How Homebuyers Make A Home Buying Budget

The "For Sale" price of a home isn't what it costs.
First-time home buyers having a good laugh over a joke or life experience or maybe just hamming it up for the camera

The surest way to ruin your budget is to shop for homes by their sticker price.

The price of a home is not what it costs you.

A home's cost is the payment you make to live there, which is a sum of 4 figures:

  1. Your monthly mortgage payment
  2. Your annual real estate tax bill costs
  3. Your annual insurance costs for the home
  4. Your annual home maintenance costs

There's also a fifth component for buyers of condos and homes in planned communities – monthly association dues.

A for-sale prices doesn't capture these elements.

The better way to shop for homes, then, is to shop by monthly payment.

To illustrate, let’s look at two fictitious for sale. They’re both for sale at $200,000. They're built by the same builder. They have identical floor plans and finishes, and are the same in every possible way.

The only difference between two properties is that they’re on different streets, which, coincidentally, puts the two homes in different census tracts.

Suddenly, these $200,000 listings look different.

The first home is closer to the nearest police and fire stations, and in a tax-advantaged census tract based on average resident income and minority concentration. The second home's census tract is not tax-advantaged.

Should you buy the first home, you get access to:

  • Mortgages with subsidized, below-market interest rates
  • Lower real estate tax bills
  • Lower insurance costs because of emergency service proximity

The second home gets none of those benefits.

The second home, therefore, costs more to own despite having the same sales price. Shopping for homes based on price won't help you.

Shop for homes by monthly payment.

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