Home Owning Observations

My sister got a loan, made me think about home owning, read at your own risk, its long and not really that interesting.

My sister recently was approved for a home loan, she was excited, as many people believe she thinks it’s the way to save money and to get ahead in life. As my family was talking about this I began to think about the real value of owning a home. My conclusion is that it’s a myth. It doesn’t increase your value, and if nothing else it actually limits you due to your inability to move or sell quickly.

I am told constantly how people waste money renting, however after doing more research I discovered on average, if you wish to actually invest money, the smarter idea would be to rent. Here are my reasonings.

First and foremost, this does not include closing costs, realtor fees, repairs, or any extra fee. This is purely a monthly payment comparison between the house and the rental, AND this does not include money on the actual loan, THIS IS PURELY PAYMENT IN TAXES, INSURANCE, and INTEREST on the payment (basically the money that doesn’t go towards the value of the house, rather the money that is lost to excessive fees and does not actually pay off the primary loan).

First I took the average amount of $258,000 (average cost of a home in Bellingham according to http://www.bellingham.org). The average property tax is 1.4% (range is 1.2-1.6%), so you multiply 1.4% x 258,000 = $3,612 a year. She is paying 7% interest rate, that means 7.0% x 258,000 = $18,060 in interest alone on the house loan (none of it goes to the actual amount). Finally average home insurance (10 quotes I looked at for that value) was $820 a year. That means the totally yearly payment of her $258,000 home is $3,612 + $18,060 + $1220 = $22,892 dollars a year. If you divide that into a monthly payment that comes out to be approximately $1907.00 per month. NONE OF THAT GOES TOWARDS THE LOAN, that’s just the “cost” of having the house.

Now if you compare that to the average rental of a 3 bedroom home of $1050 (costs run $900 to $1200). If you take the rental cost of 1050 and subtract the Loan cost of $1907 = means renting you are saving $857 a month alone just in loan fees (plus the several hundred you would pay on your actual debt). Instead of wasting close to a $1000 a month extra plus the actual debt payment, you could turn around and invest that in some serious 401k, or invest it in other opportunities that are more portable.

So, my conclusion is you are throwing away an average of $857 a month in excessive fees to be able to say “I own this”. Of course this does not include the other advantages of renting, you do not have to repair or replace appliances (that is the responsibility of the landlord), rental insurance is only $15 a month, and utilities are generally cheaper in apartments (which btw are an additional $400 a month cheaper then the rental house).

If you truly want to invest, the best way to go about it would to be either rent an apartment and invest your extra money. Or do what the wife and I did, by a $20,000 mobile home (1/14 th the cost of House or go for a cheaper one) then pay $350 a month in lot fees that include w/s/g and cable (which is a savings of about $1600 a month over a house payment).

Just something I have been thinking about, useless rambling 😉

PS. My Insurance for the home is off, I mistakenly did a quote for $150k, not $258k, that means its actually a bit more expensive then $820 a year

PPS. This also doesnt even indicate that the average wage in Bellingham is about $28k a year, thats almost 60% of your pay, and it doesn’t even go to the actual debt.

PPPS This only includes starting buying a house from scratch (my sisters situation) not someone who has the ability to put down a downpayment 🙂

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