Cost of owning a home

The total cost of owning a home runs well beyond the mortgage payment you make each month. Consider a typical US home valued at $332,700. About $2,950 a month goes out in year 1 and never comes back. For the typical home in the US, rent is $1,413. Although the gap appears bigger than it actually is, it is real, with most of it outside the loan.

What the cost of owning a home adds up to

A 30-year loan at 7.24% with 20% down forms the year 1 example for a typical home. The rate comes from the latest Freddie Mac listing. With a down payment of $66,540, the loan amount is $266,160.

• Interest: roughly $19,300. The amount borrowed multiplied by the interest rate gives a figure that drops a little as you pay down the balance.
• Property tax: $3,127, based on Census tax data, which puts the US average at 0.94% of the value.
• Our basis puts insurance at $1,308 a year.
• Upkeep: $3,327, equal to 1% of the home's value.
• Lost return comes to $6,489. Your down payment and closing cash come to $78,185. Placed in a fund, that money could earn 8.3% annually, according to NYU Stern's Damodaran data.
• At 3.5%, buying costs run $11,645, spread over a 7 year stay. That works out to about $1,664 a year.

Once you add these amounts and divide by 12, the monthly total is about $2,950. One part of each payment is missing: the amount that reduces the loan balance. You receive these savings when you sell, so they aren't a cost.

The example uses year 1 costs for a $332,700 home based on the Census ACS median. It assumes 20% down, a 7.24% rate and 0.94% property tax. Insurance costs $1,308 a year, while upkeep is 1%. It also applies an 8.3% return on cash you could have earned, with buying costs spread over 7 years. Rent comes from the Census ACS median gross rent figures. Method details: how we count.

Beyond the mortgage, what does a house cost?

Buying a home brings bills with the keys, and they're bigger than first-time buyers expect. According to a Zillow and Thumbtack study, upkeep, property tax and insurance alone run the typical US owner $16,566 a year. That adds about $1,380 a month to the loan payment.

Their split puts $3,129 on tax, $2,266 on insurance and $11,171 on upkeep. Their upkeep figure is well above our 1% budget, so treat our figure as a floor and not a ceiling. Annual costs differ by location, with Phoenix at $14,187 and New York at $25,111.

Two additional bills may come your way:

• This is mortgage insurance. If you put down less than 20% on a standard loan, you'll likely pay PMI. According to the CFPB, this protects the lender instead of you.

The cost of buying a house, before you move in

According to the CFPB, closing costs usually equal 2% to 5% of the price, without the down payment. For a home priced at $332,700, the amount ranges from $6,654 to $16,635. The rate in our model is 3.5%.

Those house purchase fees cover a long list of people and paperwork, according to Freddie Mac's buyer guide.

• The lender charges origination and underwriting fees.
• An appraisal, along with a credit report.
• Sometimes an attorney is included, along with title services and a survey.
• Government recording fees.

To open an escrow account, your lender may request two months of tax and insurance payments up front. And then comes the far end. Agent fees and closing bills make up about 6% of the selling price, which is close to $20,000 for a typical home.

Cost of owning vs the cost of renting

For renters, the list is short: moving costs now and then, rent and renters insurance. By the Census American Community Survey, median gross rent runs $1,413 a month. Our renters insurance guide shows that the US average for renters insurance is $173 a year.

Rent rises over time. Since 2006, it has gone up about 3.5% a year, by the BLS price index. The payment on a fixed loan stays flat for its owner. The owner's tax and insurance also increase. In the Zillow study, insurance premiums climbed 54% in five years, a faster rise than rents.

This is the test I use. Compare rent with what an owner loses: interest, tax, insurance, upkeep, closing costs and lost return. Don't compare it with the payment. The reason is explained in rent vs mortgage.

How you work out your own number

Your price and rate come first. Next, add each amount:

• Interest: the rate times your loan.
• Tax: multiply the purchase price by your county's rate.
• Insurance: get an actual quote rather than estimating.
• Upkeep: each year, set aside at least 1% of the price, with more needed for an old house.
• Lost return: multiply your down payment by what a fund might earn.
• Closing costs, divided across the years you'll stay.

You can skip the arithmetic instead. The rent vs buy calculator works it out using your numbers. The rent vs buy by city pages each show the true monthly cost for that city.