly spending budget to $5000 per month (or $60,000 per year). So housing made up 41.1% of our monthly budget for the first 10 months of 2020.
Now you can see why tracking the cost of housing is so important. The more we can lower this expense, the more funds we have available to buy income producing assets like dividend stocks, etc.
Rent vs Buy a Home
I have been asking the rent vs buy a home question now for the past 4 or 5 years.
In the past, I have come from the background of owning a home. However, the last 2 months of 2020 and into the new year … I will be coming from the background of a renter.
While there are a couple other options for housing that are a bit extreme like living in an RV … our family of 5 has two options for shelter – rent or buy a house.
For the longest time, my wife and I valued the stability of owning a place we can call home. However, last year … we decided our current home was no longer what our family needed … so we sold.
We plan to start building a new home over the next 12 to 24 months. In the meantime, we will rent.
Soon I will run a comparison of renting vs buying a home from our first hand experience.
Our monthly housing expenses last year averaged $2,055.72 to live in our house.
I already know our monthly rent in our current place is $1,800 … so we are very close from a cost perspective. However, there are a few more expenses for renting that I will need to add in.
That’s enough about renting for now, so let’s wrap this expense report up!
What’s Next for 2021?
I don’t see us saving all that much money in 2021 on our housing expenses by renting.
That is … the expenses you see on paper at least. What I cannot predict was any large capital expenditures (like a new central air unit) we may have needed to cover if we would have stayed in our home.
Another down side of renting is that even if we pay the same amount each month as we would have from owning … we are missing out on paying down our mortgage principal.
Instead, we are helping our landlord out by paying down theirs.
We do look forward to exploring more this year however on finding a place to call our next home!