With rent prices soaring in many areas of the U.S., renters are starting to consider whether now is the right time to start saving for a down payment on a home.
Depending on where you live and what your timeline is for buying a house, you might be wondering the same thing.
So, in today’s post, we’re going to talk about how to break down your rental costs to determine whether it makes more sense to buy a home rather than continue renting.
Add up your rental costs
There are any number of costs associated with renting depending on your lease agreement. Some renters are required to pay their own heating and utilities, while others have several bonuses thrown into the cost of their rent, such as internet, gym memberships and more.
So, take a minute to write down each of your rental expenses. To get you started, here’s a list of some of the most common costs for renters:
Now that you know how much you put toward renting each month, it’s time to take a look at what it could cost you to own a home.
The key thing to remember about buying a home is that your costs can vary widely based on the size of your home, where it’s located, and a number of other factors. However, you can often find area averages online.
If you’re considering a starter home (which you should!), then you’ll want to look at houses in your area that are on the lower end of the market.
To get an idea of what your mortgage payments and monthly interest will be, you can use a free tool like Bankrate.
Now, let’s make a list of your homeowner expenses:
Heating and AC costs (plan for higher costs than renting due to more space)
Property taxes (divided by 12)
Mortgage insurance (if you don’t have a 20% down payment saved)
Cost-benefit analysis of owning a home vs renting
Now that you know the general costs, you’re getting close to knowing whether it would be cheaper or more expensive to buy a home than rent.
However, that isn’t the full picture. When you own a home, you’re responsible for maintenance and upkeep. That means you should budget around $250 per month toward maintenance. Even if you don’t use that amount each month, there’s a good chance you’ll have to make a repair or upgrade, or even hire a professional to come and fix something on your home.
The final piece of the picture involves home equity. When you own a home, most of the money you pay each month to your lender will come back to you in the form of equity. As a renter, your money goes to your landlord and will never be seen or heard from again.
So, if you’ve added up your lists, accounted for maintenance costs, and still have enough left over to live comfortably each month by buying a home, you can most likely bet on buying as being a better option.
If not, it might pay off to rent for another year or two while you save up for a down payment so you can get the lowest interest rate and avoid PMI.