Early in my divorce journey, I faced uncertainty about whether I could afford to purchase a home or if it would even be a wise financial decision. I explored both renting and buying to gauge my monthly expenses and project my financial outlook in the coming years. With two kids—a teenage son and a preteen daughter—I needed at least three bedrooms, significantly limiting my rental options.
When considering upfront costs, buying a home was indeed pricier than renting. For a property priced around $180,000, I would need $36,000 for a down payment and additional funds for closing costs. In contrast, renting would require first, last, and a security deposit, totaling about $4,500 for three-bedroom rentals starting at $1,500 a month.
However, the monthly expenses tipped the balance: renting would be 50% more expensive. A mortgage for the same $180,000 home, with a 20% down payment, would result in a monthly payment of approximately $1,040, which includes property taxes and homeowners insurance. Comparatively, the cheapest rental was $1,500.
While owning a home incurs various expenses, some analyses suggest renting is “cheaper.” I disagree for two main reasons. First, a part of my mortgage payment builds equity—money I can recuperate when I sell. Over time, as I continue to make payments, my equity grows. In contrast, every cent paid in rent enriches someone else, with no return.
Second, these analyses often neglect the long-term financial benefits of homeownership, especially after five years or more. Owning a home is one of the most dependable ways to build wealth, akin to a savings account that accrues interest. Renting, however, presents a substantial opportunity cost, particularly as rental prices continue to climb.
Today, the challenge is greater than ever. With soaring costs, many find themselves stuck in a renting cycle, limiting their chances for upward mobility typically associated with homeownership. The narrative we often hear is that young people can save for a house by renting an affordable place, but how can they save when their entire income is consumed by exorbitant rent? Adding children to the equation complicates savings further.
If I had been forced to rent, my ability to save would have been severely limited—perhaps just a couple hundred dollars each month. At that rate, it would take me 15 years to save for a down payment, all while home prices continue to rise. In fact, if I were to buy my current home today, I would require nearly $6,000 more for the down payment and face an additional monthly cost of around $175.
How can anyone save the necessary 20% down payment when renting costs 50% more than buying? This rental premium significantly hampers savings potential. Investors, seizing the opportunity, often outbid first-time buyers, snatching up affordable homes and flipping them for higher prices, further exacerbating the problem.
This ongoing crisis contributes to widening wealth disparities. Rising home and rental prices mean that, without family financial support, many are trapped in a relentless cycle of barely making rent, let alone saving for a home.
My ex-husband and I managed to buy our first home in 2008 largely because we lived rent-free with a relative for a year, allowing us to save $25,000. That year was crucial for building our net worth. Unfortunately, millions of Americans lack such support and find themselves struggling. While we focus on rising healthcare costs and educational inequities, we must also address the reality that millions are becoming priced out of housing altogether.
For more insights on this topic, you can check out this article here.
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