Why Homeownership Is Surprisingly More Expensive
A house is arguably the most significant purchase that most Missourians and Kansans make, so homeownership is not cheap. The median price of houses currently listed in the United States is $291,900. If you do not have that money, you have to take out a mortgage and pay a ton more in interest to earn the right to own a property.
Make no mistake about it: Owning a house comes with undisputable benefits. However, you might be better off financially comparing Kansas City homes for lease than searching for listings of properties for sale to say goodbye to your days as a tenant. Here is why homeownership is more expensive than many people are led to believe:
The One-time Expenses Are Understated
When buying a house, many of us are fixed with the price of the property and the size of the mortgage we can obtain. We often overlook the out-of-pocket expenses that come with the real estate transaction, which can be equivalent to 12% of the property’s appraised value.
You will be hard-pressed to find a no-money-down mortgage these days, but the minimum down payment most lenders observe is just 5%. Even if you could qualify for a home loan with 95% LTV, you still have to pay for closing costs.
Sure, you can find a lender who is willing to cover these expenses on your behalf, but it does not mean that you will no longer pay for them one way or another. A no-cost mortgage comes with more interest; the higher rate indicates that there is no such thing as a free lunch.
The Ongoing Expenses Are Underestimated
Many people assess the cost of home ownership through monthly mortgage repayments. In reality, though, what your lender charges you every month is not the only housing expense you need to think of.
The upkeep of a property must be considered, too. As a homeowner, you bear the weight of regular maintenance. Be it routine inspections or emergency repairs, they all will come out of your pocket.
On the contrary, landlords have to contend with periodic maintenance costs. It is their responsibility to keep their property rentals habitable, which comes at a price, sometimes a steep one. Tenants do not have to worry about anything other than the rent.
The Investment Opportunity Cost Is Not Worth the Price
If you choose to buy a house, you decide not to use your money to grow your wealth through other investment vehicles by default. Yes, a property is a forced-savings mechanism since its value increases whenever you reduce your mortgage principal. Home equity can also grow passively through land appreciation.
However, buying a house can make you cash poor. You could invest the large sum you have to pay up front to buy a property in another asset that might grow at a higher rate than home equity. Historical data shows that stocks outperform pieces of real estate over time.
You can’t put a price on security, the best benefit of homeownership, but it is also attainable by being a tenant. Think of a property purchase as both a financial transaction and a lifestyle decision so that you can choose wisely.