One common piece of advice adults receive is to buy property as a mortgage is usually cheaper than rent. But it doesn’t account for the additional homeowner costs like maintenance, property taxes, and so on. We’ll break down the cost of homeowning versus renting.
Homeowner: Saving for 20% Down Payment
If going the buying route, it’s recommended that you have 20% saved for a down payment to avoid paying private mortgage insurance (PMI). Your mortgage lender will charge PMI if you don’t put down a 20% down payment. PMI protects the lender and doesn’t benefit the homebuyer in any way.
The U.S. national average for a down payment is $62,000 and Point2 found that Millennials expect it to be closer to $10,000. Even worse, only 61% of Millennials had less than that and 14% had no savings at all.
If you want to save for a down payment, utilize the 50/30/20 budgeting rule many experts recommend. 50% of your income goes to essentials (rent, groceries, utilities, bills, etc), 30% for fun, and the remaining 20% for savings. Using this method, you can get a better sense of your spending and how long it will take to reach your down payment goal.
Rent vs. Mortgage Affordability
Assessing whether rent or a mortgage is the cheaper option comes down to how the local market is performing. We know home prices are increasing in Austin, which is now causing apartment prices to grow as well.
A new report from KVUE shows almost 21,000 new apartment renters moving to Austin, but only 13,000 new apartments were completed. This demand in apartments has caused apartment prices to increase. According to the Statesman, it’s an increase of about $200 per month in 2021. The average rent in December 2021 was $1,500. The end of 2021 was the highest reported apartment occupancy rate at an average of 94%.
In terms of housing, January’s Austin Board of REALTORS® numbers shows that the median sales price rose over 30% to $476,000 for the Austin-Round Rock MSA. Inventory remained unchanged at 0.4 months, keeping it a sellers market. In the city of Austin, those numbers are $550,000 for the median home price and 0.3 months of inventory.
Rent vs Mortgage Payments
Common arguments of the renting vs buying debate is if you can afford to rent, then you can afford the same amount in a mortgage. That’s not entirely true. Apart from paying for the mortgage, homeowners should expect to pay an additional 5% of the property value for property taxes (1%), property maintenance (1%), and interest rates (3%).
If you’re able to stay under that 50% budget rule we mentioned earlier, while still paying for the other essentials like groceries, utilities, and other bills, then switching from being a renter to a homeowner could benefit you financially.
Homeowner Advantages and Disadvantages
What money can’t buy is flexibility and freedom to relocate, an advantage when renting. But on the other hand, owning a home can provide a sense of stability and safety that renting can’t provide. There’s no right or wrong choice because you know what’s best for you and your goals.
If you need help discussing whether you should rent or buy, contact us! We’d be happy to offer our expertise and create a plan with you.
