Owning a Home vs. Renting: The Hidden Costs
The mortgage industry is so famous for sayings like: “You could be paying for a home with the money that you are spending on rent right now!” or “It’s actually cheaper to own then to rent.” or “Your current rent payment is comparable to that of a house payment.” For anyone who is currently renting these sound great and make you want that mortgage. After all who wants to be paying for something you don’t get to keep when you could be paying for a piece of real estate that one day might have your name on the title. One day that is, 30 years from now…
The mortgage companies aren’t really lying to you. They just aren’t usually sharing the whole picture. What they aren’t lying to you about is the actual mortgage payment you might have each month. If you buy a reasonably priced home, make an appropriate down payment, and have good credit you most likely might find yourself with a monthly mortgage payment similar to that of your rent. Mortgage companies are great in this respect. If you are financially responsible and smart with your money you can find a good mortgage rate that will allow this to be true. But mortgage payments similar to your rent payment don’t make everything sugar and spice and everything nice.
So now picture this: Your job appears to be steady, you and your husband or wife are living a perfect life, the time arrives for you to forgo renting and get that first house. You find that perfect house, you arrange that mortgage with a broker, and give Mrs. Phelps the landlady your 30 days notice that you are moving. Things are great until all these hidden expenses start appearing.
You realize that you don’t have any appliances to furnish your new house, because Mrs. Phelps supplied all of them in your apartment. Garbage pickup isn’t going to be free any more. The plumbing in the master bathroom is going to need to be updated. Your mortgage broker calls to remind you about your closing costs. The actual mortgage lender sends paper work for you to confirm the homeowners insurance policy you don’t have yet, which they require in order to lend you the money. Now the reality sinks in: there are a bunch more costs related to homeownership you didn’t know about.
Congratulations! You are one of the thousands of homeowners who each year get themselves into a home and forget the long list of expenses related to homeownership which didn’t exist when you rented. They forget the fees and commissions related to closing a home deal, property and other taxes, homeowners insurance (which is required by most mortgage lenders), certain utilities, appliances and furnishing, and the costs of repair and upkeep which renters aren’t responsible for.
These yearly costs, divided by twelve, equate to the additional amount per month which you have to consider paying above and beyond your mortgage payment. It is important to be prepared for these expenses and realize that you are going to be dealing with them for the length of your mortgage, and that they will increase over time. Many homeowners find themselves in over their heads, and as a result end up selling and reverting back to a rental lifestyle. And many first homeowners are faced with a major life change within the first few years of ownership which can force sale.
Think to yourself and ask “Is there a possibility my job might change? or you might move?” If so than it would be beneficial to just keep renting. If you are in an apartment and want a house, maybe try and find one which is for rent. It will have all the benefits of a rental and of having a home.
Homeownership is very satisfying and a great accomplishment for anyone, but make sure you look at the big picture before you dive in headfirst. Remember these additional costs associated with homeownership:
- Fees and Commissions Related to Closing a Home Deal
- Property and other taxes
- Homeowners Insurance (Required by most lenders)
- Utilities
- Appliances and Furnishings
- Home Repair and Upkeep
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home costs, homeownership, mortgages, real estate, rentingRelated Posts: