Home Time
When Dave Duffy asked me to host this blog it gave me a chance to talk about subjects that affect building, alternative or otherwise, beyond the kind that use hammer and nails. Here is one.
Buying a home is usually the biggest financial commitment a family makes. Often,while visiting real estate dealers, lawyers and bankers to get qualified for a mortgage and buying a home, some important aspects of what you are doing get obscured. Today I want to focus on two elements of home buying that slip by some people.
First is the real cost, in money, of a home. For this example let’s use a three bedroom modular cape on a modest lot in a subdivision. The price, a bit below national average, is $180,000. I use this example because I actually know people who have bought just such a place. You can adapt the numbers I use to your personal situation.
Let’s say you have been working hard, have $20,000 saved for a down payment and you get a 20 year mortgage at 6% interest on the $160,000 principal. My handy mortgage calculator says your monthly payment will be $1145.60 per month. Maybe a bit more with the little fees and such that banks add to these things.
Some people stop thinking at this point. They have the house, they accept the monthly payment challenge and settle in for the long haul of paying off the house. That payoff, after 240 months, is just about $275,000 plus the down payment for a total of nearly $300,000 dollars. Very sobering.
However, here is where reality takes a bite. To get that 300K you had to earn it. Before you paid the mortgage, even while you were saving up the down payment, you were making payroll taxes. In order to have $300,000 available to buy your home you had to earn closer to $400,000! That is financially brutal.
Now, I know there are accountant types who will talk about deductions and appreciation and “building equity in your home” and all that. Those nebulous benefits are mostly canceled out by insurance premiums, maintenance costs and property taxes. My point is that you will obligate yourself for a huge sum of money for your home which, ironically, won’t truly be yours until the last payment.
Take a deep breath. There is another perspective on what you have committed to when buying this home. Let’s say you have a job at United Blivits and make $50,000 per year. That is for 40 hours per week with two weeks vacation or 2000 hours @ $25 per hour.
$400,000 divided by $25 equals 16,000 hours of your labor or, eight solid years of work (16,000 hours divided by 2,000 hours per year). That is eight years of paying for absolutely nothing but the house. Well…actually house + interest + taxes.
Do your own calculations. Think this over. We will talk again. I have an idea for you.
