I get a lot of people that are both friends or coworkers who constantly don’t understand why Jello and I don’t buy an adult house (meaning the American ideal of a house or condo, we would buy a mobile home but that is a different post). There are several reasons for our lack of interesting buying a home, price being the biggest, but also flexibility, commute and a few other reasons. Let me see if I can break out the biggest reason of price here.
First a little background, I live in the Seattle area and evidently the median price is $513,000. Let’s be honest I won’t even come close to that in affording it (no way I want to buy something that is a half a million dollars, or about 10 years of my income at this point before taxes). So I will pick one of the lower priced neighborhoods.
Westlake (the other areas can be sketchier and honestly harder to get places to buy). The average price is $367,000. Seattle is very dense, so I will need to probably pick a condo to get a low price like this. Looking over the available condos in the area on Zillow I found a 783 square foot condo for about this price (actually slightly higher) in a more run down area of Westlake.
Let’s say I have $67,000 in my pocket to put down to avoid the extra insurance needed for homebuyers with less than 20% (no, I don’t have that money anywhere but for argument sake let’s say I do). The best interest rate I can get seems to be 4%, and 25 year loan will be normal. So I borrow $300,000 (see the attached report for breakdown of a loan with NO PITI, insurance, etc, it is purely for the loan).
Per the bankrate website, I will end up paying $475,000 out of pocket ($175,00 in interest), plus the downpayment (for a total of $635,000) for a $367,000 house. I realize people will say “but what is the cost compared to rent”. It comes out to $1,583.00 a month. Which is $400 more a month than what I pay now.
Yes yes, I own it, but that isn’t the end of my cost. I still have to pay for regular condo insurance (not counting the loan insurance for under 20%), taxes and home owner’s association dues since it will probably have to be a condo. I looked up the following utilizing Geico insurance and King County website for taxes owed on a unit that is actually only $337,000 (10% less value then what I have here, so the actual taxes would be more).
Condo Insurance costs me approximately $112 a month for only $200,000 to fix the home. Property tax for the sample unit I picked out that was similar price was $2,900 a year, or $240 a month. The Home Owner’s Association dues are $350 a month (which isn’t that bad in the area).
Let’s not forget maintenance, the average maintenance recommended by many organizations is 1%. I have linked HSH’s website for source. That means for a $367,000 house, I should be putting away $3,670 a year, or approximately $300 a month. So let’s break down the total cost:
- Mortgage: $1,583.00
- Condo Insurance: $ 112.00
- Property Tax: $ 240.00
- HOA Dues: $ 350.00
- Maintenance: $ 360.00
- TOTAL: $2,645.00
Let’s compare that to my rent, which is approximately $1,200 a month, plus $25 in rental insurance for a whopping $1,225. Which comes down to $1,420 LESS than what I would pay for a condo at the medium price. Remember, all a condo really is, is an overdone apartment (and not even overdone well usually). To own a house that has actual yard is probably close to 50-100% or more than what I have outlined here.
Important note: if you look at the attached report Mortgage Calculator Report – 300k Home, the first five years of payments an average person pays $580-710 a month in principal, the rest is interest and does not add to the equity of the house. That means for the first five years, $1,980 a month is going away just for the “honor” to buy a house. An equivalent apartment I have found (that is far nicer than the condo I looked at) runs about that much.
I could turn around, take that extra $700 I have left a month and invest, party, pay off debts, or just find a different job that pays up to $5 an hour less.
I think instead of buying a house, I am good with living in a super nice apartment, with extra pocket money and not worrying that something will break (that is the owner’s responsibility).