Why I won’t own a house Part 1

homeownershipI 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.

I do love the Seattle area.
I do love the Seattle area.

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.

Overview at Westlake, yep no houses around to buy, but "cheap" condos are here.
Overview at Westlake, yep no houses around to buy, but “cheap” condos are here.

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).

Definitely more than just a mortgage payment.
Definitely more than just a mortgage payment.

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.

Money_pit_movie_poster

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).

 

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