During my divorce, I faced uncertainty about my ability to purchase a home and whether it would even be a wise financial move. To better understand my options, I explored both renting and buying to assess my monthly expenses and overall financial outlook for the future.
With a teenage son and a preteen daughter, I required at least three bedrooms, which greatly limited my choices, particularly in the rental market. Upfront costs for purchasing a home were significantly higher than renting. For a property priced around $180,000, I’d need about $36,000 for a down payment, plus several thousand for closing costs. In contrast, renting a three-bedroom unit would cost me roughly $4,500 upfront, including first and last month’s rent alongside a security deposit.
Renting, however, does not contribute to wealth accumulation. Monthly, renting would cost me about 50% more than owning. A mortgage for the same $180,000 property, with 20% down, would result in a monthly payment of approximately $1,040, including property taxes and homeowners insurance—far less than the $1,500 rental price tag.
While owning a home entails various monthly expenses, analyses that claim renting is cheaper often overlook the long-term benefits of homeownership. A part of my mortgage payment contributes to my home’s equity, which I can reclaim when I sell. In contrast, every dollar I pay in rent enriches someone else with no return for me.
The reality is that homeownership is one of the most dependable means of building wealth, akin to a savings account that accrues interest. Renting, on the other hand, represents a significant opportunity cost, especially given the current high rental prices.
The overall cost of housing—both rental and ownership—continues to escalate. When I evaluated my situation, I realized that without the means for a down payment, I might be stuck in an endless rental cycle. The high cost of rent would leave little room for savings at the end of the month. Many Americans face this same predicament, trapped in a rental cycle that stifles their chances for upward mobility that typically comes with owning a home.
The narrative we often hear is that young individuals can rent affordably while saving for a future home—but how can they save if all their income goes toward exorbitant rent? Adding children to the mix complicates matters further, making it nearly impossible to save for a down payment.
If I had been forced to rent, my budget would have allowed for only minimal savings each month. At that rate, it would take me 15 years to save enough for a down payment. By then, property prices would likely have increased, requiring even more savings than I originally needed. The current market shows that I would need nearly $6,000 more for a down payment now compared to two years ago, not to mention the additional monthly mortgage costs.
It’s hard to imagine how anyone can save for a 20% down payment when renting typically costs 50% more than buying. Many prospective buyers find themselves outbid by investors looking to rent properties through platforms like Airbnb or Vrbo, which only exacerbates the lack of affordable housing for first-time buyers.
This ongoing issue significantly contributes to the widening wealth gap. Increasing home and rental prices mean that unless individuals have family support, many will remain stuck in a cycle of struggling to pay rent, let alone save for a home.
My ex-husband and I were fortunate to purchase our first home in 2008 due to living rent-free with a generous relative for a year, allowing us to save $25,000. That period of support laid the groundwork for our financial growth, enabling us to later sell that home for a significant profit and build equity in our current home. However, many Americans lack such assistance, making it increasingly challenging to secure stable housing.
This subject is crucial, yet often overlooked. Shelter is a fundamental human need, and while we express concern over rising healthcare costs and educational inequities, millions of Americans are being priced out of basic housing.
Summary
The struggle to accumulate wealth while renting is a harsh reality for many, as rising rental prices consume potential savings, trapping individuals in a cycle that stifles upward mobility. Homeownership, although initially more expensive, offers a path to equity and wealth accumulation that renting simply cannot provide. The need for affordable housing solutions is urgent, as many are left without the support necessary to break free from this cycle.