What Is the Real Cost of Buying a Home?
By Steve Gillman - January 16, 2013
There are two numbers that probably catch your attention when
you're shopping for a home. One is the price of a given house,
and the other is the monthly mortgage payment required. But when
you're buying a home you are actually buying into a whole set
of expenses. These costs include property taxes, insurance, utilities
and more. To fairly compare homes you should look at and add
up all of the expenses involved. The costs in each category can
be very different from one house to the next.
For example, a home inside a city limits might have property
taxes that are $1,800 higher than a similar house just outside
the city. That's a difference of $150 per month. At today's low
interest rates you could pay $30,000 more for the suburban home
and still have a lower total monthly cost, if all other expenses
Of course, all other costs are never going to be the same,
so do the math. It isn't complicated, and when you cannot get
a figure, like the monthly heating bill, just estimate as closely
as you can. Add everything up for a year and divide by twelve
to find the real monthly cost of owning a particular home. Then
keep that number handy when looking at other homes.
What should you include in your figures? Essentially you need
to add to the calculation any expense that will result from owning
the house. This will be different for different homes, but can
include some or all of the following...
- Mortgage payment
- Property taxes
- Homeowner's insurance
- Association dues
- Heating costs
- Water and sewer
- Special assessments
- Routine maintenance
- Commuting costs
The last two are a bit tricky to calculate, but are worth
including. If the home has no special maintenance needs, you
might just ignore that category, since all homes will need basic
care like lawn work and (eventually) fresh paint. But if one
home you are considering has a pool that will need regular cleaning
and upkeep, add those costs. Add any other extra expenses to
your tallies as necessary (a fish pond will require cleaning,
fish food and algae treatments, for example).
As for commuting expenses, you might just skip that figure
for any homes within five miles of your current employment, since
they will all impose similar costs. On the other hand, a home
that is forty miles from work, if you commute five days per week,
can add over $500 to your monthly costs. In fact, an extra 35
miles of commuting (each way) can cost as much per month as the
extra mortgage payment on a closer home that is priced $80,000
higher. It is something worth considering. All the real costs
are worth looking at, so add them up to compare your options
fairly before buying a home.
Now, for those readers who are really watching the numbers,
there are some other expenses you might want to consider. The
cost of buying a home can be looked as the total paid, and/or
as the expected monthly sum of all expenses. But there are also
some special expenses that might be due soon after you buy.
For example, if two houses are roughly equal in other ways,
but one has a roof that is only two years old and the other has
a roof that is more than twenty years old, that's something to
consider. The second one will likely need replacing within a
few years of purchase. A new set of shingles can cost as much
as $10,000 or more depending on the home.
Look for other costs that are likely to come soon. Are the
appliances old and dying? Are there large trees in the yard that
are diseased and will need to be removed? How long before the
home will need to be painted? Don't get too worried about all
of these possible problems. Every house requires work. And of
course you also have to think about the layout of a home, the
location, the size, and how you feel in general when you imagine
living in the house. But also consider the costs along with all
the other factors, so you can buy the home that makes the most
financial sense for you.
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