Owning a home isn’t always the financially smart thing to do. And renting isn’t always throwing money away. The right thing to do is a personal decision for you. Where you live is not an investment, so it’s important to find the right balance between what you can afford, the lifestyle you want today, and your savings goals.
We did NOT factor in property taxes, insurance, maintenance and so on in the cost of owning a home since those can vary a lot. BUT those should be factored into your calculations if you are looking to buy a home! The red line in the graph is just the monthly mortgage payment.
The mortgage payment is based on the median home price and the average 30 year fixed rate mortgage with a 10% down payment. (The average down payment in the US is about 14% and the average for a first time home buyer is 7%).
Just because owning a home is more expensive, it doesn’t mean it’s wrong to want to buy a home today. Owning your home has non-financial benefits. You don’t have to worry about getting kicked out at the end of your lease. You can make any changes you want to the house. And so on.
If you go back in history, the cost of buying vs renting has never been more wide than it is today. What happens from here? Who knows. The cost of buying could come down eventually if home prices go down or mortgage rates go down. Or the cost of rent may go up and that could cause things to even out. But, don’t make decisions about where to live based on what you think will happen in the market.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Vivi & Shane
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