In June 2019, Ver Starr and his fiancee Jenelle Yee closed on a $599,000 3-bed, 2.5-bath townhome in Gardena, California, making them homeowners for the first time.
"I calculated how much rental money we'd paid over the last four years that we lived together and it was upwards of six figures," Starr tells CNBC Make It of the decision to buy. "That just didn't sit easy with me."
They saved enough to put $60,000 down and secured a 30-year fixed rate loan at 4.125%. Their monthly mortgage payment, including interest, is $2,663. But thanks to hidden costs, their total housing expenses run $3,851 a month — an extra $1,188. Here's exactly where that money goes:
- Property taxes: $697
- Homeowners Association (HOA) fee: $180 An HOA fee is a set amount paid monthly by owners of certain types of residential properties.
- Electricity: $110 They anticipate this will be lower once their six solar panels are activated.
- Private mortgage insurance (PMI): $91 If you don't put at least 20% down, you have to pay PMI, which is a safety net for the bank in case you fail to make your payments. (Starr and Yee put about 10% down.)
- Water, trash and recycling: $80
- Homeowners insurance: $30
Other costs they may have to deal with as homeowners include any future renovations, maintenance or repairs that arise.
"When you're a homeowner, you don't have a landlord or a property manager to submit a work form or get a new fridge," says Starr. "You have to take care of it yourself. If you have bug problems, that's on you. If something breaks or if you have a leak, that's on you."
Besides recurring expenses, the couple also paid $8,462 in upfront costs, excluding the $60,000 down payment. Here are all of the other expenses they owed before moving into their new home:
- Appliances: $4,238 They had to buy and install a refrigerator, washer and dryer.
- Closing costs: $3,102 This included credit agency reporting, title search, escrow fee, recording fee (documentation of purchase) and the loan origination fee. Closing costs typically run between 2% and 5% of the total cost of the home. Starr and Yee owed less (about 0.5%) because they received $15,000 in credits from their lender, $5,000 of which they put towards closing costs.
- Moving costs: $600 Since they didn't move far, they were able to keep these costs relatively low. The process of moving, depending on the complexity and location, can set you back a couple thousand dollars.
- Home inspection: $522
While Starr and Yee pay more today than what they used to pay in rent, they agree that it's worth it. "We're building our equity in something that we own," Starr says.
Plus, their townhome is an upgrade from their previous 2-bedroom apartment and a space where they plan to live when they start a family. "We really like being out of that rent cycle and not having to feel stressed out every year when the rate of rent increases," he adds.
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