The hidden costs behind the price tag

A bigger house

First, you get your starter house (or condo). Then, as soon as you can, you upgrade to a bigger house. Every time your fortunes improve (or you have another kid or you fill all the closet space), you upgrade again, until you're finally in the McMansion of your dreams.

Except . . . not only do bigger houses come with bigger price tags and bigger mortgage payments, but all the ancillary costs increase as well. For example:

Property taxes. The more costly the house, the bigger the property-tax bill, which is typically 1% to 2% of a home's value. (You can get real sticker shock in places such as California, where Proposition 13 limits property-tax increases until a house is sold.)

Let's say your local tax rate is 1.5%, and you're moving from an 1,800-square-foot house worth $250,000 to a 2,700-square-foot house worth $375,000. Your tax bill would rise 50%, from $312.50 a month to $468.75.

A tip: Read "Are you paying too much in property tax?"

Energy costs. All things being equal, a house that's 50% larger will cost 50% more to heat and cool, according to the federal government's Energy Star program. If you spend $1,500 a year on energy costs at the smaller house, you'd need to budget an additional $750 -- $62.50 a month -- for the bigger home's utility bills.

Then again, you could spend less, or more. If you're moving from a poorly insulated older house with a 20-year-old furnace to a new place with proper insulation and new appliances, you could spend less heating and cooling the larger place, said Ronnie Kweller, a spokeswoman for the Alliance to Save Energy. If you're moving from a tightly insulated little bungalow with a reflective roof to a drafty, unrestored Victorian mansion across the street, you're going to pay lots, lots more.

A tip: To get an idea of how much a home might set you back for energy costs, ask the seller for copies of utility bills for the previous six months.

Maintenance and repairs. Smart homeowners set aside 1% or more of their home's value each year to cover basic maintenance and repairs, according to Eric Tyson, the author of numerous personal-finance books, including "Home Buying for Dummies." You might not use up that fund every year, but chances are good that at some point you'll face a big repair that eats up several years' worth of savings. Examples: a new roof, a furnace replacement, new water pipes for an older home.

The bigger and more expensive the house, the bigger the fund generally needs to be. Based on Tyson's guidelines, you'd need to set aside about $100 more a month for the 2,700-square-foot home in our example.

A tip: Set up an automatic transfer from your checking account into a high-rate savings account to cover these expenses.

Insurance. The bigger the home, the larger the typical insurance premium. That's because the bulk of your coverage is -- or should be -- based on the square-foot price to rebuild your home. If the new home is 50% bigger, figure your insurance premiums will be 30% to 50% bigger as well. If you spent $729 per year to insure the smaller house -- that was the national average in 2004, the latest year for which the Insurance Information Institute has numbers -- plan on spending at least $200 more to cover the new house.

A tip: Read "Is your home underinsured? 8 key tests."

There may be other, bigger bills. Does the house have a larger lawn that will require more fertilizer, more water and more cutting? Are there more rooms to decorate, floors to cover and windows to "treat"? And how long before you fill this spacious new house with stuff, leading you to long for an even bigger place?

This doesn't mean you're stuck forever where you're living now. Just take the time to run the numbers before you upgrade, and make sure you understand the true cost of ownership before you commit.

Columns by Liz Pulliam Weston, the Web's most-read personal finance writer, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published June 14, 2007

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