The Cost of Owning a Home

You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true. There are so many hidden costs to home ownership that most people who have never owned a home don't know about. If you want to make an informed decision about whether to buy a home or keep renting, then you need to understand these costs. I'll break them down for you in this post, showing my actual costs.

Expenses

Mortgage Loan Fees

Getting a loan is not cheap. When I bought my home, the total settlement costs were about 3% of the value of the home. Here is the breakdown of my loan costs when I bought my house. Keep in mind this was way back in early 2011, so current costs are undoubtedly higher:

FEE TOTAL Origination charge $594.00 Credit report $14.84 Appraisal $395.00 Tax service fee $70.00 Flood life of loan fee $19.00 Abstract or title search $150.00 Title exam/attorney opinion $550.00 Notary $35.00 Title insurance (lender coverage) $840.00 Title insurance (owner coverage) $1,785.00 Recording fee - deed $40.00 Recording fee - mortgage $40.00 State tax/stamp - deed $3,612.50 Recording fee - assignment $40.00 Survey $225.00 Pest inspection $55.00 Interest (1 day) $42.58 Escrow (tax and insurance) $3,745.00 1st year insurance premium $900.00 Aggregate adjustment ($375.00)

That's $12,777.92 to get the loan.

Mortgage Payment

When you get a loan to buy a house, you pay for two main things each month: principal and interest. The principal reduces how much you owe, and the interest is what the bank earns for lending you the money. I don't consider principal an expense, since paying it doesn't change your net worth. Sure, your checking account has less money in it, but you also have less debt.

Interest, on the other hand, is an expense. It lowers your net worth. About 80% of your first mortgage payment is interest. Not much different than renting at first. Over time, you'll pay less interest and more principal, but for the first few years you'll be surprised how little you actually reduce the amount you owe.

You may also have to pay Private Mortgage Insurance (PMI) if you don't have a large enough down payment. When I bought my house, you needed to put down 20% of the home price to avoid paying PMI.

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