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1.The true cost of homeownership is higher than you might guess.
There seems to be a widely held belief that buying a home always makes more sense than renting. That is a foregone conclusion. You often hear that every dollar you pay in rent, is a dollar you’ll never see again, while buying a house is always a great investment. This is not always correct for a few reasons.
Paying rent isn’t really a waste of money. Yes it’s true, you won’t see your money again, but you are getting something in return – shelter for yourself and your loved ones. Even when you buy, you will spend a lot of money on interest payments, taxes and other fees, also money you will never see again. These payments are not helping you build equity at all.
When it comes to thinking about the true cost of homeownership, you need to have a total view of all of the related expenses. At first look, a mortgage payment might be less than your current monthly rent, but that mortgage is just part of the cost. For many people, the other associated costs of homeownership might run as high as half of their mortgage payment.
Here is a list of other homeownership expenses as you begin to think about buying a house. This doesn’t even include the additional cost of new furniture, upgrades or yard/home equipment that new home owners will find themselves needing.
Some One-Time Costs (5-10% of home value):
- Mortgage Origination Fees (upfront fee charged by lenders for processing a new loan)
- Closing Costs (usually include escrow fees, property taxes, interest)
- Realtor/Lawyer Fees When Later Selling
Annual Ongoing Costs:
- Mortgage Interest Payments
- Homeowner’s Insurance
- Property Taxes
- Utilities (e.g. electricity, gas, water, etc.)
- Mortgage Insurance (if down payment was less than 20%)
- Flood Insurance (if called for)
- Maintenance & Repairs
- Condo or Home Owner’s Association Fees
Plus sometimes buying and selling a home is difficult for everyone involved. Sometimes it’s more stressful than bankruptcy, divorce, and the loss of a loved one. If homes remain on the market for an average of four weeks, and more than a third of sellers report reducing the asking price at least once. Plus, if you’re in a long-distance relationship, do yourself a favor and rent. A 12-month lease is a whole lot easier to break or buy out than a 30-year mortgage — never mind the extra stress moving can place on an already suffering relationship.
And get ready for bigger tax bills. Ownership makes filing income taxes harder.
2. Your position remains more flexible
Buying a home means choosing a location we want to live for at least a few years. For those who aren’t exactly sold on their current living situation, investing in real estate would be a mistake. Mortgages and other ownership obligations are difficult — don’t expect to pick up and move anytime soon. When the opportunity comes to accept your dream job on the opposite coast, or the perfect spouse lives in another city, the last thing you want to do is get bogged down in selling a home.
3. There are possibilities for roommates
Roommates are a great option if you’re looking for help shouldering the cost of living expenses. Having someone around to split the cable bill and vent about workplace drama is great, but with actual home ownership, one person is responsible for the payment at the end of the month. So when that goofy roommate is late on rent, the difference must be made up elsewhere. Apartment complexes, on the other hand, are sometimes experienced working with multiple tenants in one location and offer options for individual lease situations.
4. You have more access to amenities
You might well enjoy the peace and quiet of a home out in the country or a friendly neighborhood environment in the suburbs, but you’ll miss other amenities. Renting in a community allows you access to those things, such as a community pool, fitness center, dog parks, and Wi-Fi. If you still want access to these perks after leaving the comfy confines of rental agreements, you’ll probably need to shell out serious dough.
5. Maintenance & upkeep are just not your problems
If you have no tools, you might want to rent your next dwelling. Not all of us are blessed with handy genes. Homeowners are often forced to spend a sizable amount out of their savings to make impromptu and unexpected home repairs. But renters only need to place a call to their property managers when the sink drains are clogged or the dishwasher gets finicky and sounds like Walter Mitty.
Say goodbye to weekends filled with long, social afternoon brunches and lazy days at the pool. That large backyard that originally sold you on your property and the possible vegetable garden? Well, it needs to be mowed — again. And last week’s storm really did a number on your gutters over. Homeowners don’t have the luxury to put off time-consuming chores that renters can ignore. And renters need not worry about general housework and upkeep required of homeowners.
So yes, there is a trade-off. If you plan to remain fairly stable and live in the same house for more than four of five years, you will start doing better monitarily by buying your house. Until that is alot like your event horizon, you might well think about renting your house or apartment. And I’m a real-estate guy. Go figure.
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