Homeownership is great. On top of giving you a place to live, it also allows you to have an investment that grows in value over time, and an asset which your kids can possibly inherit in the future.
However, to own a home is to spend a lot, and these costs don’t stop when you buy the place. On the contrary, this is actually when it begins.
So if your current situation is about saving money and not taking on too many expenses for the foreseeable future, it might be a good idea to read a guide to renting an apartment instead, as a modest space leased at a low rate can save you a good amount.
On the other hand, if you are a renter who is really set on becoming an owner, it’s important to be mindful of the costs related to homeownership.
- Mortgage Interest
- Real estate and legal fees
- Property Taxes
- Home Insurance
- Repairs and maintenance
Unless you have the cash on hand to pay for a home for sale in full, you’ll likely be taking out a mortgage to be able to acquire your own home. On top of the mortgage amount you’ll be paying back to the bank is the interest, and how much will depend on the length of time over which you amortize the mortgage and the frequency of the payments.
There is also the matter of the rate and type of interest you get. If your mortgage is at a fixed rate, it will always have the same interest rate. If what you opt for is an adjustable rate, the interest can and will change over time. In either case, you’ll be paying a mortgage monthly for at least ten to fifteen years, a cost which you can avoid when you are renting.
As previously mentioned, when attempting to own a home, it’s not just the price of the property that you have to worry about paying, but the mere act of buying will also come with a cost. From real estate agent fees to legal payments meant to cover the transfer of the property, there indeed is a lot more to save for than just the home’s selling price.
According to Redfin, a website that represents real estate agents looking to sell homes, agent commissions tend to run about 6%. That’s $13,500 if the home happened to be $225,000. As property purchases are complex, you’ll likely hire a lawyer to help you with the process, and these days that can run you to about $225-400 an hour.
Yup, there’s also an additional cost when you finally own the home. As a homeowner, you are obligated to pay taxes to your municipal or local government, county, and state. The tax is assessed based on the current value of your home and can change over time and instead be based on the increases or decreases in the property’s value.
Do renter’s pay property taxes? Sure, but not really. This only happens when landlords are mindful of factoring in the property taxes into the rent they charge, but whether they do that or not, it is the sole responsibility of the property owner to pay the taxes associated with their property, not the renter’s.
Of course, there is also such a thing as renter’s insurance, which you’d have to pay if you rented instead of owned, but this is comparatively less expensive than home insurance. This is because the former commonly covers the contents of the home, while the latter is more extensive since it also accounts for the value of a property’s physical structure.
This means that, for example, a fire burned down the home you owned, home insurance would cover any remaining mortgage payments or the cost to have the home repaired or rebuilt. Such extensive coverage means higher insurance premiums which, as a renter, you can count on the property owner to have to deal with instead.
If you own the place you live in, you simply can’t call your landlord or building superintendent when the heat stops working or the water stops running. These and other home maintenance tasks–all of them–are the responsibility and expense of you, the homeowner.
So if your home happens to have a yard, expect to spend on the upkeep of that. Renovating the roof? That’s something you’ll have to plan for financially. If you live in a condo, your payment of homeowners’ association fees (HOA) may cover external building maintenance and landscaping costs for common areas, but not the internal maintenance costs associated with your unit. And the HOA fee? Still another cost.
These are but a handful of the costs you can save on if you rent a residence instead of own your home. If you happened to be looking for a place to lease, consider us the apartment rental guide to rely on in the Southeast and Midwest.
Our team is present in states like Ohio, Kentucky, Georgia, and South Carolina. If you have any questions about neighborhoods or rental rates, or even want to pursue homeownership in these areas, please feel free to reach out to us by calling 513.489.3363 or sending an email to info(at)sdpmi(dotted)com.