I also took into account the down payment ($6,500) and closing costs ($4,190). I would only have to pay these once, so my estimate of the total cost in the first year to own would be $26,182.

Looking at the cost in the first year shows that owning would cost more than I expected, but I had to look at the cost over the long term.

Using some assumptions that seemed reasonable, in the long-term I could see that buying a home should pay off in the end. My monthly payments would be lower than renting (because my rent would continue to go up, whereas my mortgage payment would be fixed for 30 years), and I could build equity in my home over time. Every month, part of my mortgage payment (“mortgage principal”) helps to build the amount of equity I have in the home. Equity is the amount a home is worth, minus the amount still owed on the mortgage. A home’s equity can increase as the loan amount decreases, especially if the value of the home goes up over time.

In the long-term view, owning a home seemed much better for me than renting. After two years of ownership, I would have paid $41,674 total for my home, which is $16,702 more than it would cost me to rent. But, I also estimated that by then I could have over $20,000 in equity. If I was paying rent for those same two years, I would have earned no equity. More >