The real cost of home ownership
Posted on June 4, 2007 4 Comments
Since my little brother’s in the market to buy his first home, and I’m always thinking about it, here’s a really helpful article on the true cost of home ownership, courtesy of Kiplinger’s. Some of us may need to seriously reconsider our soy latte addictions in the face of this article.
The True Cost of Owning a Home
Your mortgage payments are only a fraction of what you’ll pay once you move into a house.
By Cameron Huddleston
May 24, 2007
Article link here.
If you’re entertaining thoughts of buying your first home now that the housing market is cooling off and prices are coming down, take note: The cost of home ownership might be a lot more than you think.
I’m not talking about the down payment or monthly mortgage payments. Although buying a home is a big investment, owning one comes with a new set of expenses you may not have had while renting or living with Mom and Dad. These extras can put a strain on your daily finances if you aren’t prepared.
I know the temptation to buy a house can be strong, especially if you’ve been renting for a while, have gotten married or are ready to start a family. When my husband, Alex, and I moved to Kentucky four years ago from Washington, D.C., where we rented an apartment for six years, I couldn’t wait to buy a house. (Read about our experience.) Since then, we sold our first home, bought our dream home (well, at least it will be after we do a lot of work on it) and have learned plenty about how much it really costs to be homeowners.
So to help you estimate your own cost of ownership and come up with a realistic housing budget, I offer my experience as an example. Below, I itemize the expenses Alex and I have paid over the past four years, complete with actual dollar amounts. Your own costs will vary depending on the size, condition and location of the house, but this should help you anticipate what you’re getting into. No doubt homeownership comes with a bevy of benefits, but you’ll want to make sure it’s the right move for you at this point in your life before making that long-term commitment. (See How to Know When You’re Ready to Buy for more guidance.)
Where the money goes
Insurance. Before you can get a mortgage, most lenders will require you to show proof of homeowners insurance. The average premium was $729 in 2004 — the latest figure available from the Insurance Information Institute. Insurance premiums vary greatly depending on where you live and the size, type and age of your house. For example, older, historic homes such as ours often cost more to insure because the cost of repairing damage to them can be greater than for newer homes that have standardized features. And if you live along the coasts, you’ll have to pay a high price for being in a hurricane-prone area. You also will have to pay extra for flood coverage if you live in a flood plain. Learn more about what can send rates up or down and see what average premiums are for your state.
Our annual insurance premium was about $825 in our starter home, and rose to $1,583 in our new place. Not bad considering we moved from a modern 2,600 square-foot home to a 100-year-old house with 6,000 square feet. It pays to shop around for the lowest premium. If we chose the first insurer we called, we would have paid $1,000 more for annual coverage. Alex and I ended up going with the same company that insures our vehicles because it gave us a $250 multi-policy discount, and its rates were a lot lower than other companies. MY TOTAL: $825 a year in our starter home; $1,583 a year in our dream home.
KEEP READING AT KIPLINGER’S…
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June 4th, 2007 @ 9:26 pm
With a vast debt-bubble starting to unwind, there’s little point in buying until property prices reach the bottom. Many are predicting a full-blown crash. Buyer beware.
June 5th, 2007 @ 3:27 am
My husband and I bought a house when we saw how our apartment rates kept creeping up. We got a great deal and our very happy with our choice, but even I was surprised how much extra money the house sucks up. Insurance, water bill, trash bill, pest control, taxes… not to mention upkeep, repairs, and improvements. Still, at the end of the day (or 30 years), it’s ours. And it’s much nicer than any apartment we could have gotten for the monthly bill, thanks to getting a great deal.
June 5th, 2007 @ 9:02 pm
My sister bought her first home at age 42 after paying NY rents and trying to raise a family in a tiny packed apartment in Queens. She was shocked at all the extra expenses – my other sister and I warned her (we’ve each been homeowners for over 10 years) – I told her the house would hemmhorage (sp?) $$$ for the first few years. Our taxes have also gone up 40% due to rising property values and re-valuation, and our insurance has gone up accordingly. Even so, I love driving up to my house every day, knowing in 138 more payments this will all be ours!
June 12th, 2007 @ 6:03 pm
My parents were forced to sell their house in 1989 or otherwise be foreclosed upon. Ever since, I have always viewed homes as poor investments that do not recoup the capital spent to buy and maintain them. However, with a little bit of intelligence and aggressive cost control, one might be able to mitigate the cash bleed a bit.
My wife and I will buy a home sometime next year, but we are in no hurry, expect home prices to further deteriorate as ARM’s come due and more of a glut of supply comes on the market, and we will put no less than 20% down off the bat to begin with to avoid PMI or a pricey split mortgage.