The True Cost of Buying a Home

At some point in the life of all long-term renters the question of home ownership inevitably arises. But the true cost of buying a home is somewhat difficult to calculate. Even so, your friends and family love to lecture you about how much money you’re throwing away by not owning a property.



Family: “Your rent is more expensive than my mortgage! Why are you throwing so much money away?”

Me: “But my rent includes all major appliances, utilities, internet, repairs, property maintenance, security, HOA and a two car heated garage.”

Family: “But you’re still throwing money away by renting because you will never own the property you live in.”

Me: “What if I invest the money I save by not paying for all of those expenses separately? ”

Family: “Well you can’t raise children in an apartment”

Me: “I don’t have children! … And I think you can, at least until they become sentient.”

Now I don’t deny that owning a home is ideal for families and can serve as a highly stable and profitable investment. But the way people (usually the one’s we love the most) push housing, you’d think home ownership were some kind of cult. More likely, our loved ones feel like owning a home is still the true mark of a fully realized, American adult.  Unless you join the suburb club you’re just one missed rent payment from living on the streets.

My wife has grown more and more dedicated to buying a home as the years roll by and, as with most things my wife dedicates herself to, it will eventually become reality. So I started looking into the various costs associated with buying and maintaining a home and I became dismayed. Housing prices in my area have become incredibly expensive.

$450,000 buys me a 1,200 square-foot box in wonderful Louisville, Colorado [2021 update, more like $550k now) . I’ve searched in other areas but properties everywhere seem over-valued. What once afforded you a four bedroom, four bathroom home now gets you a two bedroom townhouse… If you’re lucky.

The True Cost of Buying a Home – Common Costs Table

First Year Home Expenses

Terminology:

• Private Mortgage Insurance:
  One of the downsides to buying your first home is that you probably won’t have a large enough down payment to avoid PMI. Lenders use these payments as security against your loan; however, once you pay upto 20% of your loan you may refinance to remove this cost.
  
• Homeowners Insurance:
  Typically between $500 and $3000 per year and cover involuntary damages, caused in a variety of circumstances.
• Property Tax:
  Tax based on the value of the property.
• HOA Fee:
  Homeowners Association costs cover the costs of a group that upholds the standards of a community. This may include enforcing landscaping, maintenance and upkeep and may limit your alterations to your property.
• Closing Costs:
  This expense covers the amounts required to close the sale, often including the cost of appraisal, credit report and Loan Origination Fees among others. Closing costs may be paid by either the buyer or seller of the property and are paid up front or over the term of the loan. For the purposes of the table, I did not include the amount as a monthly expense.
  

Second Year Home Expenses

After a few years the true cost of buying a home (and owning one) decreases significantly. Hopefully your property has increased in value and you can use the profits from the sale for a down payment to avoid PMI payments.

True Cost of Buying a Home: Best Case Scenario

Final Considerations:

Beyond the various cost considerations outlined above, owning a house also entails a bigger dedication of time. With a greater area to clean, more yard to maintain and more snow to shovel, and without a maid, owning a house can easy become a drain on time. But some would say that’s a small price to pay for the pride you feel when you own a home. For us, the true cost of buying a home currently outweighs the benefits, at least while it’s just the two of us.

Is it a good time to buy? Let me know in the comments!