Hey y’all, I’ve got a great idea!

As soon as someone has a reasonably reliable income, let’s push them into taking on a huge load of debt as soon as they can to purchase an “asset” that doesn’t move with them and can possibly cost them more money than they’ve ever spent in their life!

After all, “rates are at an all-time low” and “it’s a buyer’s market out there.”

Terrible idea.

The unbelievably low interest rates that we’ve experienced over the last several years have led many people to jump into home purchases before they’re financially ready because…

“Rates are so low, I can own for just as much or even less than I pay in rent each month.”

While your payment might be low, that doesn’t factor in the entire cost of owning a home, while rent does (aside from utilities and renters insurance).  In short:

Rent ≠ Mortgage

So what costs of owning a home are not factored into your basic mortgage payment?

– Maintenance – This cost alone puts the lie to the “Rent = Mortgage” myth.  If your water heater, HVAC system, plumbing, electrical, or any other system in your house goes out, it’s on YOU to repair or replace it, not your landlord anymore.  That’s why I never suggest someone gets into a home without having a fully-funded emergency fund.

The week after you move in, your AC unit could go out, costing you hundreds or thousands of dollars!  Homeowner’s insurance doesn’t cover basic maintenance or replacements, unless something is destroyed by fire, vandalism, act of God, or some other specific instance.

– Property Taxes – As a homeowner, you pay property taxes to your state/city/county, something your landlord is responsible for if you’re renting.  This can vary from several hundred to several thousand dollars, depending on where you live and the value of your property.  These are often escrowed (collected) with your monthly mortgage payment.

Homeowner’s Insurance – Another significant cost difference is with insurance.  Basic renter’s insurance costs a mere $10-20/month because you’re just insuring your “stuff.”  With homeowner’s insurance, you’re also insuring the building and your liability for the building.  Like property taxes, these are often divided up and collected each month with your payment.

– Homeowner’s Association Dues – 80% of you will move into a neighborhood that has an HOA.  It’s just very rare to find a neighborhood without some sort of HOA that does anything from run the neighborhood pool to plan block parties to keep streets and common areas clean and landscaped. Depending on the neighborhood, this could cost an additional $25-200 each month!

– Landscaping – Unless it’s covered in your HOA dues (which is the case for some townhome developments) you’ll likely see a significant increase (in time and money) in your landscaping expense.  HOA’s require you to keep up your landscaping, so you’ll either be paying someone or buying some equipment and doing it yourself.  You would not see a big increase in this cost if you were renting a home and kept up the landscaping as part of your rental agreement.

– Pest Control – Got bugs?  Don’t call your landlord, call Ethridge Pest Services (who we use in Raleigh) or your favorite pest control vendor.  It’s something you might not think about, but it’s on you now.

– Home Improvement Projects – Most landlords will do some semi-regular updating to the properties (apartment complexes), or give you some sort of credit if you do permanent upgrades.  As you own the home, there will be things that you want to improve or things that need improvement or renovation.

Don’t get me wrong with all these, I’m all for you buying a home; let’s just do it at the right time, when you’re ready financially.  Just think “Debt free, Emergency Fund,” and you’ll be on the right track. 

Think twice before signing on the dotted lines for something that might end up costing much more than you realize!