Making the Move from Renting to Owning a Home – Pt 1
Getting ready to buy a home is an exciting time for anyone, and making the transition can be a big jump. In addition to the complex financial and legal transaction of buying and owning a home, there are many other considerations that will prepare you for your future as a homeowner. This transition is more than just moving your stuff from one home to the next. You are making some major life changes for both your finances and your yearly routine.
Whether you are still house-hunting or are already through the home buying process, we’re here to take a complete look at what is involved in moving from renting to owning a home.
Comparing the Costs: Homes are More Affordable to Own
Right now, the monthly cost for an apartment in your average downtown area is around $3,000. That’s about 3-grand per month and the closer to the center of downtown, the higher those rents can go. If you’re in town temporarily and need a place close to your work, renting can be a good choice. But when you’re ready to settle down and move a little further out, then it’s time to consider the monthly and overall costs of owning a home instead.
Single-family homes can range from $200,000 to over a million, but an average starter home will be between $300,000-500,000. For the sake of a cushioned estimate, let’s say your first mortgage is $500,000 and you put down a fair downpayment. With today’s mortgage rates at historical low, an estimate of 2.6% for a 30-year loan leads to a monthly mortgage cost of about $2,000 each month.
Comparatively, a mortgage costs roughly two-thirds the cost of monthly city apartment rent – and that payment turns into equity instead of disappearing to property owner.
Paying Mortgage and Property Tax Instead of Rent
When you own a home, your living expenses completely change. While your mortgage is active, you’ll be paying mortgage payments. Every property – mortgage or no – also pays a property tax each year based on the assayed value of the house. The assayed value is different from the sale price and is based on a bank inspection and valuation of the property.
On average, the combination of mortgage and property tax is usually lower than the monthly cost of an apartment. And as we mentioned, every mortgage payment goes to home equity – the more you fully own the home – meaning you essentially keep that money in the long-term.
Prepare for Escrow and Closing Costs
As a first-time homebuyer, be prepared for the expenses that commonly take buyers by surprise. In addition to the home’s price and the mortgage interest amount, you will also need to calculate for “escrow” and “closing costs”.
Escrow is a special account in which ‘earnest money’ is placed. A buyer pays an amount based on the home’s listing price to prove they are seriously interested in buying. This money is put in reserve during negotiations. If the buyer drops out, the seller gets the money. If the transaction is complete, escrow usually goes toward your first property tax payments.
Closing costs are lawyer fees, title services, and other final wrap-up fees after you have taken out the mortgage. So have a little more (several thousands) in your savings beyond the cost of the house itself and your moving budget.
Taking On the Responsibility of Homeowner Maintenance
Day-to-day, maintenance is the biggest difference is maintenance. In an apartment, there’s always someone you can and should call for repairs. As a homeowner, every repair is up to you. This is both a responsibility and an opportunity. You can customize how you do repairs to your own preferences. You can prioritize repairs, change out fixtures, or do it all by-the-book. And you can enjoy the freedom to DIY or the freedom to hire any services you prefer.
At the same time, you also need to man the checklist for long-term maintenance like roof replacement, foundation inspections, mold remediation, and all the other whole-house maintenance that renters rarely see.
To learn more about the process of owning a home, be sure to read “Making the Move from Renting to Owning a Home-Part 2” at Signature Properties Group.