We always hear about how owning a house is the American dream. While it is better to own a home than rent in the long run, here are a few key points that might make you reconsider buying a house, at least for a little while longer.
Homeowners have them, renters do not. The amount varies based on the value of your house and where you live, but it generally is in the range of $100-$600 per month. If you’re just calculating the mortgage you’re forgetting this other very important fee. You must pay this fee twice per year, but you can choose to have your bank add the charges to your mortgage. If the value of your house goes up you might be happy, but realize that this means your real estate taxes will go up too.
If you get a mortgage your bank is going to require you to carry homeowners insurance. In the event of a loss of property due to fire for example, the insurance company will pay off your loan for you or give you money to rebuild. This is another added expense many prospective homeowners never think about. You can expect to pay anywhere from $500 to $1,000 per year for this necessary coverage.
Home Maintenance Fees
Typically, a homeowner will have a few repairs to make throughout the year – every year. It might not be every month, but there might be a $1,000+ expense every year or so. Using those numbers, this equals to about $150 per month.
If you were to rent however, you would simply contact the landlord, who would then make the necessary repairs for you, free of charge of course.
Private Mortgage Insurance
Homeowners must pay PMI when their loan is more than 80% of the value of their house. Let’s say you can’t make a 20% down payment on a $500,000 home. This would be $100,000 by the way. If you can only afford to make a $50,000 down payment you will then need to pay an additional fee. This fee adds about another $100 per month to your monthly mortgage payment.
As you can see, each of these 4 additional expense really adds up when you think about it. You may end up paying $1,500 a month on your mortgage (principal and interest) and then an additional $1,000 on all these other expenses.
Even with this information, my advice is still to own a home. The reason is simple, if you don’t own a home now and pay it off, you’ll be paying rent well into your 70’s, 80’s, 90’s and beyond. Plus you’ll be paying off someone else’s mortgage so they can retire early. That’s not a good feeling.
If you had bought a home while you’re in your 30’s, you would have already paid it off before retirement.