When Americans consider renting vs buying a home, affordability is top-of-mind. Perceptions of affordability, however, don’t meet reality, according to a recent survey by Freddie Mac.
“More than 80% of renters now view renting as more affordable than homeownership,” according to the survey.
They’re wrong
“Owning the median-priced home is more affordable than the average rent on a three-bedroom home in 58% of the country,” says CNBC’s Michelle Fox, citing an ATTOM Data report from January.
The Freddie Mac survey finds that nearly 35% of renters reported their rent payment consumes more than one-third of their income. Homeowners? Only 25% of them spend that much of their income on their mortgage. The evidence of renting vs buying a home continues…
Here in South Florida while the average price of a home in 2021 is up about 36% over 2020… the average rent was up over 40%!
Then Why Don’t They Ditch The Landlord And Buy A Home?
The quick answer to that one is, again, a perception that doesn’t jive with reality.
Nearly 90% of renters named the down payment and closing costs as major obstacles in their path to homeownership.
This perception is based, no doubt, on the many online articles claiming that a homebuyer needs 20% of the loan amount as a down payment.
While it’ll help reduce your monthly mortgage payment to have a larger down payment, it’s by no means a hard and fast rule set by lenders. Many lenders offer mortgages with as little as 3.5 percent down and, believe it or not, there are zero-down options as well – although I personally do not suggest you try that.
Still Seems Like Too Much Money?
There are more than 2,000 down payment/closing cost assistance programs, nationwide. Some offer the help as a grant while others offer no-to-low-interest loans. Your lender can help you find the ideal program to fit your needs.
You’ll Be Glad You Did It
“There is a reason so many Americans choose to develop their net worth through homeownership,” according to Matthew Desmond of the New York Times Magazine. “It is a proven wealth builder and savings compeller.”
When renters write their rent check every month, they’re helping their landlord build wealth. The mortgage check a homeowner writes each month? It goes toward building their own wealth.
And the proof is in the numbers. Not only do homeowners spend a smaller percentage of their income on housing each month, their net worth is on average $195,400, which is 36 times that of the average renter’s net worth ($5,400).
Yes, there are challenges for folks considering renting vs buying a home. But they are far from insurmountable. You may be surprised what is possible with the right mortgage/real estate team to back you up.
However, you must become familiar with the facts of renting vs buying a home. And I’m talking the numbers.
Too often I see customers spending too much time thinking about the down payment. Here’s how it goes: “But, 15% down on that $400k home is $80k. By putting all that hard-earned money into a home, it’ll be gone. And who knows it the home price will go up or down. But if I keep my $80k and rent, I have more time to use those funds more wisely.”
No – no, no, no. That’s the wrong way to think about home ownership.
Renting vs buying a home is about long term happiness, equity appreciation and owning a hard asset. Over time, hard assets are a proven way to build lasting wealth. Sure, you’ll pay for expenses like updating paint, broken plumbing, or adding capital improvements (not expenses).
So with home ownership you do get tax and depreciation benefits. You get to count some things as expenses and others as improvements to your asset.
When you rent, there are no options but to pay the landlord. Period. End of the conversation.
So don’t think or short-sight this important decision of renting vs buying a home. And, if you’re planning to have a family, be an active participant in your community for the longterm, owning your home, will allow you more options than renting… without the worry of someone else making decisions for you.
Renting vs buying a home – the decision is crystal clear. If you need further clarification, call me. I’d be happy to share my 25+ years of successful home ownership experience.
