Why Suze Orman Believes Your Home Costs 40% More Than Your Mortgage Payment
- Many home buyers focus solely on the costs of their mortgages.
- Suze Orman has warned that these aren't the only expenses worth considering.
- Orman believes a home costs 40% more than monthly mortgage payments.
Will your home really cost a lot more than just your mortgage alone?
When buying a home, it's important to take all of the essential costs of homeownership into account to make sure the purchase is actually affordable. Unfortunately, not everyone does that -- and failing to consider the big picture could lead to financial disaster.
Finance expert Suze Orman has warned about buyers underestimating their costs. Orman believes additional expenses associated with homeownership can add 40% to your monthly mortgage payment. Here's why.
Suze Orman says these added expenses can make your homeownership costs higher
Orman addressed the added costs of homeownership in an interview with Apartment Guide where she talked about the pros and cons of renting versus buying.
"A lot of you are under the fallacy that if you're paying, let's just say, $2,000 a month for rent, then you could afford a $2,000 mortgage -- and that isn't how it works," Orman said. "It's not just the mortgage payment; it's the property tax, it's the property insurance, and it's maintenance. Plus, it's the loss of growth on the 20 percent down payment that most of you should make if you're buying a piece of property."
As Orman points out, far too many would-be home buyers focus on the principal and interest payments they will have to make each month when borrowing to buy a home. But it's not just an obligation to a mortgage lender that you take on. Property taxes charged by local officials will have to be paid for the entire time you own the home, as will insurance premiums to protect the property. And without a landlord to handle maintenance and repairs, you'll be responsible for those after you own your own place.
These additional ownership costs that are often overlooked can be expensive. "It's usually at least 40 percent more than your mortgage payment, is what it typically costs you to own a home," Orman explained.
She went on to give an example of what costs would look like when purchasing a property with a $2,000 mortgage. In these circumstances, Orman believes that other costs would add up to $800 per month.
Is Orman right about the 40% rule?
Orman is right that your homeownership costs go beyond just your loan, but the specific amount you'll have to pay for other expenses can vary based on many factors.
If you live in an area where property taxes are high, or if your home costs a lot to insure because it's in a flood zone or other risky area, you may end up adding more than 40% to your mortgage costs. But if you opt for an area with low insurance costs and low taxes, your additional payment could be less.
You should be able to research taxes and insurance for any house you're buying. You can get specific numbers to estimate these added costs, while you should also factor in the lost returns from your down payment along with around 1% of your home's value each year for annual maintenance and repair expenses.
By doing this math, you can get a clear picture of what your total costs will be and make an informed choice about whether buying a house is the right financial choice for you.
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