It’s no surprise that people want to be home-owners. It’s a huge part of the American dream! The white picket fence, the yard for the kids to run around in… I’ll admit that I get caught up in the dream of it all as well. But what about renters? Is renting really throwing your money away?
As a millennial, I hear a lot of facts about how millennials are moving slower than the generations before us. We are getting married later, having kids later, and buying houses later. It’s hard to imagine that my parents’ generation were all basically home-owners at the age of 20! And here are my husband and I at the ages of 23 and 26 and we feel no where close to owning a home.
For my millennial readers: before you get down on yourself for renting an apartment, consider the facts of renting verses buying.
Housing Market Facts
Anyone who’s at all be interested in purchasing a house recently knows how crazy the market has been. In 1950, the median home price in the United States was $7,354 ($44,600 in today’s dollars with inflation). Today, the average home price in the U.S. is $236,400. Putting us at an all-time high, even before the market crash in 2007!
This is good news for those who have had houses for five or more years as their home value has increased immensely! But not so great news for us trying to get in the market…
How Much House You Can Afford
For those of you who are Dave Ramsey followers, you know that he says you should get a 15 year mortgage with a fixed rate, and your payment shouldn’t be more than 25% of your take home pay. If you’re buying a house for the cost of the median home price in the U.S. with 10% down, then your mortgage payment would be $1,631 a month.
For you to to able to afford this house, you need to make about $78,000 after taxes or about $104,000 before tax. But here’s the interesting part… The median household income in the U.S. in 2016 was just $59,000. Meaning that median incomes can’t afford median homes.
Jacob and I live in Portland, Oregon where home prices are above the national average. To put this in perspective, a starter 3 bedroom house in my area is selling for about $350,000. And our current income does not allow us to purchase a house.
Dave gives a great guidance for house buying. I do plan to spend no more than 25% of our income on a mortgage. But we’ll probably get a 30 year mortgage. If we were to do a 15 year with a house that’s $350,000, we’d have to make $155,000 a year before tax. Which we don’t…
The Perks of Renting
Is owning a house an awesome thing? Of course. You don’t have to worry about your monthly housing costs going up, you get a tax benefit, and you get the accomplishment of owning your own home! But there are perks of renting as well.
You Aren’t Tied Down To A City
With renting, you aren’t tied down to a certain location. If you are young and not sure where you will end up, renting is great. Before you truly know where you want to plant your roots, renting helps you figure it out before going through the long and expensive process of home buying.
You Don’t Have To Pay To Fix Things
We recently moved to a new apartment after we became debt free. And two weeks after being here, our dish washer broke! Rather than having to pay someone to come look at it or somehow figure it out ourselves, we called maintenance and they took care of it! When you own your home, you have to pay to fix all things from small to big.
You Avoid Additional Home Owner Costs
When you’re a renter, you probably pay rent, utilities, and renter’s insurance. When you own your house, you pay for a mortgage, utilities, insurance, PMI (if you put down less than 20% on your mortgage), and taxes. The cost of a house is more than just the monthly mortgage! Some of these are things that you don’t have to worry about when renting.
Renting Buys Patience
Renting buys patience. If you’re trying to meet some serious financial goals like paying off all your debt, it so much easier to rent a small apartment! You’ll most likely be paying less in rent for a small apartment than you would for a house mortgage. Which means that you’ll get to save for a down payment even faster when it’s time!
So Is Renting Really Throwing Your Money Away?
Not at all. Renting buys you patience for your future. Renting isn’t the best choice in the long run, but for a season, it’s well worth it. Obviously, it’s totally great to buy a house, but you shouldn’t buy a house until you’re truly financially ready.
This is something that I have to remind myself. Jacob and I really want to have a house someday and a place that is all our own. The house that we get to raise our kids in and create sweet memories. But we also know that we can’t afford a house right now due to the height of the market, our income level, and little savings. So we are patiently waiting and paying rent while we beef up our savings account. But I will say, we totally love the apartment we’re currently in!
So if you’re a renter, don’t fret! You won’t be renting for the rest of your life. Just a season. And in this season, determine what you should spend on a house, decide where you want to plant your roots, and tackle your financial goals while you’re patiently renting. Then you’ll be able to make those home-purchasing decisions easily when you’re ready.
And remember, people will tell you that you’re “throwing your money away” being a renter. But you know better. You’re definitely not.