Is it Cheaper to Rent or Own?
Before the last few decades, buying a home meant you’d made it in life. In fact, many dubbed it the American dream.
However, the option of renting has become increasingly popular over the last ten years, with Rentcafe finding that in 2018, 34% of Americans were renters.
The study also found that the number of renters has increased twice as fast as the number of homeowners, and that there are 76% more today than there were in 1960.
But what do these numbers mean to those looking for homes? Is it cheaper to rent or own?
How Much Does it Cost to Buy a House
Before getting a mortgage to buy a home, you must first consider its price.
In the US, the median cost to buy a house is $306,000 as of January 2020 (a 6.7% increase from January 2019).
Depending on where you live, that number can increase or decrease quite drastically.
For example, the median price of a home in Boston is $505,000, which is 200K over the national average. Compare that to $203,000, the median cost in Chicago.
Aside from the mortgage—which you can budget for using a mortgage calculator—you’ll also need to pay for the down payment, closing costs, and reserves. Not to mention recurring expenses like property tax and maintenance fees.
How Much Does it Cost to Rent
Renting is attractive to many house hunters because you don’t have to worry about down payments, closing costs, mortgages, reserves, or even maintenance expenses.
If you’re A/C breaks, for example, the landlord pays for it.
Similar to buying, the cost of renting a home depends heavily on where you live. For example, the state with the lowest premiums to buy a home is Florida, where the average cost is 33% more than renting. But in New Jersey, the monthly cost of owning is almost double that of renting.
However, there’s not a single answer to “how much does it cost to rent,” as your monthly payments are dependent on the landlord and value of the home.
How much you pay each month is determined by your landlord. Usually, landlords charge tenants between 0.8% and 1.1% of the house’s value.
Using these numbers, homes for rent that are worth $250,000 would typically cost $2,000 to $2,750 per month.
So, Is it Cheaper to Rent or Own?
The short answer is that renting is cheaper than owning a home, no matter where you live.
According to Nerdwallet, owning a home costs 54% more than renting per month nationwide.
If you are going to buy a home though, you might want to consider moving to Florida, Arizona, or Colorado, which are the states with the lowest premiums.
Renting and owning come with their fair share of pros and cons. But if you don’t want to commit to a mortgage that takes years to pay off, maintenance costs, and other expenses, renting might be the best option for you.