Ramit Sethi Says That Your Mortgage Is the Minimum You’ll Pay for Your House. Here’s Why He’s Right

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Buying a house just means swapping a rent payment for a mortgage payment, right? Well, no. Read on to learn more about the costs of owning a home. 

It’s a conversation I’ve had several times — the one where you talk about bills with a friend who owns a house, and find out that you pay more in rent every month than they do on their mortgage loan. I admit, it’s not a great feeling, especially as they’re building equity while I am…not. But I take a lot of comfort in the fact that the cost of owning a home is both different and ultimately more than the cost of renting one.

Financial guru Ramit Sethi is committed to telling his followers the differences between renting and owning, and is especially willing to acknowledge that buying a house isn’t necessarily right for everyone. I am hoping to take the plunge myself, but I’ll be going into my second instance of buying a home with my eyes wide open and in full understanding of all the costs involved, both upfront and behind the scenes.

Let’s take a look at some of those overlooked costs that people tend to forget about when comparing their mortgage payment to your rent payment, and see why Sethi is right to caution followers about heedlessly jumping into homeownership without considering all of them.

Rent is the maximum you’ll pay…

Sure, my monthly rent cost is likely higher than many people’s mortgage payment in my small city of older and often smaller homes. But that’s not the whole story. As Sethi recently put it on Twitter, “rent is the maximum you’ll pay, but your mortgage is the minimum you’ll pay.” What does this mean?

Research from The Ascent found that the real cost of owning a home comes down to expenses that I simply don’t have as a renter. In fact, for the year 2019, homeowners paid an average of $8,609 more than renters did on housing costs. I don’t pay property taxes (more on those below) or for significant maintenance or repairs on my apartment in an old two-family home. I’ll note that my maintenance and repair costs have not been $0, because I am a can-do sort of person and like to take on projects that improve my quality of life.

I didn’t have to pay the closing costs on this place, or make a down payment. When I signed my lease, I paid a deposit equal to one month of rent. And when it’s time for me to move (ideally into a home I’ve bought for myself), I won’t have to sell my home. I might even get that deposit back.

…but your mortgage is the minimum you’ll pay

If I owned this place, on the other hand, my costs would be numerous and could potentially be vast. Going back to Sethi’s tweet, he was referring to comments from Reddit users about property valuation increases, which were going to result in them owing a lot more in property taxes on their homes. Unfortunately, this is a common occurrence in these days of skyrocketing home values and correspondingly higher property taxes, and it’s a concern for homeowners.

Over time, you’ll pay down your mortgage, and if you remain in the home long enough to pay off the loan, you’ll own your house free and clear. But other costs don’t go away. Your property taxes have the potential to climb, and it’s likely that maintenance costs will also increase over time as your home ages. And if you bought an older or fixer-upper home to begin with, you’ll likely be putting a lot of money into it at the beginning of your period of owning it, too.

Sethi is absolutely correct to say that your mortgage is the minimum you’ll pay to own a house. Therefore it’s wise to plan for additional costs that are sure to crop up. And aside from those property taxes and maintenance costs, you can’t forget about homeowners insurance, which is an absolute must, as it can protect you from a catastrophe.

If you’re a renter like I am, don’t be fooled by those who insist they’re one up on you by virtue of paying less on a monthly mortgage payment than you do in rent. Take a deep breath, and remember everything you don’t have to pay for. And if you’re dreaming of homeownership, be sure to consider the potential total costs, not just how much a mortgage payment might be.

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