home matters

Buy vs. Rent: Can It Really Be Less Expensive to Own a Home?

John Pataky | May 1, 2016 4 MIN READ

Homeownership has long been one of the hallmarks of the American Dream. Buying a home for many is as much a personal life goal as it is a financial one as we seek to put down roots, raise families and connect more deeply with our communities. And at the end of 2015, over 63 percent of American households were living the dream. Today, however, as housing prices have continued to rise and consumers have accumulated debt, buying a home can seem less like a rite of passage and more like a luxury, thus discouraging would-be first time homeowners from exploring their options. But with rental costs at all-time highs in many regions across the country, now is most certainly a good time for consumers to revisit their preconceptions about renting vs. buying.

Here are a few tips to help you decide whether homeownership is right for you:

1. Evaluate Potential Rent vs. Monthly Mortgage Payments

Renting can be an effective short-term strategy because it allows you to pay a fixed cost every month on what is usually a one-year lease. This can be helpful for renters who move around a lot, as well as young professionals on a limited budget. If you are renting and your circumstances change unexpectedly, in many cases you can find a subletter to take over your lease or just wait for the lease to run out. No strings attached.

However, for potential buyers with steady jobs and an interest in staying in one location, homeownership presents a competitive option. Depending on your down payment and the lifetime of your mortgage, a monthly mortgage payment could cost you less than rent.

Estimates vary for how much you should spend on housing, with most falling somewhere between 25 to 35 percent of your monthly take-home income, depending on your other expenses such as transportation, food, healthcare and savings. The Bureau of Labor and Statistics’ Consumer Expenditure Survey found that in 2013 homeowners spent on average 29 percent of their income on housing. Of this 29 percent, 69 percent was spent on the mortgage payment, 14 percent on property taxes, 10 percent on utilities, furnishings and other miscellaneous expenses, and 7 percent on insurance, maintenance and repairs.


2013 HOMEOWNER FINANCIAL STATISTICS

Housing Expense Breakdown
69% Mortgage Payment
14% Property Taxes
10% Utilities, Furnishings, Other Miscellaneous Expenses
7% Insurance, Maintenance, Repairs

2. Consider Your Appetite for Commitment

The main advantage of renting is the lack of commitment. You can try a place out for a year or two and if you don’t like the space or the neighborhood, you can relocate without having to worry about hiring a real estate agent to find a buyer. Plus, if something in the apartment or condominium is broken, the landlord or the property manager usually has to deal with it instead of you.

But there are a lot of benefits to being a homeowner that are inaccessible to renters. Perhaps the greatest benefit of homeownership is that your monthly mortgage payment is an investment as opposed to an expense. As you pay down your mortgage, your equity in your home increases, growing one of the most stable assets on your personal balance sheet.

Beyond the investment opportunity inherent in homeownership, other benefits include:

  • Maintaining ultimate control over your home’s look and feel
  • Enjoying an enhanced quality of life as you grow roots in your community
  • Providing educational continuity for your children
  • The ability to deduct your mortgage interest and property taxes

3. Understand Which Financing Options Best Fit With Your Long-term Goals

Looking at your mortgage payments through the lens of investing as opposed to a sunk cost, as you likely did while renting, can be instrumental in helping you decide whether or not owning a home right now is the correct decision for you. As you make this evaluation, it’s also important to consider which financing option best fits your long-term goals.

Some features of mortgage products that may be useful to first time homebuyers include:

  • Low and no down payments options
  • Reduced cash out of pocket
  • Relaxed credit-score requirements
  • Consideration for student-loan debt

There are also different types of mortgages, allowing you to decide to either make a fixed monthly payment or keep payments low initially with an adjustable-rate mortgage. Another factor you’ll want to consider is the amount owed on your other debts, like credit cards and car loans. If you’re struggling to make any financial obligations on your current budget then it may be a good idea to hold off on buying a home until your financial situation is more stable.

Whatever your circumstances, homeownership doesn’t have to be a pipe dream. With careful planning and budgeting, you can say goodbye to rent payments and begin building equity in your home.

John Pataky
John Pataky
EVP, EverBank Consumer Division
John Pataky
John Pataky
EVP, EverBank Consumer Division
John has long served as a leader in the financial services industry. And today, his focus on our clients' needs drives the strategic growth and evolution of our banking and home lending businesses.

All statements, comments and opinions expressed are solely those of the writer or speaker and are not the statements, comments or opinions of EverBank or of any of its affiliates, and are subject to change without notice. Due to the rapidly changing nature of currency and commodities markets, any statement, comment, or opinion may quickly become outdated. This is not a solicitation for the purchase or sale of any securities or options on securities or for the purchase or sale of a currency or any precious metal, and it does not constitute a recommendation to you or to any specific person of any particular action. EverBank, its officers and employees do not provide investment or other types of advice. All factual information has been obtained from sources that the writer or speaker believed to be reliable, but the accuracy, completeness, and interpretation of the factual information is not guaranteed and has not been independently verified. Not all products are right for everyone. You should conduct your own research and/or consult your advisor before making any purchases.