| RENT VS. BUY—DON’T MISS THE OPPORTUNITY TO BUILD EQUITY |
| You may have seen reports that now it’s more affordable to rent than to buy a home. This can be true if you only look at the typical monthly payments in each case. But that comparison does not take into account the home equity you build as a home owner. Home equity is the difference between what you owe on your mortgage and what your home is worth. It’s the money you will receive when you sell after you pay off what’s left on the mortgage. It can grow over time as your monthly payments reduce what you owe on your loan, and as your home’s value increases over time. Let’s look at the dollars involved. |
| Median Rent Payment vs. Median Mortgage Payment. As of February, the median asking rent in the 50 largest metros was $1,708 (averaging studio, 1- and 2-bedroom residences). The median monthly mortgage payment was $2,040, which is $332 more. But the median mortgage payment was only $151 a month more than the median rent of $1,889 for a 2-bedroom unit. So, if you need some space in your home, there is actually not that much difference between renting and buying when you’re only looking at the monthly payments. Now see what happens when you factor in home equity. |
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| Paying the Landlord vs. Paying Yourself. When you rent, the money you pay the landlord each month is gone forever. But when you buy, part of your monthly mortgage payment is also money you’re investing that comes back to you when you sell. This is the part of your payment that goes to building your home equity as you pay off what you owe on the loan. When you sell, after you pay off the mortgage, you will receive this money, plus your original down payment, plus the equity that’s built up as your home’s value climbs, which it will likely do over time. |
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| How Equity Can Stack Up Fast. Of course, there is no guarantee what will happen to your home’s value by the time you sell. But here’s some data from mortgage giant Fannie Mae and the Pulsenomics research firm. Their Home Price Expectations Survey (HPES) reports that economists, real estate professionals, and investment and market strategists believe home prices will keep rising over the next five years. They project that a home purchased for $400,000 in 2024 will be worth $483,385 in 2029—an $83,385 gain in home equity. |
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| The Equity You Miss Out on by Renting. Now let’s compare that to the savings you’d get by paying the median rent of $1,708, instead of the median mortgage payment of $2,040. That $332 a month difference amounts to a savings of $19,920 over 5 years. But by renting you miss out on that projected $83,385 gain in home equity—that’s $63,465 more than what you would have saved by renting, and it goes right into your pocket. Ultimately, whether you should rent or buy depends on your finances—you should not buy if the numbers don’t work. But if they do, remember that buying gives you the opportunity to build equity—and that may make buying the better decision in the long run. |
The Jim Passi Team at Citywide Home Loans proudly serves Illinois, Wisconsin, Michigan, Indiana, Georgia and Flordia. If you are looking to buy a home or refinance, we have you covered. Apply Now to get started.
