The True Cost of a Larger House

What is the true cost of a larger house? Since my wife and I are thinking about moving from our condo into a single-family home within the next year or two, I asked myself, “Is that a sound financial decision?” To answer that question, I decided to crunch the numbers for our situation. I knew this exercise would help us with this big financial decision. So, I did a line by line analysis of the changes to our spending to determine if this move would work within the framework of our spending plan. I thought I would take you along for the ride and share with you the true cost of owning a larger house.

First, I will set some assumptions for my financial analysis. I will assume that our current condo is worth $400,000 (we live in California!) when we plan to move, and the single-family home will cost $700,000 (which is within the price range of houses in our area). Interest rates change, but for the sake of my analysis, I will set the 30-year fixed mortgage rate at 3.5%.

Now that I have my assumptions, I will look at which line items will change because of the purchase of the house. There are a lot of expenses to consider, so I’ll go over them one by one…

The mortgage payment is the biggest expense and the biggest change in our spending plan. Our current principal and interest payment is $1,095/month. With a 20% down payment on a $700,000 house, our mortgage on the new house would be $560,000. The principal and interest payment on that amount at 3.5% is equal to $2,515/month. To calculate this for yourself, you can use an online calculator.
Total Change: +$1,420/month

Property Taxes
Property taxes are another big expense that will be incurred with a larger house. Our current property taxes are $5,000/year. The property taxes on a $700,000 house in our area are around $8,750/year. To calculate this for yourself, determine the property tax rate in your area, then multiply that percentage by the purchase price of the home. In my example, I did $700,000 x 1.25% = $8,750.
Total Change: +$450/month

HOA Fees & Mello-Roos
The HOA fees on our condo are $285/month. We do not pay for Mello-Roos. The single-family houses we are looking at do not have HOA fees or Mello-Roos.
Total Change: -$285/month

Home Insurance
Our condo home insurance currently costs $1,000/year. My best estimate for a comparable policy for a single-family house in our area is around $2,200/year. You can call your insurance company to get an estimate for your situation.
Total Change: +$100/month

Electricity & Gas
We spend an average of $100/month for electricity and gas in our condo, and I expect this amount to be at least double in a single-family house. If you are moving from a milder climate to an area with more extreme temperatures, this expense may change much more dramatically for you.
Total Change: +$100/month

Water & Trash
We currently pay for water and trash through our HOA fees, so our line item for this is $0. In a single-family house, we will be responsible for paying for these expenses directly. Based on the area where we are looking, I anticipate this will be around $200/month.
Total Change: +$200/month  

Pest Control
This is another expense currently covered by our HOA fees, so our line item for this is also currently $0. I anticipate this will run between $300-$600/year for a single-family house.
Total Change: +$50/month

House Cleaning
Since we like having our house cleaned, this will also be an expense that goes up in a larger home. I anticipate this will increase by $50/month.
Total Change: +$50/month

Lawn & Pool Maintenance
We currently don’t have to pay for lawn maintenance (because we don’t have a large yard), and we don’t plan to get a house with a pool. I estimate lawn maintenance will cost around $100/month.
Total Change: +$100/month

Security System
My wife would like a security system when we move to a larger house, so this will be an added expense for us. This should cost between $300-$600/year plus installation costs.
Total Change: +$50/month

Home Maintenance
Maintenance on a condo is relatively inexpensive because the HOA fees cover things on the exterior (like roofing), so we typically spend around $2,000-$3,000/year to maintain our condo (for example, fixing our water heater, troubleshooting plumbing or electrical issues, replacing our furnace, replacing our windows, etc.). Maintenance for a house goes up significantly because now big expenses will have to come out of our pocket. I would budget around $6,000-$10,000/year for this, so I’ll settle on an estimate of $9,000/year for home maintenance.
Total Change: +$500/month

Home Furnishings
Home furnishings expenses will also increase in a larger home because there will be more rooms to furnish. I expect this to increase initially, but then level off over time, so I will only factor in a small change for this for the sake of this exercise.
Total Change: +$100/month

Auto/Transportation Expenses
We plan to live within a few miles of where we currently live, so we will have a negligible change in our auto expenses. But, if you end up moving closer or further away from work or the places you usually go, then you should factor in the change in your transportation costs. Also, auto insurance rates are determined by zip code, so it is worth a call to your insurance company to determine how much your rates will change if you move to a new zip code.
Total Change: $0/month

Childcare Expenses
We are planning to move within the same area, so our daughter will remain at her current pre-school if we move before she goes to Kindergarten. But, if you are moving to a new area, this could be a factor.
Total Change: $0/month

Income Taxes
Spending more on interest and property taxes will help reduce our tax liability. We currently spend less on itemized deductions than the standard deduction, so we don’t save any money on taxes by owning our condo. Moving up to a larger house will generate some tax savings. Interest payments and property taxes plus a few other itemized expenses should generate a tax savings of $150/month.
Total Change: -$150/month

So, how much more will it cost for us to upgrade to a single-family home? If I add up all the changes in the line items listed above, the total change is $2,685/month.
Overall Total Change: +$2,685/month

Next, I looked at my spending plan to determine which line items will decrease or increase in the next couple of years. This allowed me to see if we have any reduction in expenses that can help offset the increase in expenses associated with purchasing a larger home. Overall, we only have one large change coming up (in about a year): our daycare/pre-school expense of $1,200/month will go away when our daughter starts Kindergarten.
Total Additional Funds: $1,200/month

If we factor out the $1,200/month savings when our daycare/pre-school expense goes away, then we need to add an additional $1,485/month to our spending plan. So, what does this mean for us? We now need to think about what we must do to make this work, and if those changes are worth it. For example, we could save less. We have been consistently saving for a house down payment for years, so we could just divert our current “house down payment” savings toward our new home expenses. If we still have a shortfall, we could cut some expenses or find a way to earn more money.

This analysis proves to me that the true cost of owning a larger house is more than just the increase in mortgage and property tax payments. Those expenses added $1,870/month to our current housing-related expenses, which is $815/month less than the total cost increase. It reveals that there are many more expenses to consider when purchasing a house. But, once considered, I feel I can make the move feeling confident in my decision.

I hope this exercise gives you a framework to determine the true cost of a larger house for your situation if you are planning on upsizing. If you want a personalized spending plan for all of your expenses, including your home-related expenses, click here to schedule your complimentary consultation via Zoom.