The median home price in early 1984 was around $65,000 according to an analysis by Don’t Quit Your Day Job. Today it sits around $280,000.
Yes, the dollar has shriveled in value since the early ‘80s due to inflation. But even if you adjust for inflation, median real estate only cost around $165,000 in 1984. Home prices have skyrocketed by roughly 70% in a few short decades, even when adjusted to today’s dollars.
In short, homeowners face an uphill battle that gets steeper all the time, particularly for homebuyers trying to save a down payment for their first home. Yet homeowners do control many of their own housing expenses, and plenty of options to save money — particularly if they get creative.
Overview of Homeowner Costs
The true costs of owning a home add up quickly. As a lightning summary, beware the following costs of homeownership:
- Repairs and Maintenance. Last year it was $2,000 on the furnace. This year it’s $5,000 on the roof. Next year it’s $4,500 on the air conditioning condenser. Home maintenance costs never go away, so you have to include them as a separate line in your budgeting.
- Lawncare and Landscaping. Unless you own a condo, you can expect to care for some outdoor space. It costs either time or money to maintain, and often both.
- Condo or HOA Fees. Even if you do own a condo, you still have to pay for outdoor maintenance. It just comes in the form of monthly condo fees. Likewise, residents of neighborhoods with a homeowners association (HOA) must also pay monthly fees.
- Homeowners Insurance. If you own a home, you need homeowners insurance. Mortgage lenders require it, and even if they didn’t, it’s one of the few types of insurance that everyone needs.
- Property Taxes. The government always gets theirs in the end. Property taxes make up a huge source of revenue for local governments, and you can’t avoid them — but you can appeal them (more on that shortly).
- Mortgage Insurance. Homebuyers who put down less than 20% on their home must pay for mortgage insurance, called either private mortgage insurance (PMI) for conforming loans or mortgage insurance premium (MIP) for FHA loans.
- Utilities: Renters and homeowners alike must pay for utilities. But these typically add up faster for detached single-family homes than for apartments.
Ways to Reduce Homeownership Costs
If you really want to reduce your housing costs, downsize to a less expensive home. Short of that, try these tips to lower your housing costs as a homeowner.
1. House Hack
I take it back — the best way to lower your housing costs isn’t to downsize, it’s to score free housing by house hacking.
House hacking involves finding a way to put your home to work for you, generating income to offset your housing costs. The classic house hacking model meant buying a small multifamily property, moving into one unit, and renting the others. Your neighboring tenants pay your mortgage for you, and you live for free.
But house hacking doesn’t require a multifamily property, or even moving to a new home. You can set up a separate basement or garage apartment and rent it out, whether long-term or on Airbnb. Or you can rent out rooms to housemates. Or rent out storage space in your garage.
One friend of mine house hacks her suburban home by hosting a foreign exchange student. The monthly stipend covers the bulk of her mortgage payment.
Get creative with it, and find a way to live for free!
2. Appeal Your Property Tax Assessment
Yes, your local government will always try to push the envelope when assessing your home value for property tax purposes. But they at least allow a formal process for you to appeal it.
Whenever they raise your property taxes, appeal your assessed value. Do your own research through websites like Zillow to find comparable sales (comps) that challenge their conclusion, and submit these as evidence supporting your case.
3. Increase Your Home’s Energy Efficiency
As home technology improves, you can increase even old homes’ energy efficiency. And it doesn’t necessarily cost an arm and a leg either.
Start with easy fixes such as lowering your thermostat and replacing incandescent bulbs with compact fluorescent bulbs as the old bulbs die off. Then conduct a home energy efficiency audit to discover where energy leaks out of your home.
Armed with that knowledge, you can address the worst areas of leakage. That could mean simple fixes such as adding a door sweep, medium fixes such as reinforcing your attic insulation, or more expensive fixes such as replacing old windows. Run the numbers for any given expense to calculate how many years it will take for the expense to pay for itself in lower heating bills in the winter and lower air conditioning costs in the summer.
You may even be able to take advantage of green energy efficiency tax credits to boost the return on these energy investments.
4. Minimize Water Waste
Energy isn’t the only resource that can leak from your home and cost you.
Among the many home improvement projects that lower your homeownership costs, several can help you lower your water bill. Most are simple, such as fixing leaky faucets or putting something solid in your toilet tank to reduce the water used per flush.
You can also go more complex, installing rainwater reclamation systems to collect and filter free water from the sky rather than paying per gallon.
5. Make DIY Home Updates
You can spend a small fortune hiring contractors to make every repair and property update for you. Or you can become more handy yourself by gradually taking on larger projects.
Start simple with minor fixes such as the aforementioned leaky faucet or with cosmetic repairs. As you learn new skills and gain confidence, you can take on increasingly complex projects.
Watch out for common DIY home improvement disasters, and always be honest with yourself about the limits of your abilities. You can end up costing yourself more money rather than less if you attempt a DIY project that you should have hired out to a contractor.
6. Buy Home Improvement Materials Yourself
Contractors often pad their profit margins by upcharging for materials. Instead, ask for labor quotes only when you collect quotes on home projects.
You can then buy the materials yourself, reducing the risk of the contractor upcharging or using materials you paid for on another job. As a bonus, you can charge the cost to a cash-back credit card to save even more money.
7. Refinance to a Lower Interest Rate or Different Loan Term
I started my career in the mortgage industry, and in my experience, refinancing usually helps your lender more than it helps you. They get to charge you fresh fees and points, they get to restart your loan’s amortization so that most of each monthly payment goes to interest rather than principal, and they get to extend your debt horizon further into the future.
Still, refinancing remains an option. You could refinance to a lower interest rate or to a longer loan term, either of which might lower your monthly payment. Or you could refinance to a shorter loan term to possibly reduce your life-of-loan interest.
When running the numbers to decide whether you should refinance, compare your remaining life-of-loan interest and costs for your current loan to the life-of-loan interest and closing costs for a potential new mortgage. The loan officer will try to direct you to look at the monthly payment only — a sure reminder they are a salesperson trying to sell you something.
8. Remove PMI — or Put Down 20% From the Start
Rather than refinancing, consider paying your loan balance down under 80% of your home’s value and applying to remove PMI from your monthly payment.
Better yet, put down 20% when you first buy the home if you can, and save yourself the unnecessary expense from the beginning.
9. Move to an Area with Lower Property Prices
It sounds so obvious: if you want to spend less on housing, move somewhere with lower housing costs. Yet nearly three-quarters (72%) of Americans live in or near the city where they grew up, according to data from North American Moving Services.
Go farther afield, my fellow Americans. Find hidden gem towns and cities that offer high quality of life, low crime rates, and low housing costs. After the coronavirus pandemic of 2020, more jobs allow telecommuting than ever before. More than ever, you can truly move anywhere in the world. I went so far as to move overseas where, incidentally, I pay lower taxes to boot.
10. Move to a Lower-Tax State or Country
Unlike sales taxes and income taxes, every U.S. state charges property taxes. Or more precisely, every county within every state charges them.
But they differ dramatically. Apache County in Arizona collects a lean 0.18% of the property value in taxes each year. Contrast that against Monroe County in New York, which charges an eye-popping 2.9% of the property value. That’s more than 16 times the rate that Apache County charges.
As you compare counties and states on cost of living, consider taxes too. Play with this interactive map of property taxes, for a fun glimpse into how rates vary around the country:
Before settling on a new home, combine property taxes, income taxes, and sales and excise taxes to compare states on total tax burden, and identify the states with the lowest taxes from among your possible choices.
11. Bundle Your Insurance
Often insurance companies offer you a break on pricing if you buy multiple types of insurance from them. For example, if you use the same company for auto insurance and homeowners insurance, you could potentially save on both by bundling your coverage.
Also bear in mind that you can include high-value belongings as specific inclusions in your homeowners insurance. When I priced out a separate policy for my wife’s engagement ring compared to including it in my homeowners insurance coverage, the difference amounted to hundreds of dollars each year.
12. Improve Your Credit Before Buying
Borrowers with better credit pay lower interest rates. Period.
If you want to lower the mortgage payment for your next home, work on improving your credit score. Start by fixing any errors on your credit report, which is the fastest way to boost your score.
Make sure you also understand what factors affect your credit score. You may be damaging your score without even knowing it.
Final Word
Yes, homeownership today is more expensive than it’s ever been. But that doesn’t mean you don’t have any control over your housing expenses.
Pick one tip above to reduce your homeownership costs. Once you’ve achieved one, try another. Then another, until you’ve supercharged your savings rate.
Because the less you spend on housing, the more you can put toward building wealth, creating passive income streams, and reaching your long-term financial goals.
