Owning a House vs. Renting an Apartment: A Cost Analysis

There are pro's and con's to owning a house versus renting an apartment. Each property has expenses associated with it. Listed below, we have tried to outline the costs for each of these situations.

Monthly Cost of Owning a House:

The monthly principal and interest on a house mortgage for 30 years is a large commitment and responsibility. Adding the expenses of maintaining a house to the monthly price tag can be shocking.

Prepared, the cost of home ownership is bearable. Repairs, taxes, insurance, maintenance will not overwhelm your pocket book as long as you know what's coming. After reviewing all the costs in addition to the principal, interest, taxes, and insurance of your house, you may decide to scale back the size of the home you're looking for in order to live the life style you want with in the income you have to work with.

Below is a list of the most common monthly expenses of owning a house.

Insurance. They won't let you complete the home buying deal without it, so shop wisely. Homeowner's insurance, also referred to sometimes as Hazard Insurance, on mortgage documents, provides basic protection against fire and theft. It does not generally cover flood damage: flood insurance is an entirely separate entity that you will be required to purchase if you live in a flood-prone area. HINT; consider bundling your homeowner's insurance with your auto insurance to get a bargain price.
Price: $60 to $110 a month owner occupied.

Property Taxes. You can't avoid these either, but consider them a good thing, pay them and the fire department will come when you call. Depending on where you live, you may be responsible for both city and county property taxes, call your county property assessor's office to be sure. Local tax rates vary, but your home is typically taxed on its assessed value, an amount equal to half of its appraised value, which is the number you're probably familiar with from the loan securing process. Taxes can add hundreds of dollars to your monthly payment, and the figures on your good faith estimate may not be accurate, so find out the final number before you sign the dotted line.
Price: $80 to $150 a month for owner occupied homes.

Private mortgage Insurance (PMI). If your down payment is less than 20 percent of the mortgage value, you may have to foot the bill for PMI, which protects the lender against your defaulting on the loan. This can tack on as much as a couple hundred dollars per month, depending on the size of your loan.
Price: $20 to $60 dollars a month

Association fees. If you're buying into a subdivision or a condominium community, you may have to pay for the monthly upkeep on common areas and other shared expenses. Some HOA fees are paid yearly and are quite inexpensive; on the other hand some Manhattan co-op fees run to the four figures per month. Some states allow associations to foreclose on homes with unpaid fees, so don't treat them as optional. Find out if your state imposes limits on HOA power, including how much fees can increase per year.
Price: $40 to $100 and up.

Utilities. If you're moving from an apartment to a house for the first time, know that the increase in square footage (not to mention water for a yard) can pack a real punch in the form of a huge utility bill. Plan to implement some energy conservation measures, like light blocking blinds and compact fluorescent light bulbs, to offset the tab.
Price: difficult to estimate ask to see past bills.

Maintenance. Roofs need replaced every 15 to 25 years, appliances every 8 to 10 years, furnace and air conditioner 15 to 25 years, faucets 5 to 20 years, lawn mower 5 to 10 years, bathrooms 10 to 30 years, carpet 5 years, paint 5 to 20 years, snow removal, grass mowing, These don't show up in your mortgage payment, but are real an expenses. Be sure you have some monthly budget set aside for repairs and upkeep, whether for small do it yourself things like replacing floodlight bulbs or the inevitably serious issues that crop up from time to time.
Price: for all maintenance averaged for a 10 year period $100 to $200 a month.

Now that we discussed basic monthly expenses of owning a house we will compare that with the expenses of renting.

Monthly Cost of Renting an Apartment:

Rent. Insurance and property taxes are zero unless of coarse you are living in an up scale complex that may charge fees for the use of the clubhouse and its amenities. Rent is stated clearly in the lease and is usually paid at the rate stated for the length of the lease. But remember that when a lease comes due, you will be subjected to any changes in the complex rent for your apartment.
Price: $550 to sky is the limit

Utilities. Utilities vary from house to apartment size; some include all utilities except for phone cable and internet. For those that include certain utilities the make up for the complex is usually reflected in the price of the rent. Apartment utilities are always lower then for a private home especially when you consider the square footage of the apartment in comparison to the square footage of a home including the extra space in the basement and the cost of heating and cooling the upper stories of the home.
Price: $30 to $300.

Maintenance. Maintenance is a large player in the difference between home and apartment. Maintenance is generally provided and paid for by the complex saving in some cases thousands of dollars for instance to replace furnaces or air conditioners or major appliances that come with the apartment.
Cost: $0 to ?

Renters Insurance. This type of insurance is many times required by the apartment complex you will be living in this covers all damages do to fire and is based on your estimated value of your belongings. The higher the value estimated the higher the renters insurance premiums will be. These premiums are generally paid on a basis of every three months.
Cost: 33 to 45 dollars a month.

Based on the analysis above, renting an apartment has less associated costs than buying a house. The expense of renting a house will be a little more expensive than renting an apartment but is still usually a little cheaper then actually purchasing the home. Most people get a thousand to two thousand dollars in federal tax breaks based on the mortgage and property taxes paid. This reduces the cost of home ownership by a hundred or two dollars a month. Also, during a 10 to 20 year span most property values increase in price. When factored in and averaged out, this reduces the actual monthly cost of home ownership over an extended period of time.

In determining whether owning a house or renting an apartment is right for you, it will be helpful to figure out your daily living expenses and create a budget. For more information please refer to our Getting My Own Address Guide - http://www.communityhousingnetwork.org/getinfo/get_my_own_address/chapter7.htm.

Additional supporting materials, including a budget worksheet, can be located at: http://www.communityhousingnetwork.org/getinfo/get_my_own_address_workbook/section8.htm