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When you buy a house and get a mortgage, you are going to be paying MUCH more in interest (than expected). Over the course of the mortgage, you are going to be

When you buy a house and get a mortgage, you are going to be paying MUCH more in interest (than expected). Over the course of the mortgage, you are going to be paying MUCH more than the sticker price. Between closing costs and taxes and fees maintenance, you will need more cash than you think. My advice is look at the numbers very carefully and choose something that is (below) or fits your budget. Sudden financial issues like the loss of a job or new vehicle purchase can put a big strain on all this.

bozhark 1y ago
Exactly, calculate total cost of loan vs. cost of purchase
mitthrowaway2 1y ago
What do you do when the people you're bidding against don't understand this?
- hintklb 1y ago
  it's called renting. Americans are obsessed with owning a home at all cost. This means that you are effectively bidding against people that do not even do the math. They are ready to spend Millions of dollar on something that is comparatively cheap to rent. The fact that absolutely everyone wants to buy pushed prices through the roof. The good news is that you can take the other side of this bet. it's called renting. Currently in most places in the US you will save literally millions over the 30 year mortgage by renting and investing in the market instead. Reminder that renting and owning is functionally almost exactly the same thing. Never trust your realtor and never trust other homeowner that most of the time never did the math (We all know those people: "I bought my home for 500k 15 years ago. It is now worth 1M$, therefore I made 500k$"). In other words, let other people take the irrational side of this bet and take the rational side by renting. It's an arbitrage opportunity.
  - ameliaquining 1y ago
    An important fact that this doesn't account for is that, in the United States, living in housing that you own is highly tax-advantaged, at least if you can get a mortgage on it. For example, mortgage interest is tax-deductible for owner-occupied housing (whereas landlords usually can't deduct interest on their mortgages and so those taxes are passed on to renters), and mortgage rates for owner-occupied housing are far below market due to government subsidies and guarantees (whereas landlords have to pay higher rates that, again, they pass on to renters). This isn't good policy, but as long as it's the case, buying a single-family home is a smarter financial choice for most Americans than renting one.
    - hintklb 1y ago
      I live in the US and I'm aware of this. Those tax deductible interest should be calculated in the complex buy vs rent equation. In fact, even when taking them into account, it still doesn't make sense for most Americans to own. (In today's market). Renting and investing is still the way to go for at least 75% of Americans (this is slightly more nuanced for low cost of living areas, but hold true for any MCOL or HCOL areas). Eventually the math could make sense again, but right now owning is a huge luxury that will cost you millions in the long run. I invite you to play with this calculator: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
      - silisili 1y ago
        It's not all numbers, though. Both have a lot of intangibles that can and should affect your decision. Owning can feel suffocating at times, and like a ball and chain at others. You can't just decide you don't like it or the area anymore and go. Maintenance is also no joke. Renting feels ephemeral. Getting kicked out at lease end sucks, it's hard to uproot everything and start over. Having inane rules and a landlord constantly drive by can make you feel both infantile and spied on. I've done both off and on and those are my own thoughts on the two. Financially only it's easy to pick a winner. But for some, one of these factors may be worth the extra however much money the difference is.
- nothercastle 1y ago
  You wait and invest In something else and you try to convince your spouse that living in a super nice neighborhood as a renter isn’t a bad deal. But sometimes you lose rational arguments on feels and that’s just life
  - socalgal2 1y ago
    2 anecdotes * Met a guy who bought a place in Manhattan Beach LA. He said it was the best investment of his life. It was more than he and his wife could afford be she insisted. Of course maybe they just got lucky that nothing bad happened the would have forced them to sell. * Have a friend that looked for over 20 years. He go out looking 2 or 3 times a month. Everything was always beyond what he was willing to spent, people out bid him etc. Finally he just came to the realization that if he didn't buy he'd never live in a house (one of his goals). So, he bought, higher than he would have. He seems pretty happy to have a house. He's been in it 6-7 years now and at least according to RedFin it's worth less than he bought it for but I don't think he cares. He's happy to be living in his own house and not an apartment. PS: I'm not suggesting the alternative is worse.
    - nothercastle 1y ago
      I had the same outcomes as above it seemed overpriced but I bought in anyway and the forced savings made it a good investment anyways. But ultimately it was a good investment because my initial view of where the market was heading was completely incorrect.
- cpursley 1y ago
  I feel like most of the response to housing comments are from coastal US perspectives where the math really does not work at the moment. But that is not the case everywhere nor outside of the US.
tootie 1y ago
Also, there's no shame in renting and it's frequently a better financial decision.
Etheryte 1y ago
This is a topic that often comes up, but once you pry, people usually overlook inflation. As an example, let's say you took out a $300,000 mortgage 30 years ago. The inflation adjusted cost of that today is $634,546 [0], so figuratively you end up paying more than double the sticker price just because of inflation. [0] https://www.calculator.net/inflation-calculator.html?cstartingamount1=300%2C000&cinmonth1=6&cinyear1=1995&coutmonth1=6&coutyear1=2025&calctype=1&x=Calculate#uscpi https://www.calculator.net/inflation-calculator.html?cstarti...
- Another_Act_ 1y ago
  Eh? This is totally backwards. The amount you owe is fixed, e.g. 300k. Inflation means that that 300k is worth less and less as time goes on. Therefore, inflation is a good thing for debtors!!!
  - Etheryte 1y ago
    No, it isn't backwards when you consider the perspective of the bank. They give you 300k now, if you only paid them back 300k in total they would be incredibly deep in the red. Interest is there to offset that fact and then some. Even if the bank ended up at net zero after inflation, they would still be deep in the red because of the opportunity cost. In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on. Banks are not in the business of charity, so the debtors have to cover the gap, plus profit.
    - Another_Act_ 1y ago
      > In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on. Well yes, that's exactly my point. The $1 you pay back to the bank 25 years ago is worth MORE than the 1$ you paid yesterday. But you still only need to pay back a fixed $300k. Obviously agree that interest paid is where the bank charges you for the loan, but your original point about inflation meaning your actually paying back the inflation adjusted value of the loan makes no sense.
riffraff 1y ago
If you get a mortgage you're also getting extremely cheap credit compared to other options in many jurisdictions. One should do proper accounting as things change wildly from one place to another.
gaws 1y ago
> When you buy a house and get a mortgage, you are going to be paying MUCH more in interest (than expected). Over the course of the mortgage, you are going to be paying MUCH more than the sticker price. Between closing costs and taxes and fees maintenance, you will need more cash than you think. This. No idea why people fall into the hype of owning a house they can't afford in the long term.

bozhark 1y ago

Exactly, calculate total cost of loan vs. cost of purchase

mitthrowaway2 1y ago

What do you do when the people you're bidding against don't understand this?

hintklb 1y ago
it's called renting. Americans are obsessed with owning a home at all cost. This means that you are effectively bidding against people that do not even do the math. They are ready to spend Millions of dollar on something that is comparatively cheap to rent. The fact that absolutely everyone wants to buy pushed prices through the roof. The good news is that you can take the other side of this bet. it's called renting. Currently in most places in the US you will save literally millions over the 30 year mortgage by renting and investing in the market instead. Reminder that renting and owning is functionally almost exactly the same thing. Never trust your realtor and never trust other homeowner that most of the time never did the math (We all know those people: "I bought my home for 500k 15 years ago. It is now worth 1M$, therefore I made 500k$"). In other words, let other people take the irrational side of this bet and take the rational side by renting. It's an arbitrage opportunity.
- ameliaquining 1y ago
  An important fact that this doesn't account for is that, in the United States, living in housing that you own is highly tax-advantaged, at least if you can get a mortgage on it. For example, mortgage interest is tax-deductible for owner-occupied housing (whereas landlords usually can't deduct interest on their mortgages and so those taxes are passed on to renters), and mortgage rates for owner-occupied housing are far below market due to government subsidies and guarantees (whereas landlords have to pay higher rates that, again, they pass on to renters). This isn't good policy, but as long as it's the case, buying a single-family home is a smarter financial choice for most Americans than renting one.
  - hintklb 1y ago
    I live in the US and I'm aware of this. Those tax deductible interest should be calculated in the complex buy vs rent equation. In fact, even when taking them into account, it still doesn't make sense for most Americans to own. (In today's market). Renting and investing is still the way to go for at least 75% of Americans (this is slightly more nuanced for low cost of living areas, but hold true for any MCOL or HCOL areas). Eventually the math could make sense again, but right now owning is a huge luxury that will cost you millions in the long run. I invite you to play with this calculator: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
    - silisili 1y ago
      It's not all numbers, though. Both have a lot of intangibles that can and should affect your decision. Owning can feel suffocating at times, and like a ball and chain at others. You can't just decide you don't like it or the area anymore and go. Maintenance is also no joke. Renting feels ephemeral. Getting kicked out at lease end sucks, it's hard to uproot everything and start over. Having inane rules and a landlord constantly drive by can make you feel both infantile and spied on. I've done both off and on and those are my own thoughts on the two. Financially only it's easy to pick a winner. But for some, one of these factors may be worth the extra however much money the difference is.
nothercastle 1y ago
You wait and invest In something else and you try to convince your spouse that living in a super nice neighborhood as a renter isn’t a bad deal. But sometimes you lose rational arguments on feels and that’s just life
- socalgal2 1y ago
  2 anecdotes * Met a guy who bought a place in Manhattan Beach LA. He said it was the best investment of his life. It was more than he and his wife could afford be she insisted. Of course maybe they just got lucky that nothing bad happened the would have forced them to sell. * Have a friend that looked for over 20 years. He go out looking 2 or 3 times a month. Everything was always beyond what he was willing to spent, people out bid him etc. Finally he just came to the realization that if he didn't buy he'd never live in a house (one of his goals). So, he bought, higher than he would have. He seems pretty happy to have a house. He's been in it 6-7 years now and at least according to RedFin it's worth less than he bought it for but I don't think he cares. He's happy to be living in his own house and not an apartment. PS: I'm not suggesting the alternative is worse.
  - nothercastle 1y ago
    I had the same outcomes as above it seemed overpriced but I bought in anyway and the forced savings made it a good investment anyways. But ultimately it was a good investment because my initial view of where the market was heading was completely incorrect.
cpursley 1y ago
I feel like most of the response to housing comments are from coastal US perspectives where the math really does not work at the moment. But that is not the case everywhere nor outside of the US.

tootie 1y ago

Also, there's no shame in renting and it's frequently a better financial decision.

Etheryte 1y ago

This is a topic that often comes up, but once you pry, people usually overlook inflation. As an example, let's say you took out a $300,000 mortgage 30 years ago. The inflation adjusted cost of that today is $634,546 [0], so figuratively you end up paying more than double the sticker price just because of inflation. [0] https://www.calculator.net/inflation-calculator.html?cstartingamount1=300%2C000&cinmonth1=6&cinyear1=1995&coutmonth1=6&coutyear1=2025&calctype=1&x=Calculate#uscpi https://www.calculator.net/inflation-calculator.html?cstarti...

Another_Act_ 1y ago
Eh? This is totally backwards. The amount you owe is fixed, e.g. 300k. Inflation means that that 300k is worth less and less as time goes on. Therefore, inflation is a good thing for debtors!!!
- Etheryte 1y ago
  No, it isn't backwards when you consider the perspective of the bank. They give you 300k now, if you only paid them back 300k in total they would be incredibly deep in the red. Interest is there to offset that fact and then some. Even if the bank ended up at net zero after inflation, they would still be deep in the red because of the opportunity cost. In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on. Banks are not in the business of charity, so the debtors have to cover the gap, plus profit.
  - Another_Act_ 1y ago
    > In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on. Well yes, that's exactly my point. The $1 you pay back to the bank 25 years ago is worth MORE than the 1$ you paid yesterday. But you still only need to pay back a fixed $300k. Obviously agree that interest paid is where the bank charges you for the loan, but your original point about inflation meaning your actually paying back the inflation adjusted value of the loan makes no sense.

riffraff 1y ago

If you get a mortgage you're also getting extremely cheap credit compared to other options in many jurisdictions. One should do proper accounting as things change wildly from one place to another.

gaws 1y ago

> When you buy a house and get a mortgage, you are going to be paying MUCH more in interest (than expected). Over the course of the mortgage, you are going to be paying MUCH more than the sticker price. Between closing costs and taxes and fees maintenance, you will need more cash than you think. This. No idea why people fall into the hype of owning a house they can't afford in the long term.