20 Hidden Costs of Home Ownership

Published: Thursday, 2 Dec 2010 4:38 PM ET By: Cindy Perman (CNBC)
 
When Bill Douglass and his wife bought their first home, he budgeted for $250 a month for maintenance costs.


He soon found out that it was $300 a month — just to maintain the lawn.

“I have to admit, I was rather naïve about the costs involved in being a homeowner,” he said.

Two months after they moved in, a FedEx truck accidentally backed into the house, damaging the gutter. That was $900. Then they had a baby girl! It cost an estimated $10,000 for the first year of a baby’s life, according to this baby calculator. Then, the air conditioner went on the fritz. That was $8,000 to replace it. They soon discovered that their neighborhood is prone to power outages, so they needed to consider dropping $10,000 for a backup generator.

“Most people are unprepared for the big repairs — and even the small repairs,” said Guy Cecala, publisher of Inside Mortgage Finance magazine. “When the toilet starts flooding, you can’t call someone like you did when you were renting. You’ve got to fix it yourself.”

To help you get prepared, here are 20 Hidden Costs of Home Ownership.

1. Your heart. You may set a budget for how much you can spend on a new house, but then you find something you love — something you can’t stop thinking about — and even though it’s $50,000 or $100,000 over your budget, you buy it anyway.

“Oftentimes, homeowners make the largest financial decision of their lives — buying a home — with their heart, not their head. They get emotionally involved with the property,” said Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling. “That can put them on a very slippery slope.”

“I suggest people make all financial decisions with their head — and leave their heart out of it!” Cunningham advises.

2. Property taxes. You might think — “I’m paying $1,200 in rent. For that, I could be paying a mortgage and own my own place!” Well, yes. But if you’re only plugging in the principle and interest rate into your mortgage calculator, you’re missing out on a huge expense right out of the gate — property taxes.

You need to find out what the taxes are in advance (they’re usually on the MLS listing), divide it by 12 and immediately add it to your estimated monthly payment.

And remember, the taxes are just going to keep going up — you could even get a tax increase in the first year you own your home — so make sure you have room left in the budget to pay even more taxes.

3. Insurance. It costs a lot more to insure a home than, say, a one-bedroom apartment. So even if you had renters’ insurance, you’re going to have to up the budget for insurance. And, there are a lot of factors to consider when it comes to insurance.

Thought you saved more by buying an older house? Well, guess what: It’s going to cost more to insure it because the electrical, heating and plumbing are older and more prone to disaster. Wait, did you fall behind on credit-card payments during the recession but thought you were in the clear because you always paid your mortgage? Well, guess what: Insurance companies can periodically check your credit score and raise your rates based on their assessment of your “risk” level.

Plus, if you live in a flood zone, earthquake zone, tsunami zone or volcano zone, you’re going to have to pay extra for hazard insurance.

4. Appearance. Before the first thing in your house even breaks, there is going to be something that you want to change because this is YOUR HOUSE and when people see YOUR HOUSE, you want them to know that you have taste.

“You don’t want it to look like the worst house on the block,” said Neil Ellington, the executive vice president of CESI Debt Solutions.

So, you add shutters, a paved walkway up to the house, flower boxes, landscaping … it’s amazing how much you spend on the outside of the house that you never had to spend on an apartment.

5. The Lawn. First of all, if you decide to contract the lawn out, it’s going to cost you $100 or so a month for someone to cut the lawn, plus another $100 a month for weed killer, pest control and fertilizer. Plus, any extra you decide to spend on new trees, bushes, flowers or fencing.

If you decide to do it yourself to save money, it’s still going to cost you. You’ve now got to buy a lawnmower, weed whacker, hedge trimmers, a hose, sprinkler, rake, gloves, buckets and more. And, of course, if you don’t have a garage big enough to store all of your new lawn gear, you now also need to buy and install a shed to house them.

Ellington said he and his wife live in a drought-prone area so, to save money on water costs opted to put down stone in a part of the lawn. Well guess what? Stones cost a lot of money, too! Unless you find a builder or homeowner who’s looking to unload some stones from a construction site, stones are going to cost you more than you think. At Home Depot for example, a small, 11”x14”, resin landscape rock (we’re not even talking flagstone!) is $29.99. A bag of small landscape rocks cost $5 to $50.

6. Add-Ons: decks, patios, sheds and additional rooms. That shed probably set you back a few Benjamins but guess what? It’s also going to bump up your taxes. Any addition or improvement you make, whether it’s a shed, deck, kitchen renovation or expansion of your master bedroom, is not only going to cost you for parts and labor (which can run into the thousands) but it’s going to make your taxes go up. Every year.

7. Maintenance. A co-worker thought he was catching a break on maintenance costs because he had a fireplace but it wasn’t a working fireplace. Well, then someone told him the chimney — you know, the non-working chimney on the outside of the house — needed to be repointed because the bricks were loose and could fall off and hurt someone. So, he has to pay more than $1,000 to have a mason come in and stabilize that purely aesthetic chimney. How charming!

There are a million unexpected maintenance costs like this. You’ve got to reseal the driveway, restain the deck, clean the gutters, repair and eventually replace the roof, repair any cracks in the siding, patch the front steps — and that’s just the outside! On the inside, you’ve got to repair the appliances, fix any plumbing leaks, replace filters, seal your doors and windows, drain the water heater and clean the chimney.

Plus, patch the walls, replace the toilets, repaint, restain the floors or replace the carpet and regrout the bathroom.

This is why you always hear homeowners say — It’s always something! (It's also, incidentally, the reason that mommy and daddy sometimes seem grumpy for no reason!)

8. Cleaning. Cleaning a house is a lot of work. Whereas you might’ve had one vacuum and set of cleaning supplies in an apartment, now you may want to have multiple vacuums and sets of cleaning supplies so you don’t have to lug them up and down one or two flights of steps.

Beyond the cost of multiple sets of supplies, cleaning takes time and energy — something you might not have, especially if all the adults in the home work. If you opt to hire a cleaning person, that’s going to cost you $100 or more for every visit, which can add up to over $1,000 during the year.

9. Time! Time is “the No. 1 thing — your biggest cost — of being a homeowner,” Ellington said.

You don’t realize what all your rent went toward and when you have to do it yourself, it costs you a lot — a LOT — of time.

“The time you used to spend with your kids, now you spend on lawn maintenance or changing a light bulb!” Ellington quipped.

10. The furnace and air-conditioning. So, you buy a house and the inspector tells you that the furnace is only four years old and that you may have another 16 or more years left on it. You figure you’re in the clear, you’ll be long gone by then, right? Wrong. A lot of people will tell you you’ll get 20 years out of a furnace but it’s really closer to 10, Cecala says. Then, consider the fact that if the furnace is four or more years old, it probably isn’t energy efficient. So, instead of repairing your furnace or air conditioning units for the next few years, it’s probably better to shell out the cash for a new furnace or central air.


Make sure you know what type of furnace you have before you buy the home. We found out all too late that our new home, with the gorgeous addition and luxurious central air actually had two furnaces because when the previous homeowner did that renovation, he didn’t extend the old heating system into the addition, he just put the vents for the new A/C system in there, which means you have to run both furnaces to heat both the old and the new sections of the house.

11. Wiring – cable, phone, Internet. When Amy Martin and her husband bought their first house a few years ago, they discovered that their cable service was spotty — some channels worked but others didn’t. When they went to get it repaired, they were told that they were “leaking” cable because the wiring in their house was either not the right size or connected wrong.

The wires on the outside are the utility company’s responsibility but any of the wiring on the inside of the house is YOUR responsibility. So, they had to bring an electrician in for 3 to 4 hours to rewire the home.

“In most cases, when you are house hunting, you tour the house a few times, and may or may not be present for the inspection. By the time you've purchased it, you've spent a grand total of about 2-3 hours in the house!” Martin exclaimed, which, for those keeping score, is less time than the electrician spent in the house rewiring the cable!

12. DIY. With the rise of home-improvement channels, everyone, it seems, has DIY — do-it-yourself — fever. Lay down your own flooring? No problem! Strip the bathroom, knock down a wall and put in a new master suite? No problem!

Actually, problem. Most of us, no matter how many hours of HGTV we’ve logged, don’t know a lot about plumbing, electricity, support beams or the finer nuances of cutting granite.

So, in reality, when you think you’re saving on labor costs by doing it yourself, you may be costing yourself more if you ruin the materials you bought, had to buy a second set and then had to pay a guy to come do it for you anyway!

13. Extra stuff the guy finds when he comes for something else. So, you bring in a guy to help you with the kitchen remodel and while he’s outside on his smoke break, he reaches under the front porch and pulls out what looks like a handful of straw. In fact, that’s rotting wood from your front porch — you know, the one your precious little girl bounces on when she’s playing with her friends.

To your untrained eye, the porch, the chimney — it all looks good. But bring in a professional and they’ll inevitably find two or more things that need fixed.

14. Safety. From fixing the front porch to installing an alarm system, adding motion-detector lights or lighting a footpath, those extra safety features are going to cost you extra money.

15. Pest control. If you saw a bug or a mouse in your apartment, you just called the landlord. When you own your own house, there’s no one there to hear your screams. Dealing with termites, cockroaches, mice, bats or the latest pest craze, bed bugs, costs a lot of money. Spend a couple hundred dollars for routine maintenance and it will save you lot more later if you have to get the place bombed and throw out some of your furniture or replace the floor because the varmints got to it.

16. Savings. Do you know how much money you can save by installing new windows, a programmable thermostat and energy-saving light bulbs? A whole lot! But guess what? In order to save a lot, you’ve got to spend a lot up front. While you’re focused on the savings, your money is slipping out the back door.

“These are expenses that people don’t think about when they buy a home but have to think about after the initial honeymoon phase with the house — it’s just like a marriage!” Ellington said.

17. Emergency. Like Douglass, you generally don’t realize until after the FedEx truck has backed up into your house and you’ve had a bouncing, baby girl that your neighborhood is prone to power outages. And remember, power outages usually happen at the worst times — when it’s ridiculously hot out or freezing cold, which means you'll probably be desperate enough to spend a lot of money to be comfortable!

They sell smaller generators but you’ll soon learn that they don’t power much and you have to refuel them often. Realistically, you’re looking at a couple thousand dollars to power up the basics. Or, be prepared to shell out a couple hundred bucks a night for a hotel. If you have kids, make sure it has an indoor pool — one family in one room with one TV is challenging for one night, and you have no idea how many days it will be before the power comes back on!

18. Kids. Not only are you kids going to cost you money for diapers, baby food, clothes they're going to grow out of, jeans, soccer lessons, dance classes, phones and college, but they’re going to cost you a couple thousand in damages over the years. They're going to draw on the walls, run into the screen door, put a baseball through a window, spill cranberry juice all over the living-room rug — and more. When it’s a rental, the most you had to worry about was your security deposit. Owning your own home, you’ll reminisce the days when that was all it would’ve cost you.

Some people set aside jars of money for vacations or other fun items, you might do well to set aside a jar for kid disasters!

19. Nearby construction. Make sure you know who owns the land around you and what the zoning laws are. If you buy a home with an amazing view and then someone comes and builds a 20-story condo building in front of it, that’s going to cost you big time when it comes time to sell your house. Likewise, if nearby land is designated for commercial use, you never know when a gas station will go up or a giant shopping center that will make your road busy and slash your property value.

20. Buyer demands. Congratulations! You’ve made it through 1-19 on the list. But don’t take a rest just yet — 20 is a big one. It’s important to keep up with routine maintenance — buying a new furnace, replacing the roof and fixing that wobbly board in the porch. Because when you go to sell your house, those are the things that a buyer is going to notice — and they could cost you the deal. After getting the home inspection, it’s not uncommon for a buyer to demand that you replace the furnace or get a new roof as a condition of the sale. You’re already going to have a lot of costs (paying the real-estate agent, closing costs, moving costs, etc.) so you don't want to have to tack on another $10,000 or so for repairs — or worse, have them knock money off the sale price because of it.

Before you buy a house, it’s important to figure out if you can afford all the costs of a new home.

As a good rule of thumb, don’t spend a lot on discretionary items — like clothes, gadgets and vacations — in those first few years. Set aside much as you can for the unexpected expenses and wait a year or two to see how it shakes out.

The National Federation for Credit Counseling has a list of questions on their Web site you should ask yourself to see if you’re ready to own your own home. Plus, they have more than 800 locations nationwide that offer free first-time-homebuyer courses to educate people on all the ins and outs of buying a home and the responsibilities that go with it.

Ellington also suggests hanging out with a friend who’s a homeowner on the weekends. Volunteer to do his yard work. Find out how much time and money is involved before you commit to having your own house.

“It’s like marriage,” Ellington said. “If you prepare for it, you’re much better off!”

Tiny House Movement Thrives Amid Real Estate Bust

By: AP Published: Monday, 29 Nov 2010  4:21 PM ET (CNBC)
As Americans downsize in the aftermath of a colossal real estate bust, at least one tiny corner of the housing market appears to be thriving.


To save money or simplify their lives, a small but growing number of Americans are buying or building homes that could fit inside many people's living rooms, according to entrepreneurs in the small house industry.

Some put these wheeled homes in their backyards to use as offices, studios or extra bedrooms. Others use them as mobile vacation homes they can park in the woods. But the most intrepid of the tiny house owners live in them full-time, paring down their possessions and often living off the grid.

"It's very un-American in the sense that living small means consuming less," said Jay Shafer, 46, co-founder of the Small House Society, sitting on the porch of his wooden cabin in California wine country. "Living in a small house like this really entails knowing what you need to be happy and getting rid of everything else."

Shafer, author of "The Small House Book," built the 89-square-foot house himself a decade ago and lived in it full-time until his son was born last year. Inside a space the size of an ice cream truck, he has a kitchen with gas stove and sink, bathroom with shower, two-seater porch, bedroom loft and a "great room" where he can work and entertain—as long as he doesn't invite more than a couple guests.

He and his family now live in relatively sprawling 500-square foot home next to the tiny one.

Shafer, co-owner of the Tumbleweed Tiny House Company, designs and builds miniature homes with a minimalist style that prizes quality over quantity and makes sure no cubic inch goes to waste. Most can be hooked up to public utilities. The houses, which pack a range of amenities in spaces smaller than some people's closets, are sold for $40,000 to $50,000 ready-made, but cost half as much if you build it yourself.

Tumbleweed's business has grown significantly since the housing crisis began, Shafer said. He now sells about 50 blueprints, which cost $400 to $1,000 each, a year, up from 10 five years ago. The eight workshops he teaches around the country each year attract 40 participants on average, he said.

"People's reasons for living small vary a lot, but there seems to be a common thread of sustainability," Shafer said. "A lot of people don't want to use many more resources or put out more emissions than they have to."

Compared to trailers, these little houses are built with higher-quality materials, better insulation and eye-catching design. But they still have wheels that make them portable—and allow owners to get around housing regulations for stationary homes.

It doesn't pay to remodel your home

By Les Christie, staff writerNovember 16, 2010: 5:32 AM ET

NEW YORK (CNNMoney.com) -- Looking to spruce up your home and wondering what will give you the most bang for your buck at resell time?


Install new fiber-cement siding. That cost an average of $13,382 and returned 80% of the investment, according to Remodeling magazine's 2010 Remodeling Cost vs. Value survey, done in partnership with the National Association of Realtors (NAR).

Like every other renovation job though, it returned a lower percentage of its costs in added home value this year than it did in 2009.

In general, anyone planning a home remodeling will pay a lot more for the job than they will get back in return when they sell. Only 60% of remodeling costs in 2010 would be recouped by homeowners, the report said.

Exterior improvements mostly performed better than interior ones, owing to the necessity of maintaining a home's "curb appeal."

"In today's buyers market, given the large inventory, where people have so much selection, it's important to have the exterior catch the eye so they're willing to step inside," according to Lawrence Yun, chief economist for NAR.

3 Cheap Ways to Make Your Old Kitchen Feel New
The cost vs. value equation has been getting less attractive for years, but 2010 has seen a particular decline in the percentage of home improvement costs recouped.

On the average remodeling job, homeowners recouped 16% less value than they had in 2009, the steepest slide the survey has recorded in its nine-year history. This happened despite the fact that construction costs declined for the first time since 2004.

Adding a new mid-range bath, for example, returned nearly 100% of its approximately $15,000 cost back in 2003. Today, the same job costs more than $40,000 and only returns about half its cost.

Get a High-Quality Remodel For Less
In general, the more spent for a job, the lower the percentage of return. That's apparent in comparing kitchen remodels.

A mid-range kitchen remodel costs nearly $60,000 and returns just 70% of that expense at resale. A high-end renovation adds just 60% of its $113,000 cost.

The lowest return of any job was for a midrange home office renovation, which cost an average of $28,888 and added $13,235, just 45.8%.

Low cost exterior improvements do well. An exterior steel door replacement return 102% of its $1,218 cost and new garage doors recoup 84% of theirs.

Two jobs tied for the best return on any midrange remodeling investment costing more than $10,000. Adding a wood deck or doing a minor kitchen remodeling, which involves replacing cabinet doors and counters, buying new appliances, sinks and faucets and repainting walls and trim et al, both recouped 72.8% of their costs.

Home Ownership at Lowest Level in a Decade

Published: Tuesday, 2 Nov 2010 11:34 AM ET (CNBC)

The nation's homeownership rate remained at its lowest in more than a decade, hampered by a rise in foreclosures and weak demand for housing.

The percentage of households that owned their homes was unchanged at 66.9 percent in the July-September quarter, the Census Bureau said Tuesday. That's the same as the April-June quarter.

The last time the rate was lower was in 1999, when the rate was 66.7 percent.

The homeownership rate was around 64 percent from 1985 through 1995. It then rose dramatically during the Clinton and Bush administrations, hitting a peak of more than 69 percent in 2004 at the height of the housing boom.

After the housing bubble burst, the rate has been declining gradually.

About 18.8 million homes, or 14.4 percent of all houses and apartments, were vacant, according to the government survey. Without vacation homes, that rate would be 11 percent.

The number of vacant homes has soared over the past four years from about 16 million at the start of 2006. It has been hovering around 19 million since the end of 2008. There are around 131 million housing units nationwide, according to the Census Bureau.

About 2.5 percent of all primary residences were vacant and for sale and 10.3 percent of all year-round rental units were listed as vacant and for rent.

Forget it. You're not getting your house back

By Charles Riley, staff reporter October 18, 2010: 11:13 AM ET

NEW YORK (CNNMoney.com) -- Is this the break that millions of people have been hoping for?


Evidence continues to mount that major banks flouted their own foreclosure procedures -- and possibly the law -- when repossessing homes from owners who fell behind on payments. And that begs the question: Can owners who were wrongfully evicted take their home back? What if a new owner has already bought the place and moved in?

That's the messy scenario that lawyers, banks and hordes of ex-homeowners are facing, after revelations that loan servicer employees might have signed off on documents without a proper review, a process dubbed "robo-signing."

Experts say that very few homeowners will ever get their houses back. The possible exception: The handful of people who were wrongfully swept up by the mortgage tsunami, despite the fact that they were current on their payments.

But getting a judge to unwind a foreclosure is tough.

"The law imposes a very heavy burden on those seeking to attack final court judgments," says Robert Lawless, a professor at the University of Illinois College of Law.

If a court does rule a foreclosure invalid, either because the lender didn't have the paperwork in order or because the mortgage was not actually in default, a home's title will revert to the original owner, even if the property has since been purchased by a third party.

So where does that leave the original homeowners? It's difficult to say, because this is truly uncharted territory, and because foreclosures are subject to state laws, which vary widely.

But one thing is clear: If the original homeowner doesn't have the cash to catch up on the mortgage, the lender will restart the foreclosure process and, with the paperwork in order this time, repossess the house.

"The bottom line is that for the vast majority of these cases it's just going to delay the inevitable," said George Craft, a Texas based real estate attorney. The new owner should be able to stay in the house while the second foreclosure works through the courts because by this point, the original homeowner has probably found a new place to live.

Even someone who was wrongly evicted has probably found a new home and would prefer to take a cash settlement rather than try to reclaim their house. Most of these homeowners will almost certainly sue their lender, which is of course exposed to a tremendous amount of liability.

"Monetary damages will be the way people are compensated, because it's much easier for courts to monitor and institute," according to Andrew Raines, a California lawyer who specializes in real estate.

In the rare case that a foreclosure victim does want a house back after a third party has moved in, the new buyers will be compensated by title insurance.

Almost all lenders require mortgage applicants to purchase title insurance, which is designed to guard against gaps in the title record due to human error. If a title reverts to the original homeowner, title insurance should cover any financial loss incurred if the new owner is ordered to vacate the house.

Of course, that might not be the end of it -- there will probably be a flood of lawsuits bouncing between victims, title insurers and lenders that will further jam up a system that's already backlogged.

"One of the best and worst parts of our judicial system," said Lawless, "is that anyone has access to the courts to assert their grievance against another."

JPMorgan Chase expanding foreclosure review

By Charles Riley, staff reporter October 11, 2010: 2:00 PM ET

NEW YORK (CNNMoney.com) -- JPMorgan Chase is expanding its review of foreclosure documents, according to a person close to the bank.


In September, Chase announced a review of 56,000 foreclosure cases in 23 states that require a judge to sign off on a foreclosure. The recent move expands the inspection to states that do not require judicial approval.

Under the latest expansion, the foreclosure process will continue while documents are being examined, expected to take a few weeks.

In the initial review, Chase requested that the courts not enter judgments until completion of the audit. Without a judgment from a court, those homes cannot be sold.

The initial review was announced after the lender discovered that its employees may have signed affidavits on the basis of reviews done by other personnel.

In those 56,000 cases, JPMorgan Chase has asked its local foreclosure attorneys to communicate to courts, affected homeowners and their lawyers. The notification process is underway, a company spokesman said.

Foreclosure freeze FAQ

Banks have come under increasing pressure from lawmakers in recent weeks to review foreclosures or to expand existing reviews.

On Friday, Bank of America announced it was halting foreclosure sales in all 50 states as part of a widening investigation into flaws in the process. The bank said the foreclosure process on delinquent borrowers will continue, but it will not proceed to judgment or a foreclosure sale.

Ally Financial, previously known as GMAC, the finance arm of General Motors, has said it is temporarily suspending evictions and post-foreclosure closings in states that require judicial review while it conducts a review of documents.

Bank of America halts foreclosures in 23 states

By Hibah Yousuf, staff reporter October 1, 2010: 7:12 PM ET

NEW YORK (CNNMoney.com) -- Bank of America is the latest in a string of banks to freeze home foreclosures in 23 states as it investigates whether there were flaws in its process.


"We have been assessing our existing processes," Bank of America said in a statement. "To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment in the 23 states where courts have jurisdiction over foreclosures."

Bank of America did not have an estimate of the number of homeowners that will be affected by the delayed process.

The announcement comes two days after JP Morgan Chase said it will also halt foreclosures for about 56,000 homeowners after learning that its employees may have approved foreclosures without personally reviewing loan files.

A Chase spokesman said it is working with outside counsel over the next few weeks to review its process to confirm that it meets the appropriate standards.

Last week, Ally Financial, previously known as GMAC, the finance arm of General Motors, said it will also pause foreclosures in the 23 states.

Mortgage lender Freddie Mac said Friday that it is "deeply concerned" with the recent reports and said the alleged practices are not in compliance with its guidelines.

"We expect to provide instructions to our servicers later today that are intended to ensure that their foreclosure processes are in compliance with state law and Freddie Mac's servicing requirements," the lender said in a statement. "It's essential that the industry work together to protect borrowers' rights and ensure the integrity of the foreclosure process."