During the early stages of my divorce, I found myself questioning whether buying a home was financially viable. I explored both renting and purchasing options to understand my monthly expenses and long-term financial outlook. With a teenage son and a preteen daughter, I needed at least three bedrooms, which limited my options significantly, especially in the rental market.
Buying a home would require a substantial upfront investment compared to renting. For a property priced at about $180,000, I’d need around $36,000 for a down payment, along with several thousand for closing costs. In contrast, renting a three-bedroom unit would necessitate first, last, and security deposits, amounting to $4,500 upfront, given that rents started around $1,500 a month.
However, monthly rent would be considerably higher—about 50% more. A mortgage payment for that $180,000 home, with a 20% down payment, would only be about $1,040 per month, including property taxes and homeowners insurance. Comparatively, the cheapest rental was $1,500.
While owning a home does come with additional expenses, I believe the common analyses suggesting that renting is cheaper overlook two critical points. First, part of my mortgage payment contributes to the principal, building equity that I can reclaim should I sell the house. Over time, as I make payments, my equity grows thanks to amortization. In contrast, every dollar spent on rent enriches someone else, leaving me with nothing to show for it.
Second, these analyses often ignore the financial benefits after years of homeownership, including potential profits upon selling the property. Homeownership remains one of the most reliable pathways to building wealth; it acts like a savings account with interest. Renting, on the other hand, presents a significant opportunity cost, especially in today’s inflated rental market.
If purchasing a home is financially out of reach, many individuals find themselves stuck in a rental cycle. The reality is that the cost of housing—whether rented or owned—has surged dramatically. Reflecting on my situation, had I lacked the means for a down payment, I would have been trapped in endless renting, with no savings left at the end of the month. Countless Americans are facing this predicament, trapped in a rental cycle that hinders their financial progress.
The narrative often presented is that young people can rent affordably while saving for a home. But how can one save when nearly all their income is consumed by exorbitant rental payments? Adding children into the mix complicates things further, making saving nearly impossible.
With my income, had I been forced to rent, I would have barely managed to save a few hundred dollars monthly. At that rate, it would take me 15 years to save enough for a down payment—by which time home prices would have likely risen significantly, requiring even more savings. In fact, current prices indicate that I would need nearly $6,000 more for a down payment now compared to two years ago, alongside an increase of about $175 in monthly mortgage costs.
It’s perplexing how one is expected to save for a 20% down payment when renting costs are often 50% higher than buying. A quick look at listings on Zillow will confirm this discrepancy. The premium on renting is so high that it effectively eliminates the ability to save.
Moreover, many property investors are outbidding first-time buyers, purchasing affordable homes and flipping them for higher prices. This practice removes potential starter homes from the market, driving prices up and making it even harder for new buyers to enter the housing market.
This situation significantly contributes to the widening wealth gap. With rising housing costs, those without family financial support find themselves trapped in a cycle of unaffordable rent, unable to save for homeownership.
My ex-husband and I managed to buy our first home in 2008 thanks to a year of living rent-free with my generous aunt, allowing us to save $25,000. That year laid the foundation for our financial growth. We sold that house for a profit, and the equity from that sale enabled us to buy another home. However, many Americans don’t have this support.
This issue deserves more attention. Shelter is a fundamental human need, yet as we grapple with rising healthcare costs and educational inequities, millions of Americans are being priced out of basic housing.
For more insights on financial planning and homeownership, check out this related blog post.