Bad Credit Blues

How Much Does It Really Cost to Own A Home?

Even these days, with real estate in a bit of a slump, new neighborhoods still pop up in my local area. I see signs on the new construction, and even in store parking lots, advertising that people can purchase a home for less than the cost of renting an apartment. But is that true. Even if you pay $1,000 a month for rent, and a sign advertises you can pay $750 for mortgage payments, will it still be a lighter burden on your budget?

Homeowners Pay More Than Mortgage

When you rent, you really just pay your rent. You may also buy renters or home contents insurance too, but that is pretty cheap. A basic policy will probably not cost more than $40 a month in most areas, and many people can find good coverage for a lot less than this.

So compare that to the cost of homeowners insurance policies. Those will cover your property, building, personal property, liability, and possibly other things. Instead of looking at a $20 - 30 monthly bill, you will probably need to spend more than $100 a month.

When you pay rent, your landlord pays property taxes. When you own a home, that will be your responsibility. As with insurance, your own rates will vary by your location, value of home, etc. But it would be conservative to estimate that most home owners probably spend a couple of hundred dollars a month, or more, for their county taxes, school taxes, water district taxes, etc.

Remember to also check out neighborhood association fees. Sometimes these are very modest, just a few hundred dollars a year, but sometimes they are much more expensive. Let us, for this article, estimate they will be about $50 a month.

So what does this all do to our example. We were comparing $750 in mortgage payments vs. $1,000 a month in rent. But we have to remember to add some other things to that mortgage payment. So if we add in $200 a month for taxes, $100 for property taxes, and $50 for homeowners association dues, we have actually figured out basic home ownership costs wil be about $1,100!

But are we done? Well, when you rent, you call your landlord to fix things. When you own your own home, you have to call repair people, and you have to pay them. How much will this cost? I cannot predict what will break or back up next in your home, but I would say it would be prudent to allocated a minimum of $100 - $200 a month to fix critical items.

You can purchase a home warranty which may help you budget for broken applicances, and it may cost $400 - $500 a year. But these usually come with deductibles you have to pay as well, so you should still budget some emergency funds. besides they do not cover everything.

Should You Buy A Home?

You will have to make your own decision about if you should purchase a home or just keep renting. You can enjoy may benefits of home ownership, and you can be putting your money towards growing a large asset. I just do not want everybody to look at an avertisement, and then automatically decide home ownership will always be a bargain when compared to renting!