MYTH# 3: My mortgage payment will be less than my rent

Reality: Your mortgage payment is just the beginning. The “hidden costs" of ownership can add up to thousands of dollars a year.

Few prospective owners truly appreciate how expensive annual maintenance on a house can be. A Wall Street Journal commissioned study concluded that “almost every house, no matter how recently or expertly built, is a money pit.[4] “

On average, you should expect to spend 1% to 2% of your house's value annually on maintenance.[5] For a $200,000 house, that means $2,000 to $4,000 a year for maintenance.

And that doesn't include property taxes, homeowner's insurance or any home improvement, decorating or landscaping you decide to do. Owning also requires a different kind of budgeting discipline. You need to be prepared for the unexpected, like the furnace that needs to be replaced, the roof that needs to be fixed or the leaking basement. Renters, on the other hand, have the convenience of knowing exactly how much their housing is going to cost them each month.

Reality Check

Writing of her experiences as a new homeowner, one columnist said, “Taking care of your humble abode can be so time-consuming that the American dream can turn into a nightmare." “I've been a homeowner for only six months, and already I've spent thousands of dollars beyond my closing costs and down payment…but most of the expenses, unfortunately, I won't ever recoup."[6]

By “renting…we quickly achieved more space, better appliances, better fixtures, better everything…I estimate that by renting, instead of owning, we have more than doubled the value of dollars we spend on housing."[7]

Jonathan Cohen
The New York Times

NOTES
4. June Fletcher, “Every House is a Money Pit." The Wall Street Journal, September 4, 1998.
5. Liz Pulliam Weston, “The hidden costs of home ownership." MSN Money Web Site. on April 13, 2004. http://moneycentral.msn.com/content/Banking/Homebuyingguide/P37628.asp
6. Ibid.
7. Jonathan Cohen, “The American Dream, Revised as a Rental." The New York Times, July 12, 1995.

Tags: Rent vs Buy