The burning question on many minds is whether it’s smarter to rent right now or buy a house. Let's take a look at the numbers, the pros and cons, and the steps you can take to buy in 2023 if it makes sense for you.
Historically, renting has remained a cheaper housing option, mainly due to the extra costs of owning, such as property taxes, PMI (private mortgage insurance), HOA fees, and home maintenance. However, over the last few years, renting has become increasingly more expensive. In fact, just since February of this year alone, rent prices have gone up 5% and up 14% from 2019. Those are staggering numbers!
Along with these rent price increases, landlords and rental companies are adding on what's now being referred to as 'junk fees.' These junk fees include pet fees, trash pick-up services, pest control, deposits, and even arbitrary costs like 'January fee.' The problem isn't necessarily the fees but the amount of these fees. Landlords are charging whatever they want, making renting even more unaffordable. Currently, over 40% of renters in the U.S. are paying more than 30% of their income on rental costs.
Let's take a moment to look at the numbers associated with renting and buying. Currently, the median price of a 30-year monthly mortgage payment is $1,672, while the median price of monthly rent sits at $2,038. That's a median difference of $366 a month or $4,392 a year, which may not seem like much, but remember, these numbers may be higher or lower depending on your location.
If you plan to rent in a metro area, you can expect the median rent to be well above average. The unpredictable nature of rent increases (especially in cities) could leave you struggling to keep up with costs or force you to move elsewhere.
You've probably heard the term equity, but what is it, and why does it benefit you? Simply put, home equity is like a piggy bank that gets filled up over time. As you pay off your mortgage, you slowly become the owner of more and more of your home. Here's how it works: If your home is worth $300,000 and you still owe $150,000, you have $150,000 in equity. So, if you are renting, you cannot build equity.
“Instead of continuing to pay rent and help someone else gain equity, take the opportunity to start earning it for yourself," recommends Churchill Mortgage Dallas Branch Manager, Mason Whitehead.
With high mortgage rates and low inventory, you're probably wondering why now would be a good time to buy. Consider the cost of waiting to buy. When rates go down, property demand will increase, driving up prices, and the market will be flooded with home buyers. Buyer competition will be fierce, and you'll likely be competing in bidding wars.
Whitehead says, "The biggest mistake buyers make is not moving forward now in the hope that rates or prices will come down. At least in Texas, one of the states with the highest demand nationwide, that is just not happening."
We know rates will drop eventually, and many industry leaders believe rates are at or near their peak. Churchill’s COO, Matt Clarke, says, "We're approaching a glass ceiling where rates going too much higher would be detrimental to other critical aspects of the economy." So, instead of waiting for rates to drop and risking higher home prices, buy now and refinance when rates drop.
With a fixed-rate mortgage, your principal and interest payments remain constant over the life of the loan, allowing you to budget more accurately–something that cannot be said when renting.
Not every renter can buy a home right now, and that's okay! But, if you're a renter who feels ready to buy but you’re worried about the down payment, consider down payment assistance and grants. There are countless programs available to help first-time home buyers succeed.
Click here to find and apply to local home buying programs by state.
If you're a teacher, law enforcement, firefighter, or EMT, consider HUD's Good Neighbor Next Door Program. This program offers a 50% discount on select housing listing prices. However, eligible buyers must live in the property for at least 36 months.
Also, remember most first-time home buyers do not have 20% down in today’s market, but there are still options to get a home with a 5-10% down payment. The more you put down, the more house you can afford.
By "renting the rate" and eventually leveraging your refinancing opportunities, you can start to build equity and help secure your financial future. While the process may seem daunting, the steps to buy a home are well worth the effort when considering the long-term benefits.
If you're on the fence about whether to rent or buy, reach out to one of our Home Loan Specialists. We are ready to answer your questions, find a loan that's right for you, and most importantly, put you on a path to debt-free homeownership!