Buying a home is one of the biggest financial decisions of your life. I’m all for having the home of your dreams, but I’m also a big believer in knowing what that home really costs you.
This is a simple illustration between the cost of two different homes. One with a dining room (because a dining room can easily be replaced by a kitchen table) and one without.
Here are the assumptions:
| w/ Dining Room | w/o Dining Room | |
|---|---|---|
| Purchase Price | $300,000 | $270,000 |
| Mortgage | 30 Years @ 6% | 30 Years @ 6% |
| Down Payment | $60,000 | $54,000 |
| Property Taxes | $4,000 | $3,600 |
| Insurance | $500 | $450 |
| Dining Room Furniture/Set | $5,000 | $0 |
Mortgage Payments Over 30 Years
After 30 years, you will have paid $518,013 in monthly payments on a $240,000 mortgage w/ a 6% interest rate.
After 30 years, you will have paid $466,210 in monthly payments on a $216,000 mortgage with a 6% interest rate.
Difference of total monthly payments after 30 years = $51,803
Down Payment
- Down payment on a $300,000 house is $60,000
- Down payment on $270,000 house is $54,000
If you bought the home without the dining room and invested the $6,000 savings with an 8% return, you would have $60,376 in 30 years.
Property Taxes
If you took the $400 saved per year by buying the home without the dining room table, and invested it each year with an 8% rate of return. In 30 years, you would have accumulated $52,963.
Insurance
If you took the $50 you would save by buying the home without the dining room table, and invested it each year with an 8% rate of return. In 30 years, you would have accumulated $6,620.
Dining Room Furniture
If instead of buying the typical dining room fixings such as a table, chairs, china, etc… at the cost of $5,000 and invested that money. In 30 years, you would have $50,313.
Total Saved
This is how much more money you will have in 30 years, if you choose the home without the dining room.
- Monthly Mortgage Payments = $51,803
- Down Payment = $60,376
- Property Taxes = $52,963
- Insurance = $6,620
- Dining Room Furniture = $50,313
Total = $222,075
The question to ask now – Is it really the home of your dreams if there is something valued at less or equal to $222,075 in 30 years, that would bring greater happiness than a dining room will over your lifetime?
Note # 1: I did the above equations with my financial calculator. I double checked them, but if you find anything inaccurate let me know.
Note # 2: I know I can make this a lot more complex by including, tax savings, resale value, or time saved on cleaning, but it’s not worth it to go there. This is just to illustrate how big of an impact your home has on your finances.
{ 4 comments }
This is a great point that shows how too many people have no idea what they’re getting themselves into when they buy a house.
My girlfriend’s sister is buying a condo at 25 and I’m pretty sure she’s only doing it because she’s bored and thinks it would be fun to own.
There are cheaper hobbies out there.
Austin @ Foreigner’s Finances
Thanks for the comment Austin. Home buying would rank above yachting as far as cheap hobbies.
Thank you for all the great posts from last year! I look forward to reading your blog, because they are always full of information that I can put to use. Thank you again, and God bless you in 2010.
The home buying is one of the must important now a days, because people need to have it in shelter. But they looking for a cheaper price on it. But thank you for your blog that you post like this.
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