Those who have never bought a home have likely heard the suggestion that renting is like throwing money away.
Why rent when you could buy? Well, there are good cases to be made for renting, or buying, depending on your circumstances.
Renting means never having to worry about being trapped in an underwater mortgage, or making expensive repairs, and you can relocate when and where you want without worrying about selling a home.
But renting also means having to move when you don't want to, rent increases, maintenance issues beyond your control and nothing to show for all the money you've paid out.
Owning a home means stability, maybe more space and a yard, the freedom to paint the walls whatever color you choose, and a chance to build equity and hopefully gain an asset that will grow in value. With housing prices down, rents up, and mortgage rates at generational lows, it looks like a good time to buy a home.
But for those who aren't certain they're going to live in a home they buy for many years, buying can turn out to be a lot like renting, but with greater risk, more headaches, and unforeseen expenses.
With a 30-year mortgage, more than two-thirds of the money spent on mortgage payments during the first five years will go toward interest, building little equity (equity being the portion of the home's value that you own).
A column on this page last week made the point that first-time homebuyers may not be aware of all the costs associated with ownership. That's a good point, but let's go one more step and put some hard numbers on it.
By my calculations, I'd say a homebuyer should assume the basic monthly expenses will add around 50 percent to 75 percent to the mortgage payment. Here's the math:
The median price of a home sold in 2011 in Charleston, Berkeley and Dorchester counties was $186,050. So if a person puts down 10 percent and borrows the rest, with interest rates at 4 percent, the monthly payment on a 30-year loan would be about $800.
Add about $75 for private mortgage insurance, which would be required on a loan with less than 20 percent down.
OK, that's $875 a month. Sounds pretty good, compared to renting. That works out to $9,592 yearly, with about $3,000 going toward paying down the loan, and the rest to interest.
Now here's a rundown of additional annual costs, based on my experience:
Utilities: $2,700. That's electricity and water for my efficient, 1,800-square- foot house, with three occupants.
Homeowners insurance: $2,200. The cost depends on proximity to the coast. Flood insurance is extra.
Property taxes: About $750 to $1,300 on a house valued at the median price, depending on tax rates where it's located. Note that buying a house in South Carolina triggers a reassessment that uses the current taxable value, so a buyer's bill will likely be higher than the seller's.
Homeowners association fees: $350. Some neighborhoods have HOAs, others don't, and fees can vary greatly.
Termite bond: $330. If you live in the Lowcountry, you'll want termite protection.
Stormwater/Solid Waste fees: $120 to $240 in most areas.
Add them up, and on a monthly basis, those expenses would add at least $550 in housing costs to that $875 basic mortgage payment, bringing the monthly expenses up to $1,425.
And then count on at least $100 a month to account for repairs and replacing stuff that breaks. Most homeowners will tell you the to-do list never goes away.
Now don't get me wrong; I'm glad I own a home, and I do think this is a good time to purchase, but first-time buyers need to be clear-eyed about it.
In the seven years I've owned my mid-1980s-era home, I've had to: replace a heating and air conditioning unit, paint the house; repair the garage door opener; refloor two rooms, repair wood siding; remove several large trees; repair the roof, and replace two faucet sets, the stove, the garbage disposal, two large windows, a vent pipe, an entry door, two light fixtures and part of the front porch.
Homeownership brings security, pride of ownership, and the potential to build wealth. But realistic expectations about the costs will help assure that purchasing becomes a joy, not a financial burden.