Every now and then, I look at houses for sale and think about buying one. Usually this happens a few months before my apartment lease expires. I just moved into my apartment in June, so I should have no reason to be looking at homes. And yet, I find myself searching through Zillow and looking for houses in my price range that I might want to buy.
I know, I know. When you buy a house, it immediately loses value like a car. And don’t forget all the property taxes and maintenance costs. But the stupid “American Dream” won’t get out of my head and I can’t help but look.
Recently, I found a house that looked pretty nice and I thought it might be worth pursuing. The asking price was $153,000.
So I explored the financials a bit. Right now I pay $850 a month in rent, so I’d like to keep my home expenses around that price point.
Let’s pretend I liquidated a bunch of assets to come up with a 20% down payment of $30,600 (which would essentially be impossible for me right now; just use your imagination). I would only need a mortgage for $122,400. With a 30 year mortgage at today’s rates of around 4.0%, I’m looking at a $584.36 house payment.
I can buy a house and save almost $300 a month on my rent payment?! Sign me up banker dude!
The Hidden Costs of Buying a Home
Luckily I had a 20% down payment; otherwise I would have to pay PMI (Private Mortgage Insurance). If I had gotten an FHA loan and only put 3.5% down on the house, I would have borrowed a larger amount and the mortgage would go up to $704.88, while PMI would be an additional $141.49 a month according to this calculator.
That also doesn’t include property taxes. The taxes on this place were about $4,500 last year. That’s another $375 a month to pay my fair share for schools, roads, policemen, firemen, and everything else in my lovely city.
Oh, and I’d also need to come up with a few thousand bucks on top of the $30,600 to pay closing costs. Either I can pay it up front, or roll it into my mortgage. Let’s say we throw it in with the mortgage and increase the payments another $20 a month.
And I can’t forget about saving some money for the maintenance costs of owning a home, like getting a new roof, or fixing a window when the neighbor’s kid decides to play baseball near my house, or buying new carpet after an unfortunate experience at Taco Bell where I didn’t make it to the bathroom in time. Let’s call that another $100 a month.
And what about taking care of the outside of the house? My apartment has a lawn service, but I won’t have that at my new home. Either I need to pay someone to do it every week (let’s go cheap at $50 a month) or I buy the equipment myself and spend my valuable spare time cutting the grass and trimming bushes.
Let’s not forget about the Homeowner’s Association fees or HOA fees. That community pool doesn’t pay for itself. I’ll take a wild guess and call it another $25 a month out of my pocket.
It would be stupid not to insure my house after I’ve already sunk $30k into it right off the bat. I’m gonna have to get a homeowners insurance policy. The general rule is that you’ll pay 1% of the value of the home in a year, so we’re talking $1,530 a year or $128 a month.
I Can’t Afford a Freaking House!!!
At first I thought I was just gonna have to pay $584.36 a month.
Then when I realized I don’t have a 20% down payment and I’d have to pay for all the other expenses incurred when owning a home, my estimated actual price comes out to $1,544.37 a month. That’s $1,000 more than I thought I would pay, and $700 more than the rent in my apartment.
Everyone always told me that I’d save money on my taxes from owning a home, but the interest I pay on the mortgage in the first year is $5,858 while the standard deduction in 2011 is $5,800. This only reduces my taxable income by $58, which saves me a whopping $15 a year.
I thought the mortgage interest deduction was supposed to help out middle class homeowners like me, but it turns out the mortgage interest deduction is only really helpful for rich people who buy huge houses and/or people who itemize a lot of other expenses.
I Honestly Don’t Know How Anyone Affords a House
I’m a single guy with no financial responsibility to anyone by myself. I have a very good job that pays me somewhere between $50k and $100k a year before taxes (maybe I’ll tell you the exact number one day, but not today!). My current net worth of about $25k is well above average for someone my age.
If anyone could afford a house at 26 years old, it would be someone like me with a good amount of income and not a lot of expenses. And yet it just doesn’t make any financial sense for me to buy a house right now. Either the prices need to come down a lot more, or I’m going to be a lifelong renter.