A common, recurring question in real estate is, “Should I buy or rent?” But perhaps a better question is, “What is the cost of buying vs renting?”
Unfortunately, there really is no simple answer to the first question. The choice of buying or renting comes down to any number of factors that will be unique to your situation.
Are you looking to truly invest in a property? One that you’ll build equity in over time? If you answer yes to those questions, then buying is your best option. Privacy and full control over the home are other strong reasons to buy rather than rent.
Conversely, buying a home is a long-term investment. Maybe you want more freedom to move to different areas of town or downsize when you see fit. And if being responsible for home repairs sounds awful, then renting probably suits you.
Money on the Mind
But when you ask about the cost of buying vs renting, the answer becomes a bit clearer, if only slightly. On a fundamental level, buying a house is one of the costliest things any of us will ever do in our lives. Even though the vast majority of homeowners pay for their homes over time via a mortgage loan, there’s still the rather large down payment that often costs a pretty penny.
Indeed, a recent survey conducted by Freddie Mac found that renters from multiple income levels view down payments and closing costs as a primary obstacle to home ownership. This belief hasn’t changed much across generations, either; 71% of baby boomers, 81% of Gen Xers, and 80% of millennials found these tremendous costs to be prohibitive.
Additionally, 40% of renters cite the belief that mortgage payments would be higher than rent payments as another major obstacle on their path to home ownership. That may hold true in some of the country’s most populated cities like Los Angeles or Boston, but you may be surprised at just how affordable owning a home can be.
Freddie Mac’s survey found that the majority of both renters and homeowners believe their respective living situation is the most affordable option for them. Interestingly, even many of the surveyed homeowners believed renting would be the more affordable option.
However, the same survey shows that isn’t necessarily the case. Renters were more likely to be cost-burdened – in other words, 34% of renters spend more than one-third of their income on rent. By comparison, only 25% of homeowners spend that much on their mortgage. That holds especially true in the current generation, as only 17% of modern homeowners spend more than a third of their income on housing as opposed to 41% of renters.
What’s Right for You?
Determining whether you should rent or buy a house ultimately comes down to examining you and your family’s situation. Practical considerations like committing to a neighborhood versus flexibility to move and others will weigh heavily on your decision.
When it comes to the cost of buying vs renting, however, you may find that you’re readier for home ownership than you might think.