How much does it cost to own a home?
I'm often asked what the true monthly cost is in owning a home. I love this question because it brings up several great points about the benefits of home ownership. Obviously you have to make monthly payments into your motgage company, so you aren't getting to live in a home for free. Therefore the question becomes how is it more beneficial to make mortgage payments vs. making rent payments?
It is true that purchasing a home will cost you more money out of pocket every month than making rent payments. Once you calculate in your principle and interest payment to the bank, property taxes, insurance, and potential mortgage insurance you will find out that there is indeed a big chunk of money making up your monthly motgage payment. But there is the investment side of home ownership that makes it truly worth a persons time and money. There are tax deductions for property taxes, insurance and mortgage insurance payments. There is the principle reduction on your original loan (just like putting money in a really big piggy bank). There is also the fact that over time a home will appreciate in value. We haven't seen really any sort of appreciation in the St. Cloud and surrounding areas over the past few years, but historically you can almost guarantee a 2-3% appreciation rate every year. Note that we are in much better shape than some real estate markets that have seen actual decreases in property values of 10-20% or more in the last few years.
So how does it all work out? I have attached below a sample of a recent effective monthly payment spreadsheet. I put this together for one of my buyers on a home roughly $200k in price. The actual monthly payment, with 0% down, was just over $1650/mo with principle, interest, property taxes, homeowner's insurance, and mortgage insurance. After all the tax breaks, priciple reduction, and appreciation (calculated at 2%) were removed from the equation, the effective payment is really only $620/mo! Granted you won't notice this effective monthly payment while you are living in the home. Your pocketbook will only feel the actual monthly payment. It's at a time of sale, when you get to recoup the amount that you have stored in you "piggy bank" as your equity, that you will reap the rewards. Go ahead and use this spreadsheet if you'd like to see what an effective monthly payment might be for you as you make a real estate purchase. Post any questions, comments, or concerns as to the use of this spreadsheet below.
PLEASE NOTE - You have to make the actual payment every month. Do not use this file to create a reason for over-extending yourself with a bad mortgage. Every home at every price can be used as an investment. Start with a home that fits into your monthly budget and from there you can work your way up to your dream house. Also note that not all people are meant for home ownership. If you are planning to move again within the next few years, it may be difficult to gain enough equity to sell at a monetary gain. Please contact a professional before deciding it's time to buy a home. In most all situations it's FREE to work with a buyers agent in Minnesota so what do you have to lose?
Jason Tangen
www.stcloudedina.com/blog - REAL ANSWERS for REAL ESTATE in St. Cloud, MN.
