My girlfriend Tag and I have been watching a lot of HGTV and get really excited about the idea of owning a house. Watching people do renovations and get their dream homes is lots of fun and there are times I’m certain I want a house.
But then I think about how much it really costs to own a house and it scares the bejeezes out of me.
Here are 3 reasons why buying a home is more expensive than you might think.
It Costs 6% to Sell Your House With a Realtor
It’s easy to believe that you’re going to get 100% of the value of your home when you decide you want to sell it. In reality, most home sellers and buyers use realtors, and they get a 6% cut (each realtor gets 3% of the purchase price).
You can try to sell you house on your own but it’s a very complicated process and it will cost you money and people using a realtor to buy their house won’t even look at yours (the realtor isn’t going to look if he or she won’t get commission on the sale).
If you’re going to sell you home the traditional way (with realtors) that’s a huge chunk of money. If you sell for $200,000, you have to give them $12k and you end up with just $188,000. That sucks.
Closing Costs are Expensive
Selling a home is expensive, but so is buying one. Let’s say you find a $200,000 house you like. Well, you won’t be paying $200,000 for it; you’ll have to pay closing costs as well, which are usually around 2-3% of the value of the home.
Let’s pretend it’s just 2% of the home value. That’s $4,000. Your $200,000 home is actually going to cost you $204,000.
So a $200,000 house actually costs $204,000 and you can only sell it for $188,000. That means when you buy the house you immediately lose $16,000. Wow!
Pro-tip I learned from watching TV: Ask the seller to cover some portion of the closing costs. If they are motivated enough to sell they might just do it. At least that’s what the TV says.
Property Tax, Homeowners Insurance, and PMI
If you’ve never owned a house then you might think that your mortgage is all you have to pay on your house. That’s not true at all.
- Property tax can be very expensive (especially in Texas). A house in the Dallas area that is worth around $200,000 will have about $6,000 a year of property taxes. That’s $500 a month on top of your mortgage.
- If you have a mortgage, they will require you to have homeowners insurance. In Texas, that’s about another $100 or so every month.
- If you don’t have 20% to put down on a house then you’ll have to pay private mortgage insurance, or PMI. The amount of PMI you’ll pay can vary, but it’s usually around $100 for a $200,000 house. Here’s a calculator if you want the exact amount.
- Don’t forget HOA fees. You might live in some fancy-schmancy neighborhood that wants you to pay homeowners association fees to pay for the neighborhood pool, landscaping, etc. This could be anywhere from $0 (no HOA) to a few hundred a month.
Let’s ignore the mortgage for a minute. A $200,000 house in the Dallas metropolitan area is going to cost you about $600-$700 dollars a month even before the mortgage payment comes into play.
Considering the payment on a 30 year mortgage for a $190,000 loan at 3.5% is just $853.18, all those extras come to as much as 45% of your monthly payment.
Pro-tip I learned from an online expert: Invest in a city where the housing market is resilient. For example, a housing market like Baltimore, MD is still lagging behind the U.S. on average. Whereas, in a housing market like Denver, CO, an investment in residential property would be more favorable.
I Want a House… But I Don’t
I really really really want a house. I watch all those stupid shows on TV and think “I WANT THAT!!!!!!” The problem is I don’t have a 20% down payment and even if I did I don’t know if it would make financial sense right now.
Readers: Do you have a house? If so, is it worth it? If not, do you want one?