A very common refrain from renters who hope to one day own a home is that they just need to wait until they can afford a mortgage. The truth of how expensive the average mortgage is compared to renting might surprise a lot of people.
Many Americans have been scared away from buying a home due to the scarcity of starter homes nationally. That lack of supply and a rising demand has kept home prices in many areas increasing quarter after quarter. The problem though is that with fewer Americans buying homes, that also means that more and more people are now competing for rental properties.
More demand on rental property also means higher prices in that arena, too. So which is it? Is it more expensive to rent or to buy?
Initial Upfront Costs
The assumption about affording a mortgage has been fairly accurate throughout history, but times are different right now in the U.S. housing market due to market regulations following the Global Financial Crisis. It's true that closing costs and the down payment are the biggest barriers for many Americans in securing a home mortgage.
To help confront this barrier, many mortgage lenders are offering different loan packages that require smaller amounts of money down. For instance, FHA loans require as little as 3.5% in down payment. Mortgages insured by the VA require no money down.
On the other hand, landlords may have a huge supply of potential renters and can set very high rents, as well as strict criteria, including rising security deposits and multiple months' rent in advance. When making the comparison between upfront costs for buying and renting, it used to be that buying was more expensive, but in many markets, some consumers will find that buying is actually cheaper than renting.
Monthly Costs
Monthly costs equate to the cost of a mortgage payment vs. a monthly rental payment. Mortgage payments have benefited this year with favorable rates.
Conversely, many apartments are charging similar amounts as a mortgage payment. Indeed, in some markets the monthly rental payment for a similarly sized property can actually be MORE.
The other consideration that renters may want to keep in mind when deciding whether to keep renting or to apply for a mortgage loan and buy a home is an old proverb: When you buy a home, every month you pay your mortgage. When you rent, every month you're paying someone else's mortgage.
Homeownership is the better path to building equity.
The Most Expensive Rental Markets
According to Business Insider, the most expensive rental markets in the U.S. are predominantly in California and other large metropolitan areas. Here are the top ten rental markets with the median rental price for a one-bedroom apartment:
- San Francisco, CA $3,590 per month
- New York City, NY $3,340 per month
- Boston, MA $2,310 per month
- Oakland, CA $2,280 per month
- San Jose, CA $2,270 per month
- Washington, DC $2,200 per month
- Los Angeles, LA $1,970 per month
- Miami, FL $1,900 per month
- Chicago, IL $1,790 per month
- Seattle, WA $1,750 per month
Pacific Union Financial
Pacific Union Financial, LLC is a full-service mortgage lender providing mortgages, refinancing, and loan servicing across the country and around the corner. With expertise in home loans for credit levels from best to bruised, we'd love to help you enjoy all the benefits of homeownership. Get in touch today and let us show you how we work hard to make mortgage easy.
Contact Jennifer Dierkhising at 866-672-3804.
